Intervening period between letter of intention and formal...

Intervening period between letter of intention and formal nomination letter noted below
Whilst I won’t go into too much detail here at this time about what transpired between the conversation of 6 July and 17 August 2015, I will leave that for what could be a whole other chapter by itself.
However, I will note that this period was an interesting time which in itself is quite important and forms a fundamental part in increasing my concern as an investor and further driving my resolve and belief that I needed to nominate as I could add value to the Board of Empire and to Empire as a whole.
Letter providing Empire with my nomination as a director and my consent to act as a director
On 17 August 2015, I sent (via email) to the Board of Empire, Company Secretary and CEO, a formal letter in respect of my nomination which included my nomination by a shareholder (myself) and my consent to act as a director (letter attached “150817 Letter to Empire re Director nomination”). The Chairman acknowledged receipt of this email late on the evening of 18 August 2015.
Empire’s response
Late afternoon on the 24 August 2015 I received a formal response from the Chairman which included an attached letter (dated 21 August 2015) signed by the Chairman, and which he indicated was “self-explanatory”. This letter is attached as “Letter to KQ0001”.
As Empire had not yet informed the market of my nomination, or acceptance of my nomination, and Empire were plainly definitively outlining their intentions in this formal response to me, I personally interpreted the intention of this letter from the Chairman to be one of attempting to possible see if I would simply withdraw my nomination as a result. Sadly, if that was the expectation, it was seriously misguided and only sought to increase my resolve to nominate.
In short this formal response from Empire addressed the following main items (apart from acknowledging my previous letters) and which I provide below an extract of those responses (in italic and underlined) and my comments to that response (please feel free to read the entire letter attached at your convenience):

• “Since the receipt of your 15 June 2015 letter, the Board has had a number of discussions and deliberations with respect to your proposed nomination. After much consideration the Board has resolved to accept your nomination and put to shareholders a resolution for your election to the Board at the 2015 AGM”

Whilst it is only a minor point, I would like to point out that, subject to the receipt of my valid formal nomination and consent to act paperwork, I am not sure that the Board can resolve to do anything other than accept my nomination as a given.
ASX Listing Rule 14.3 which relates to the Election of Directors – nominations, states “An entity must accept nominations for the election of directors up to 35 business days (in the case of a meeting that members have requested directors to call, 30 business days) before the date of a general meeting at which directors may be elected, unless the entity’s constitution provides otherwise.”
The new Constitution of Empire, as approved at the 2014 AGM on 11 December 2014, makes little reference to nominations of directors and certainly doesn’t “provide otherwise”, with the only real reference included in Article 47 – Retirement of Directors, at sub clause (f) which states “No person, other than a Director retiring pursuant to this Article 47 or a Director appointed pursuant to Article 46(b) or a person nominated by the Board, is eligible to be appointed as a Director at any meeting of Shareholders unless a nomination signed by a Shareholder accompanied by the consent of the nominee to act is given to the Company at least 35 Business Days before the meeting (or, in the case of a meeting that Shareholders have requested Directors to call in accordance with the Corporations Act, 30 Business Days).”
Further, under Article 3 – Application of Applicable Law, which is in relation to if a company is included in the official list of the ASX, which Empire is of course, then sub clause (d) (ii) states “nothing contained in this Constitution prevents an act being done that the Listing Rules require to be done”
Therefore I would conclude that should the Board of Empire receive a valid nomination signed by a shareholder (which it did) accompanied by the valid consent of the nominee to act (which it did) then the Board of Empire as per ASX Listing Rule 14.3 must accept that nomination if it is provided within the applicable timeframe before a general meeting (which it was/is), and as such the resolution by the Board of Empire to accept the nomination is really a given.
I believe it is a fundamental right of a shareholder to nominate someone for election as a director, and I also note that neither a nominated director nor indeed a sitting director needs to be a shareholder to be able to be a director of Empire (refer Empire Constitution, Article 46(d)) – which we already know is the case in regards of Empire, where ASX announcements indicate that current Empire director, Mr Stuart Brown currently holds no direct or indirect relevant interest in shares/options in.

• “However, the Board has also resolved to recommend shareholders vote against the resolution for the following reasons:

• If the Board determines that it requires an additional director or when a Board vacancy arises, the Board will conduct a rigorous recruitment process to ensure that the additional board member is the best person available and has all the necessary skills and expertise that the Board requires and which will complement the skills of Board and management. As set out in the Company’s Nomination Committee Charter, when a Board vacancy occurs, the Board acting as the nomination committee, identifies the particular skills, experience and expertise that will best complement the Board effectiveness, and then will undertake a process to identify candidates who can meet those criteria and have the time necessary to fulfil the responsibilities.

