The Distillery: DJs discontent

On a day when Australia’s unemployment rate stayed put, business commentators were distracted by the goings on at two of the country’s most well-known companies: David Jones and Fairfax Media. Two scribes take aim at the corporate governance issues at David Jones in the wake of intriguing director trading just prior to the release of sales figures, which came on the back of the sudden departure of chief executive Paul Zahra.

It seems investors want Zahra back after long being critical of the results he has achieved. With no succession plan in place and signs of Zahra’s strategy taking root, it’s a case of the devil you know.

Meanwhile, Fairfax’s strategy gets put under the microscope by jotters who ponder whether the group committed too early to an all-out digital focus.

First to David Jones. Earlier this week we mentioned you would hear more about the share trading activities of two directors, but that’s not the only thing that has investors upset. According to The Australian Financial Review Chanticleer columnist Michael Smith, the decision of Paul Zahra to quit has “unearthed deeper concerns about how the board is handling succession and corporate governance issues”.

“David Jones already has a chequered history when it comes to corporate governance and market disclosure after the way it handled a hoax private equity takeover in mid-2012. The lack of retail experience on the board, concern over the remuneration report, share trading and Zahra’s departure are all issues the company needs to address.”

That’s quite a list.

On the share trading front, one can only wonder why directors were buying stock three days prior to the release of market-sensitive sales figures. No one is suggesting any foul play, but it’s not a good look, as Fairfax’s Elizabeth Knight, who first broke the news, explains.

“Whether it is a 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… To have sanctioned these share purchases appears to be an error of judgment by Mason whose experience of public companies is extensive.”

For a company like David Jones, which is facing plenty of headwinds, the last thing it needs is an angrier group of shareholders.

Another company facing turbulence, Fairfax Media, yesterday confronted its own group of disgruntled shareholders. This time, however, the board dodged a strike on its remuneration report, suggesting investors are coming round or, perhaps, just not upset enough to cause a board spill.

The media group’s boss, Greg Hywood, is trying to manage a possible terminal decline in the print business, but The Australian’s Darren Davidson wonders why he has so publicly talked down the most lucrative part of the company.

“After decades of damaging mismanagement and standing still, Fairfax was applauded by some for making tough decisions when it announced the closure of printing presses and a digital-first strategy. But timing is everything and Fairfax is abandoning print much quicker than its readers and advertisers would like.”

Business Spectator’s Stephen Bartholomeusz, meanwhile, notes the challenges facing the media group’s chief executive as he tries navigate the changing media landscape. It appears he has a fresh problem in the form of its regionals division.

“Perhaps most disconcerting among those numbers is the performance of the regionals, given that the plight of the metros has been evident for some years. The regionals had, until recently, been quite resilient but their revenues fell 10.4 per cent and their earnings before interest and tax 20.7 per cent last year. That rate of decline is ongoing, creating another front to test management and another source of instability.”

The term ‘another source of instability’ is the last thing Fairfax shareholders want to hear.

Moving to finance, The Australian’s Richard Gluyas delves into the murky issue of bad debt provisions. There has been much debate about the true strength of the big four banks’ results given a fall in provisions was a key factor behind the lift in earnings, but Gluyas sees it as rate cuts doing their job.

Elsewhere, the AFR’s Jonathan Shapiro explains how new capital requirements on banks are changing the landscape and providing hedge funds with opportunities, while his colleague Karen Maley adds that the hedge funds aren’t just going after the banks’ business but also their best staff.

It’s a tough new world out there for financial institutions, but given the salaries at the top and the once again growing profits, few will shed a tear.

Meanwhile, The Australian’s Andrew White argues that the Foreign Investment Review Board’s decision on the proposed Yancoal Australia privatisation will have implications for the planned takeover of GrainCorp, while the AFR’s Laura Tingle warns the latter deal could provide the perfect storm to fracture Coalition unity.

Finally, Fairfax’s Adele Ferguson gets her hands on Nielsen’s Retail Barometer report and notes that the German-owned Aldi is teaching Coles and Woolworths a thing or two, while the AFR’s Jennifer Hewett spots signs of economic improvement on the back of the latest stable jobs numbers.

However, it’s hardly a rapid improvement and you have to look very closely to notice it.