I’m flattered that there are people out there who think I might be a helpful addition to the Board but…… I am not interested in the role. There are a few reasons for this so let me list them:
I have already received information that Gavin has a list of reasons why he doesn’t want me – including that any board member based in Australia would need to be prepared to take calls at 11pm Australian time and that I didn’t ever bother ringing him when I was running the complaint about remuneration – or approach him at the AGM. (Let’s ignore the fact that he too has a phone and could have chosen to approach me as well, or try and placate me or build a relationship rather than fight me). So under the circumstances the chances of getting through any selection and/or nomination process are limited – I see no value at this stage of life enduring such an experience.
I am really not interested in trying to work on a Board where I am not welcome. There are a million and one ways that a lone individual can be prevented from making a difference when they are “in the swamp”. You need to be able to climb on the shoulders of others – or at least to have others prepared to listen. I would rather watch from the beachfront right now.
Given the comments above if things occur that are not consistent with good practice I would be complicit. Anyone who has ever known me or worked with me will also know that there are two key drivers for me – competence and integrity. I have never chosen positional power in preference to those values. But I have regularly achieved a position of influence by exercising those values.
Despite the fact that there are many on here who believe that retail shareholders can have little impact on the Board I do not share that view. Of course the impact may be limited and may depend on a group of shareholders acting in unison but I think it is possible to alter the course of events when armed with information and determination. There is a saying – don’t judge the race until it’s run. Moreover, all is not what it seems.
Although I already have a large amount of information and data which I am prepared to use if appropriate, I also have a list of contacts that I can and will use to support me if I need them. It is very easy for people to underestimate others based on a perception of how “important they appear to be”. I’ve ruffled plenty of feathers over the years but that hasn’t stopped a lot of those same people remaining friends. These are people who are well connected, powerful and influential. I seldom call on them – but I can.
If I were on the Board my ability to act would be compromised. The attitude of the chairman toward debate and different perspectives has a huge impact on the dynamic of a board. I think the dummy spit at the last AGM told us all something about how prepared Gavin is to even consider alternative views.
I have never been cowardly – which is sort of weird because I am probably a more natural introvert. It might be that warrior instinct! That is better used outside a team setting than in it.
Those who are sick of the discussion relating to remuneration, strikes, board spills or complaints about governance are recommended to read no further. I have however done enough research to believe that we may need to be alert, although I would like to think that the future will not replicate the past.
I also reiterate that in my view there is a clear difference between governance practices and operational performance. The latter is in good hands and the former occurs if the Directors know and believe that we care.
So these are some of the things I will watch for:
I want to be confident that remuneration practices that are based on good governance and best practice.
I guess that it would be too much to suggest that the same argument used to justify the remuneration on the grounds of our presence in the ASX 300 won’t be taken in reverse to justify reducing director’s remuneration. As an aside one of my well connected contacts took a look at the remuneration figures and his response “They are just so far out of whack with the size of the enterprise and its performance it is incredible. Someone is seriously kidding .............”
I’d like to see some of the issues raised last year by proxy advisor Ownership Matters addressed – specifically :
Disclosure is limited at AJX as to what the targets are for STI, and how the outcomes are measured against these targets. In FY17, the company will provide the CEO with an STI opportunity equivalent to 100% of fixed pay, half delivered as equity and half in cash. The 20% lift in the CEOs fixed pay will flow through to an increased STI opportunity in FY17.
As with the STI, the disclosures as to how the value of STI performance rights are determined is limited. The performance hurdles for the LTI is based upon relative TSR versus a comparator group of chemical and materials technology companies in the ASX 300. Again, the constituents of this group are not fully disclosed. A representative of AJX noted that the comparator group includes the ASX200 Materials (GICS) and additional materials companies in the ASX 300 Materials sector. (My note - Given the movement out of the ASX 300 these comparators would seem to be even more problematic)
As per resolution 12, an increase to the NED fee cap from A$250,000 toUS$375,000 is being sought. Generally, cash NED fees are low, withan$112,000 paid in FY16. However, NEDs are also awarded options; with two NEDs issued 750,000 options in 2016 with a value of ~a$458,000. Generally, the issuance of options to NEDs is a concern for Australian investors. In FY17, NED fees will increase for two of three NEDs, with Cheney to be paid US$56,000, Metz $61,000 to reflect committee membership and Smith-Gander unchanged at ~$40,000.