• ASX Corporate Governance Guidelines takes into account any executive roles a director has had with a company in assessing that director’s independence. As a previous acting-CEO of the Company, the Board does not consider it to be best corporate practice for you to be appointed as a director of the Company. Further, you may not be considered an independent director in accordance with ASX Corporate Governance Guidelines.

• Whilst the Board acknowledges your technical skills, expertise and experience, the Board believes that it has access to those skills, expertise and experience already through current board members, the management team and, where necessary, external consultants. The Board considers that it is currently fully utilising those skills and expertise through constructive engagement with current board members, the management team and, where necessary, external consultants.

• The Board does not believe your nomination will have the support of the Company’s largest shareholder.”

Now where do I start here, so many things to respond to, so let’s just start with the header. One thing I always take note of when there are Board resolutions minuted, included in Notice of Meetings and other formal documentation presented to shareholders of any company, and as presented to the market is whether the use of the word “unanimous” is used or not.
If all board members vote the same way, then it’s unanimous, and usually, in my experience, you may see words such as “the Board has unanimously resolved to ....” which is usually a very definite point made in most cases to show that all board members are in agreement. However, when all board members are not in agreement, usually in my experience, you may see the words “the board has resolved”. This could be as a result of a majority of directors agreeing and a minority of directors either dissenting or abstaining. Additionally there can also be the case where there is a deadlock (equal voting for and against) and the Chairman uses their casting vote, if they have that ability as provided in their Constitution (which Empire does).
I believe the ability of a Chairman to have a casting vote is one of the reasons, but not the only one, as to why “best corporate practice” suggests that a Chairman should be Independent.
I will in future further elaborate more on the “Independence” criteria and why I think this is so important, particularly in regards of Empire as well as other aspects of the ASX Corporate Governance Guidelines.
Now we all know that on Wednesday 2 September 2015, Empire announced the resignation of one of its directors, and based on the ASX Announcement to the market and subsequent Appendix 3Z Final Directors Interest Notice, then that resignation was effective immediately. Interesting!!
So back to the date of Empire’s formal response to me – which you will remember was dated 21 August 2015. Was the Board unanimous in that decision at that time – what would be the decision now – with one less board member, would the Board still have resolved?
Now turning my attention to the first bullet point of Empire’s formal response:

• firstly, as a director has just resigned effective immediately (Interesting!!), then surely that means there is currently a Board vacancy. What are they going to do?
• secondly, they refer to the Company’s Nomination Committee Charter, which as per Empire’s website under the header of “Corporate Governance Policies” is dated September 2009, is this the Charter they wish to refer to, as I have not seen any new Charter announced by the Company and this Charter states that “The Board comprises three (3) directors. There is no present intention to increase the size of the Board.”, and their other Governance Policies on the website refer to a Managing Director – do we have one of those? Until the other day, we had 4 directors, so which part of the Charter is valid and which is not and is it the appropriate reference point?
• thirdly, I note in their response that when they refer to the board process, they use words such as “determines”, “will conduct”, “identifies”, “will undertake” as though they are the only people entitled to or in a position to choose a new Board member, there is no mention whatsoever, or allowance for, dealing with a shareholders fundamental right to nominate someone to be a director, either because they think the Board needs those complementary skills, experience or expertise or if as a shareholder they are unhappy with the way the Board is performing, and then for ALL shareholders to be able to vote on that nomination.
• finally, I would like to point out how ABSOLUTELY IRONIC I think this response is. Let’s just remember back to late 2013 – how did a change in the Board of Empire occur and how did some of the current board members get to be on the Board of Empire, certainly not from the previous board wanting or identifying them or requesting their skill sets. Oh, I remember, A SHAREHOLDER, being ERM, who had acquired a ~10% stake in the company and not being happy with the performance of the Board, launched a S249D process with shareholder support – namely a lot of the current shareholders like yourselves - to remove 3 of the 4 members of the then current Board of Empire and as a SHAREHOLDER EXERCISE THEIR RIGHT TO NOMINATE NEW DIRECTORS FOR ELECTION BY SHAREHOLDERS.

With respect to the second bullet point of Empire’s formal response:

• firstly, with reference to ASX Corporate Guidelines – firstly, let’s be very clear, these are guidelines and not mandatory and where an ASX company does not meet those guidelines they need to offer full disclosure of the nature of, and reason for adoption of their own practices. For example, as per pages 25/26 of Empire’s 2014 Annual Report, Empire lists 25 of the Corporate Governance Guidelines and out of those 25, it lists 8 where it has answered “NO”, that is it does not comply with those Corporate Governance Guidelines. That’s a “NO” hit rate of just under 1 in 3 of those listed.

