Investor revolt brews at David Jones

If any enterprising stockbrokers are looking to cosy up to fund managers, they should take the opportunity to hang around outside the office of David Jones chairman Peter Mason in Phillip Street in Sydney’s CBD.

A queue of institutional investors is waiting to pay him a visit to find out whether he could implore DJ chief executive Paul Zahra to stay.

The shareholders, some of whom have already spoken with Mason, appear unified in their view that Zahra has done a good job under difficult circumstances and they want him to remain to execute the remainder of his corporate plan.

And there are certainly the early signs of a push against the chairman, who is understood to be at loggerheads with Zahra. One large shareholder said on Thursday it would vote against the remuneration report at the annual meeting as a protest against what was seen as interference by the board in the running of the company.

Mason is one of three reasons that Zahra is going – the two board members that support Mason are the other reasons.

But more on that later.

The more bizarre twist in the latest David Jones saga is the notice that two of its directors acquired stock in the days leading up to the release of the first-quarter result. This was sanctioned by the chairman.

The David Jones investors spoken with have called it variously an oversight, bizarre, stupid and an error of judgment.

Whether it is legal problem is a matter for the Australian Companies and Securities Commission. Given the two directors sought the approval of Mason before they acquired the stock, ASIC regulators may be elbowing their way through the crowd of investors outside the chairman’s office.

We don’t want to suggest for a moment that the two directors (or the chairman) were engaged in insider trading, which is just as well because the chairman saying that it was OK is not a defence.

Let’s take them at their word that they didn’t think the quarterly sales information was price sensitive.

The trouble is that the share price went up 6 per cent when the sales numbers were announced and it has been even stronger since.

Any retailer will tell you – and so will any funds manager or sell-side analyst – that these numbers will move the stock price.

Maybe not all industries’ quarterly reports can move the dial but in retailing they usually do. And in this particular case the sales were significantly stronger than the market had expected.

And, yes, all the directors should have known this because many of the retail analysts had released sales preview reports.

To have sanctioned these share purchases appears to be an error of judgment by Mason whose experience of public companies is extensive. He should have advised the two directors, Steve Vamos and Leigh Clapham, to wait a week until the sales data had been publicly released.

The reason this judgment call winds its way back to the debate about Zahra and the board is that it shines a light on the fact that there are no retailers on the board.

The board has already undertaken its renewal but still there are no representatives from the retail industry.

How this pans out with ASIC is anyone’s guess. In the normal course of events the regulator, once aware of trading during a potentially price-sensitive time, would seek to interview those concerned.

But the regulator wasn’t providing any updates on Thursday.

The timing of the announcement of Zahra’s departure is also strange. This should not have been caught by the continuous disclosure laws because he told the board only of his intention to announce his resignation – not his resignation itself. Thus the directions would have been under no obligation to inform (and destabilise) the market in the months leading up to the crucial Christmas trading period.

The decision was then sold to the market as Zahra being tired, when the truth was he was tired of what some refer to as meddling by some board members.

One large shareholder told BusinessDay he was hoping to convince Mason to make his peace with Zahra. However, that train may have left the station.

If this is the case, the shareholders can either try to talk Mason down enough to negotiate a Cambodian peace deal or they will need to make a choice between the chairman and the chief executive.