Boardroom blunderers go well rewarded * Font Size: Decrease...

Boardroom blunderers go well rewarded

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Michael Sainsbury | December 27, 2008
Article from: The Australian

WHEN Brisbane lawyer Elizabeth Nosworthy was handed the chair of ailing financial engineering group Babcock & Brown as it teetered under $50 billion of group debt in August this year, eyes were rubbed in disbelief.




Surely not.


Nosworthy is a member of what many in business circles are now calling the ``unflushables'' _ non-executive directors who, thanks to Australia's boardroom club, keep bobbing up.


This is despite being involved in corporate failures, share market collapses and value destruction that runs into the billions.


With Nosworthy as deputy chair since its 2004 listing, Babcock has been one of the poster children for the financial meltdown with its now discredited complex and opaque financial model, one that has lost 99.43 per cent of its value this year, trashing $10 billion in value.


Only months earlier, Nosworthy had handed the last company she had chaired, junior telecoms and information technology group Commander Communications, to receivers.


The group was valued at $300 million when she took the reins. It soared even higher with its shares trading as high as $2.28 in late 2006, pushing its value up to $519 million, but a dreadful deal to buy IT services group Volante the same year was the end of the road.


For presiding over Commander's collapse, Nosworthy earned over $550,000 in director's fees.
Another group on whose board Nosworthy sits, medical equipment maker Ventracor -- a tasty fee of $68,250 last year -- continues its plunge towards oblivion.


Ventracor shares have traded at more than $3, but it is yet to make a profit. Mid-year, the group's auditor said it would need to raise $18-22 million to survive another year. Its stock is now 48c.
The Australian understands that a year ago a syndicate of investment funds offered Ventracor a cash injection of up to $70 million -- buying in at 60c a share. But the offer was rejected.


Last but not least, Nosworthy is also a member at ailing property group GPT, banking a director's fee last year of $151,615. Shares in that company have plunged by 70percent so far this year.


``The average incumbent non-executive director is returned with 96 per cent of the vote. It's an electoral rort that would make Robert Mugabe blush,'' Dean Paatsch, head of corporate governance consultancy Risk Metrics told The Australian. ``Just as company performance is normally distributed, you would expect that non-executive director performance is variable as well.''

Like many non-executive directors, Nosworthy owes these positions as much to networking as any hands-on experience running businesses. She can also thank family-based political conservative connections.


Nosworthy's father was Brisbane 1970s dealmaker Sir John Nosworthy. She studied law and followed in his footsteps, becoming a partner at one of the city's big law firms Morris Fletcher & Cross and then Freehills.


Her ship came in 1996 when she was appointed chair of the Port Brisbane Authority by the Queensland Nationals as well as on to the board of Telstra, which was soon to be privatised by the Howard government.


Over the next decade she moved from a number of positions on government authorities to a career on corporate boards; she still also chairs the Queensland Water Commission.
But now, with both Babcock and Ventracor on corporate death watch, she is in the rare position of being on a director's hat-trick.


She received $277,413 in director's fees at Babcock last year and $216,862 the previous year. As chairman this year, she is poised to receive another $300,000 or so as the company's market value hovers around $57 million.


While Nosworthy, who has pocketed in excess of $1.2 million in fees over the past five years and left thousands of shareholders and superannuation funds in the red, is perhaps the standout in a shocking 2008 for Australian boardrooms, the competition has been fierce.


The global financial crisis has put Australian listed companies under the most stress since the early 1990s recession.


The countless billions of dollars in value blown up by the clutch of listed companies in the Allco Finance and B&B groups put their leaders David Coe and Phil Green in the frame as Australia's worst directors in terms of value lost.


But plenty of non-executive independent directors like Nosworthy have had their fingers -- and reputations -- burnt.



Perhaps Australia's worst listed corporate collapse -- at least in terms of hurting real people -- was that of childcare group ABC Learning.


Presiding over its failed strategy of expanding offshore via huge licks of debt was a small rump of independent directors led by former Brisbane lord mayor Sally-Anne Atkinson and including one-time Howard government childcare minister Larry Anthony.


The presence of both should have spooked investors familiar with the poor record of former pollies in the corporate world.


``People sometimes ask me if I'm concerned at the speed of our growth and I always reply that the company's management and culture fill me not only with confidence but also with pride,'' Atkinson wrote in ABC Learning's 2003 annual report.


It was that speed, funded by huge wads of debt, that would prove the group's undoing.


``I find that absolutely bizarre,'' Atkinson said when told 40 per cent of the centres were unprofitable after ABC collapsed in

November. ``This is a business subsidised by the Government. How can it be unprofitable?''
For such insights, Atkinson was paid more than $340,000 for her six years as chairman.


Also on the board was alleged independent Bill Bessemer who also ran ABC's house stockbroker Austock -- a group that had a buy and price target of $8 on ABC as its shares were plunging through the $1.50 mark on their way to oblivion. Rounding out the non-executives was David Ryan, who at least had some hands-on experience: working through the Adelaide Steamship mess in the early 1990s.


Ryan took over from the out-of-her-depth Atkinson in April and spent the next few months trying to reassure investors that the group was back on track.