So the Board obviously is able to choose, as the guidelines are not mandatory, and obviously no one on the Board of Empire must believe or has the strong conviction that they should be mandatory and as such they are able to choose which ones they will comply with or not comply with – so effectively it seems to suggest that the Board is able to choose whether or not to adopt best corporate practice only when and where it feels it needs to or decides to, rather than to believe in adopting them across all items.
More on this interesting subject in a future chapter – particularly in relation to the Corporate Governance Guidelines in regards of Independence, including the best corporate practice of having an Independent Chairman.

• secondly, it would appear that the first sentence of this response is about determining if a director is independent or not because of prior executive roles, and whether or not I am independent as a result (refer Recommendation 2.3 of the ASX Corporate Governance Guidelines as there are a number of examples referenced that might cause doubts about a directors independence and they also suggest that the materiality needs to be assessed as part of that determination).

The second sentence seems to indicate that because I was a previous Acting CEO of Empire, that I must fail that assessment of independence, as they do not consider it “best corporate practice” for me to be appointed as a director of the company.
As Acting CEO of Empire, I was not employed by Empire, but continued to be employed by ERM Power Ltd and paid by ERM Power Ltd with no remuneration whatsoever paid by Empire to me for this role, and I accepted a secondment from ERM to Empire as an interim role to assist in keeping the company running and afloat and to act in an interim capacity until a new CEO was appointed on a permanent basis.
That secondment was for only 5 months, and not at my instigation, but in response to a request from others – hardly a very long time (how does that stack up against the assessment of materiality?), and certainly not enough of time to impact on my independence, even if it could have. This same simple logic would also dictate that if I was only Acting CEO for one day, then my independence would be in doubt which is simply ludicrous.

• thirdly, the suggestion that I may not be independent, well as I am sure just about everybody I know both professionally and personally could tell you and I am sure, both ERM and Empire personnel and the directors themselves, would attest too, I am not a “yes” man, and I am probably one of the most independent people around, driven by my personal principles of doing the right thing first and foremost and in respect of my professional career adding value and doing my job as best as I can. So I would gladly challenge any member of the current Empire Board and management to proclaim I am not independent of mind and spirit and would not act in the best interests of ALL Empire’s shareholders. I look forward to seeing what information and statements the Board of Empire makes and provides to shareholders in regards of my nomination and how that compares to Recommendation 1.2(b) of the ASX Corporate Governance Guidelines, particularly in respect of a candidate standing for the first time.

With respect to the third bullet point of Empire’s formal response:

• If the Board considers it has access to those skills, expertise and experience, then why have they on more than one occasion considered appointing me to the Board in the last 9 months. Why then did they offer to invite me to their Board Meeting and Strategy Session on 3 August 2015 and to consider appointing me to the Board, as they explained to me, if they considered that they had all the skills, expertise and experience they needed? Interesting and there is more to this intervening period – but I will leave that for a future chapter.

With respect to the last bullet point of Empire’s formal response:

• Why does the Board believe that my nomination will not have the support of the Company’s largest shareholder? I can only surmise that they mean ERM which is the largest shareholder of Empire.

Is that just a belief of the Board or is there more factual information on which they make that statement (or are they assuming), and if so, when and what has been communicated and why is that the case, particularly given my role at ERM which was to acquire the original stake in Empire, run a successful S249D action including personally delivering the S249D notice to the previous Managing Director of Empire, then when requested, put my personal life on hold for six months whilst stepping into the role of Acting CEO of Empire and transitioning the new CEO, during some very troubling times on the other side of the country and ultimately whilst working for Empire effectively gain Empire shareholder approval to buy ERM’s WA gas assets, why because I personally believed it was in Empires interest to gain back the 100% - that being said, I am not sure enough has been done since to take advantage of that full ownership.
I would have thought from ERM’s point of view, I achieved everything they wanted me to achieve at the various times in respect of Empire from first purchasing the stake to the Red Gully-1 B Sands perforation, and we certainly kept Empire alive and protected everyone’s investment in the assets, both Empire and ERM, when times were very, very, challenging – so why wouldn’t they want to support me based on me achieving everything set out for me to achieve in that respect?
Interesting, obviously more to this story, that is assuming that the Board of Empire are correct in their belief.... if so, than it needs its very own chapter, maybe even volume......

I think this is enough of a novel for the time being. I look forward to providing you (shareholders) with more chapters over the coming weeks and months.
Please feel free to post a reply here on this forum, or write an email to me at [email protected] and I will attempt to reply to the extent I can, as soon as practical.
Thank you for your time and consideration
Kent Quinlan