Later this concern is repeated. In case the significance is not understood this is a practice clearly at odds with good practice and with the Gavin moving to a Non- Executive Director role watching for good practices becomes even more critical – ref ASX Corp Governance principles
Non-executive directors should normally be remunerated by way of fees, in the form of cash, non-cash benefits, superannuation contributions or salary sacrifice into equity; they should not normally participate in schemes designed for the remuneration of executives
Non-executive directors should not receive options or bonus payments.
Total KMP expense in FY16 was ~$2.8m, which represented around 98% of revenue and 85% of cash receipts. Cash expenses to execs were over A$2.4m, a significant outflow when considered in context of the financial performance. (My note – given the change in role for Gavin and Nick’s departure this may have been addressed – we shall see!)
I look forward to seeing the NASDAQ listing that has been talked about so long being subjected to scrutiny to ensure that it is indeed best for the company, that its timing is driven by conditions and that it isn't allowed to add cost (which is considerable) without the performance to back it.
I'd expect to see a tough review of whether we still need the Washington office and the associated expenses. While some of that may fall under Dirk’s control there is an element of “strategy” in there so I’d expect the Board to have a strong say.
For all that has been said about Washington, I think that it is time to have a good close look at cost /benefit of the office, the expenses and the lobbying. The federal legislation is largely done as I understand it and the threat to the EPA under the current regime is a far bigger deal than a tiny company can impact.
Moreover it seems strange to me that we might argue we need a politically well-connected board, a lobbyist company and an employee working on these matters. I’d have hoped that our chemistry was not dependent on lobbying for sales across the US and globally. That would make me question my investment.
If you examine the way the fire retardant laws work what happens at state level is significant – and probably more significant than federal level. If you are in doubt go and look at the way California led the charge. It removed the requirement for fire retardants in certain products because of their toxicity. Addressing that could be of significant benefit. Moreover California is frequently a pace setter.
I am not convinced by the argument about the military contract coming through Washington.
Etc. etc. – there is much more I could write – but you can get the picture
I’d like to be confident that we will see all payments that are typically regarded as remuneration declared honestly in the remuneration report and not hidden as expenses - though this is not an accusation.
I’d like to think that we will not be seeing bonuses granted for executive directors for last year’s performance – given the missed, though frequently reiterated, targets. To grant them would seem to me like a cynical disregard for the impact on the market and those who bought or retained shares in good faith.
I’d like to know that those who contribute most to the business - that is the people on the ground in Greer - are properly rewarded and properly incentivised.
I will stay alert for any “deals” or actions that suggest that the interests of the company are not being considered (as opposed to specific individuals or groups of shareholders ), though I am not expecting anything like this to happen.
So with those caveats I also make some choices right now:
I choose now not to look backwards but to focus on the potential that Alexium has and to now send my best wishes to Dirk and his team. I choose to express confidence in that team rather than experience fear which is most likely based on a poor understanding of the past.
I choose to give Gavin a chance.
For all I could be seen to have criticised him I am making a decision to believe that he has an interest in learning, a real desire to create a truly successful company and a commitment to working in the best interests of the company. I am choosing to believe that he wants to create a model business that can be held up to scrutiny in every way. I am choosing to believe that he is able to evaluate options from the perspective of the benefit they will bring to the company and as a corollary not seeking to benefit one group of shareholders over another - a perspective that he knows and understands to be his responsibility. I choose to see that he understands and represents probity, and honesty and to use his influence for those ends.
I believe that Alexium presents a wonderful opportunity for him and for all of us to feel the pride that can be gained from being associated with an extraordinarily successful business - to create a legend and to be known for creating something lasting rather than a business that is smoke and mirrors.
And I choose to support the business for such time as these hopes and desires of mine play out in fact.
I choose to see this day as a pivot point for the business - for the better.
Of course I will be watching but right now hope, belief and commitment seem to me to be a better course of action than fear and anxiety.
Parsifal
AJX Price at posting:
55.0¢ Sentiment: Buy Disclosure: Held
(20min delay)