``We had a breakdown in management accountability over a relatively short period,'' Ryan said at the time of his appointment. ``During the six to eight to 10 months when (chief executive) Eddy (Groves) was focused on the US business, our Australian team took their eye off the ball.''
Yet since then it has emerged that the company will need to re-state its accounts for at least the past two years, and Ryan was head of the audit committee.


By November, ABC had collapsed and Ryan went down with the ship, collecting at least $150,000 for his years on the board (last year's and this year's figures are unavailable). Ryan also sits on the board of Lend Lease, which has lost 34 per cent in value this year, as well as Transurban, which has fared better, but he had a 34 per cent protest vote against his re-election this year.
And then there was Allco.


Three independent directors -- Bob Mansfield, Rod Eddington and Barbara Ward --approved the company's $263.5 million purchase of Rubicon, a company run by Allco director Gordon Fell, a move that succeeded despite a strong shareholder protest vote. It approved the deal that finished off the already troubled group; Coe and Fell both took cash payments of $63.9 million from the deal.


``Coey would be the last person to try to compromise anyone, least of all people like Barb and myself,'' Eddington said at the time to assert the group's independence.


The hapless Mansfield -- already dumped as Fairfax chief executive and Telstra chair in a glittering career gone awry -- finally re-emerged into corporate life as Allco deputy chair in 2005.


Mansfield finally got his hands on the chair a matter of weeks before Allco went under.


At least he and Eddington hung around till the end. Ward almost tore a hamstring running from the growing mess in January. She has yet to explain her timing.


Ward had already had one brush with controversy as chair of the audit committee on Multiplex while the group failed to disclose its exposure to the Wembley Stadium fiasco. The esteem in which she is now held by institutional investors saw a record 42 per cent vote against her successful election to the Qantas board in November.


In listed property, values have plummeted across the board but Centro remains the gold standard in mismanagement. Despite this, it took more than three months for the board to eject managing director Andrew Scott.

``Brian Healey described the phone call to sack Andrew Scott as the most difficult decision of his life. I would have thought it was the easiest ever,'' Paatsch said.


Centro's board was collectively paid $1.91 million last year, with $402,687 to chairman Healey.
In mining, there was the viagra merger -- stronger forever -- of Oxiana and Zinifex to form OZ Minerals. Worth $8.5 billion in June, the group's shares were suspended this week with the company valued at $1.7 billion as it searched desperately for a lifeline.


At the time of the merger -- which brought in hundreds of millions in debt, now threatening the group's future --shareholders rightly rejected the obscene ``termination'' payment of $10.7 million from the Barry Cusack-led board to departing chief Owen Hegarty, which set a new low for corporate governance in a sector not famed for it.


This included compensation not just for options that were not out of the money but for options yet to be issued. Three weeks later, Cusack and his fellow directors made an ex-gratia payment to Hegarty of $8 million. But this was not enough for Hegarty, who remained on the board as a non-executive director.





Paatsch believes we may see the emergence of proxy contests similar to those in the US when institutions see a board reducing value.


``Our corporate laws are actually more amenable to that taking place as you can remove directors with a simple vote.


``There is a boardroom gerrymander because frequently the only alternative is serial loonies or there is no contest at all. Institutions need to be party to making that contest.''


Among the serial failures of former politicians at the boardroom table, this year's non-ABC Learning standout has been former Victorian treasurer Alan Stockdale. The IT company he chairs, Senetas, has dropped 60 per cent in value and he is also stuck in a quagmire at the struggling Mariner Financial Services.


Its executive chairman, Bill Ireland, has admitted to selling shares in the company without lodging a change of director's interest.


Worse still, it appears Ireland was selling, or transferring, the shares to other interests while telling the market he was buying stock. It is unclear when Stockdale -- paid $100,000 a year to be a director at Mariner -- became aware of this and he has declined to answer questions on the matter.


It would be remiss not to mention the chairman of one of Australia's biggest companies: Donald McGauchie.


The sometime Victorian farmer earned a stonking $602,500 last year chairing Telstra and collected close to $4 million during his years on the telco's board.


After giving shareholders a two-fingered salute when they rejected Telstra's remuneration report in 2007, McGauchie was on the board of the Reserve Bank, which went too far with interest rate hikes earlier this year. He also sits on the board of James Hardie.


Telstra was, for once, looking OK this year in terms of its share price performance versus the market. After underperforming the bourse relentlessly during the boom, it came into its own as a cash-producing safe haven.


There was criticism of him for not standing down at the company AGM this year. A replacement for Sol Trujillo will most likely need to be found in the next 12-24 months and good corporate governance says a new chairman should make the appointment.


Then last week, the piece de resistance. Telstra's bungled exit from the Government's $15 billion national broadband tender was a direct result of the McGauchie-led board strategy of trying to bend the process to Telstra's rules.


Almost $7.5 billion was wiped off Telstra's market value in two days and a cloud cast over its future that analysts say could cost up to $1.32 a share -- a third of its value --or $14 billion.
But the last word should be Nosworthy's.


In a 1998 interview about her shift to the corporate world from law, Nosworthy -- who has consistently refused to speak to the press and did not return calls from The Australian --said she didn't find it daunting: ``Exhilarating, I guess, is a good word. Interesting. Exciting.''


Nice work, if you can get it.
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