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Investors finding proxy advisers a rare breed

HEADING into a "two strikes" world, the role of proxy advisers to institutional investors ought to be fertile ground.

HEADING into a "two strikes" world, the role of proxy advisers to institutional investors ought to be fertile ground.

This year's round of annual meetings will be the first under the new law that adds teeth to the non-binding investor voting on executive remuneration reports. From now on, if 25 per cent or more of voting shareholders oppose the remuneration report in two successive years, investors will be offered the opportunity to tip out all non-executive directors.

Insider has said before that the law is, like the nonsensical "price signalling" move on bank bosses, policy made from opinion polls. It risks unwanted outcomes such as giving patient agitators the chance to take control of a company merely by tweaking the remuneration vote rather than offering all shareholders a takeover premium not to mention the potential to lose board talent.

Still, corporate Australia has only itself to blame for being too slow to respond to disparities between pay and performance.

The availability of independent proxy advice is thinning following last month's departure of the "old guard" from ISS Australia (formerly Riskmetrics), which has forced its US parent to swing in offshore fill-ins for this year's annual meeting season. That really only leaves CGI Glass Lewis with local knowledge, and ISS's former key client, industry super fund body the Australian Council of Superannuation Investors, considering building its own in-house expertise to replace the loss.

Now Guerdon Associates, which specialises in advising companies on remuneration policies and structures, has produced a newsletter apparently bemoaning the narrowing of choice in proxy advice something that Insider would have thought might have made the life of Guerdon's boardroom clients easier if it means that institutional investors have to form their own opinions on how to vote rather than be guided externally.

The Guerdon letter goes on to emphasise that not only are the ranks depleted, but both ISS and CGI Glass Lewis are potentially conflicted because of their ultimate owners although it is careful to point out that ISS in Australia does not, unlike its US parent, generate income from providing governance services to companies. CGI's owner is the Ontario Teachers Pension Plan, itself an active investor, which Guerdon suggests could cause a conflict. Insider is less sure that argument flies.

Fascinatingly, Guerdon is rumoured to have once waved a $500,000 salary package to lure a proxy adviser into its fold although surely that would create a conflict of client interests?

The Lord gets pushy

IRREPRESSIBLE investor Geoffrey Frederick Lord's campaign to shake up the board of self-liquidating explorer Copper Strike is getting pushier.

Lord's team yesterday mailed a letter to fellow investors arguing their position for calling the extraordinary meeting to appoint him and three others to the existing three-person board.

A couple of weeks back, Insider suggested that, in the absence of any statement of intent from the dissidents, Lord was unlikely to want to return Copper Strike's cash to shareholders.

Yesterday's letter has gone some way to outlining a plan, although not in detail: "The nominees believe that all cash should be returned to shareholders UNLESS [Lord's emphasis] there is a significant opportunity to use the cash in a better way."

While that might look like the dissidents are backing Copper Strike chief Tom Eadie's vow to send 14? a share in cash back, a lot hangs on the "unless".

The Lord camp's view is that punters who buy exploration company shares do not buy in for a return of their original investment they want it back in spades after a mineable/pumpable prospect is discovered and either sold or co-developed.

Eadie also mailed his investors yesterday, bagging Lord and friends for not making clear their intentions and declining to save shareholder funds by combining the board election meeting with the one that needs to be held to approve Copper Strike's sale of its main asset to the Kagara group.

He might find he has to mail another letter out to defend against Lord's epistle, the bulk of which castigated the board for having tapped investors for $23 million over the company's seven-year lifespan and will probably only generate $23 million once all the assets are sold.

"While the executive team has doubtless had the benefit of nearly seven years of gainful employment, there has been ZERO wealth creation for shareholders." So spake the Lord.

CBA hits the road

COMMONWEALTH Bank appears to have voted with its feet on the $2.17 billion scheme to privatise Melbourne toll road operator ConnectEast it has sold nearly a third of its shares since the CP2 offer was unveiled.

CBA, which had not moved its holding in ConnectEast by a notifiable amount since 2009, has suddenly cut from 6.08 per cent to 3.99 per cent, or a reduction of 55 million shares.

Presumably that is some of the stock picked up by RARE Infrastructure Fund, and reportedly a few hedge funds, since the ConnectEast board backed a 55? a unit cash scheme from the CP2 consortium.

Insider is not privy to CBA fund managers' thinking on this, but wonders if they (probably correctly) reasoned that taking 54? a unit now is not much of a discount to an offer that may be stymied by shareholder demands for more money especially given that CP2's superannuation fund partners in the scheme are not likely to be easy touches for a higher cash bid.

Harvey's rule of thirds

ONCE Were Billionaires Watch: Harvey Norman shares touched a $2.13 low yesterday and closed at $2.15, as its shares, like its goods, show increasing signs of being "interest free" to buyers.

That leaves boss Gerry Harvey's 30 per cent stake worth a soggy $680 million or so less than a third of its $2.25 billion value back in late 2007.

Of course, Harvey has a few irons in his asset fire, judging by the fact that BRW's annual list of the ridiculously wealthy placed his worth at $1.4 billion in late May when the Harvey Norman stake was worth a smidgen over $810 million.

insider@fairfaxmedia.com.au

The law risks unwanted outcomes like giving patient agitators the chance to take control of a company merely by tweaking the remuneration vote.


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