Seven stake likely to save Stokes from investors' wrath

UNHAPPY investors in the Kerry Stokes-controlled Seven West Media are being offered a range of targets at the annual meeting this month, with a proxy adviser and a shareholder advocate recommending a vote against the remuneration report and against several directors, including Mr Stokes.

By InvestSMART · 2 Nov 2012

By InvestSMART ·
2 Nov 2012

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The Australian Shareholders Association opposes the re-election of Mr Stokes' son, Ryan Stokes, on the grounds the company has too many non-independent directors.

It also opposes the re-election of Doug Flynn, based on his support of the related-party transaction last year that saw the West Australian Newspapers group acquire Seven's media assets.

The ASA said the acquisition would not have been supportable if the merger was justified on more than a single year's results of the Seven media business.

In May last year Seven West said it would miss earnings guidance, just a month after the deal was consummated.

Shares were then trading above $4 but have since fallen below $1.20.

The ASA recommends a vote against the remuneration report and has taken issue with discretionary payments totalling $250,000 made to executives Chris Wharton and Peter Bryant, saying "such discretionary payments do not reflect alignment with the consequences of the merger to shareholders".

Proxy adviser ISS recommends a vote against the election of Kerry Stokes and joined the ASA in its opposition to the remuneration report. ISS' concerns with Mr Stokes also centre on Seven West's underrepresentation of independent directors.

Its vote against the remuneration report is based on the fact that the pay of new chief executive Don Voelte does not include any component that is at risk.

"By receiving his maximum entitlement just for showing up, the CEO has no pay alignment with company performance and, ultimately, shareholders," the ISS report said.

Mr Stokes is unlikely to be troubled by the recommendations as he controls a 31 per cent stake via Seven Group Holdings, in which he is the dominant shareholder.

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Frequently Asked Questions about this Article…

What votes are proxy advisers and shareholder groups recommending against at the Seven West Media annual meeting?

The Australian Shareholders Association (ASA) and proxy adviser ISS are urging votes against the company's remuneration report. The ASA also opposes the re-election of Ryan Stokes and Doug Flynn, while ISS recommends voting against the election of Kerry Stokes. Their recommendations target director re-elections and executive pay practices outlined in the meeting materials.

Why is the ASA opposing the re-election of Ryan Stokes to the Seven West Media board?

The ASA says the company has too many non-independent directors and opposes Ryan Stokes's re-election on that basis, arguing the current board composition lacks sufficient independent oversight.

What related-party transaction is being criticised in relation to Seven West Media?

The ASA criticised a related-party transaction in which the West Australian Newspapers group acquired Seven's media assets. The ASA said the acquisition wouldn’t have been supportable if it relied on more than a single year’s results from Seven’s media business, and noted Seven West later said it would miss earnings guidance a month after the deal was completed.

How have Seven West Media’s shares moved since the media-asset sale?

According to the article, Seven West Media shares were trading above $4 around the time of the deal but have since fallen to below $1.20.

What specific pay concerns did the ASA and ISS raise about Seven West Media’s executive remuneration?

The ASA objected to discretionary payments totalling $250,000 made to executives Chris Wharton and Peter Bryant, saying they don’t reflect alignment with shareholders given the merger’s consequences. ISS highlighted that new CEO Don Voelte’s pay contains no at‑risk component, arguing his maximum entitlement is received just for ‘showing up,’ creating no clear alignment between pay and company performance.

Why did ISS recommend a vote against Kerry Stokes?

ISS’s recommendation against Kerry Stokes focuses on the company’s underrepresentation of independent directors. ISS also joined the ASA in opposing the remuneration report because of concerns about CEO pay alignment with performance.

How might Kerry Stokes’s shareholding affect the impact of these voting recommendations?

Kerry Stokes controls a 31% stake in Seven West Media via Seven Group Holdings and is the dominant shareholder. Because of that level of control, the article suggests he is unlikely to be troubled by the proxy-adviser and ASA recommendations.

What are the main takeaways for everyday investors reading this story about Seven West Media?

The key investor takeaways in the article are: major shareholder advocates (ASA and ISS) have raised governance and pay concerns at Seven West Media; those concerns relate to board independence, a contested related-party media-asset sale, discretionary executive payments, and CEO pay lacking at‑risk components; and despite these recommendations, a dominant 31% stake held by Kerry Stokes means outcomes may be difficult to change via shareholder votes.