“I don’t think anyone understood how important that was,” he said. “We never want to be there with only one product that has a global reputation, for exactly the situation we’ve just seen.”
When the recall of the CI500 series was initiated, affected customers were moved onto the CI24Re implant.
Secondly, Holliday-Smith said the recall affirmed Cochlear’s practice of multiskilling its workforce. “We’re very lucky to be big enough to have introduced a lot of flexibility in our workforce, especially with manufacturing,” Holliday-Smith said. “Many of our staff can operate on multiple products at the same time, easily moving from one to the other. We’ve got a fantastic workforce.”
To better understand the company’s performance in the wake of the recall, Holliday-Smith took a global tour of Cochlear’s operations (Cochlear is sold in over 100 countries, and has staff stationed in 20).
“I spoke to as many people as I could,” Holliday-Smith said. “I was impressed with their commitment to keeping Cochlear the market leader… I was made personally aware of how hard our employees worked over the past year. We’re very lucky to have them.”
The recall has raised questions for Cochlear about how much testing it should do on its products.
“When you try to weld or glue together titanium and ceramic, most people have no clue how to do it – it’s a very complex thing to do,” Holliday-Smith said. “When you change any sort of form, there’s always a risk.
“The question is how much testing you have to do to satisfy yourself while staying commercial.”
Cochlear receives ‘first strike’: Setting the bar too low on executive pay?
Of course, Cochlear’s AGM wasn’t all accolades and calls to arms.
All major proxy advisory groups recommended against voting for the company’s remuneration report, with special reference to the long-term incentives awarded to the CEO.
Their concern is that the product recall led to Cochlear’s share price diving lower than its fundamentals deserve, meaning the strike-price at which CEO Chris Roberts could redeem his options is likely to be reached regardless of how well he steers the company.
In response to pointed questions by the Australian Shareholders’ Association’s Stephen Mayne about the assumptions that underlie the level and extent of the options, Holliday-Smith said it was clear the market wasn’t sufficiently informed about how company’s executive compensation was calculated.
An institutional representative contested this. “There is no confusion,” he said. “The institutions know precisely what they are voting against… and that is the dramatic increase in the size of the grant.”
The shareholder accused the remuneration committee of “dropping the ball”, and said he was disappointed that when concerns were raised about the long-term incentives, the board “dug in” and defended the grant.
Holliday-Smith said he spoke to a number of shareholders after concerns were raised, and had a “sensible dialogue” with those he got through to.
“We should have been interacting with a wider group of shareholders much earlier.”
Other shareholders came to the Cochlear board’s defence.
One representative said his fund was happy with Roberts’ large personal stake in the company (he owns $50 million worth of shares – the largest personal holding in the ASX50 for a non-founder), and that the remuneration was in the interests of shareholders.
“We have absolute confidence in the board, even though this year has been challenging,” he said. “We see no reason to beat the company up given what it’s gone through last year.”
In the end, 31% of shareholders voted against the remuneration report, and 33% against the options given to Roberts. This marks the ‘first strike’ against a big company this AGM season.
This article first appeared on LeadingCompany.
