Contact Decision A First For NZ Shareholders' Asn.
16th December 03.
Today is a first for the New Zealand Shareholders' Association Inc (NZSA), Contact Energy Limited (CEL), and for small and large shareholders alike.
The announcement today of CEL's proposed Notice of Meeting is a collaborative effort between the Boards of both organisations. Should these resolutions be passed a new remuneration standard will be set for directors of public companies in NZ, and we believe that this new standard is value accretive to shareholders. Hence we support these proposals and we would have supported them regardless of our involvement in the process.
Today is a new high water mark in relations between Boards and the owners they represent. We are proud to have been part of this process and its result. The process and the outcome represent a number of firsts:
- CEL is the first NZX top ten company to actively engage with the NZSA, on issues upon which shareholders are required to vote, PRIOR TO the matters being finalised.
- It is believed that NZSA is the first such organisation in the world to have been engaged in this manner by a substantial company in its home jurisdiction.
- CEL is the first substantial company in NZ to adopt a long-term incentive scheme for its directors based on restricted shares and income forfeiture.
- CEL is one of the first NZ companies to drop retirement allowances absolutely. They may not be paid even with shareholder approval, unless of course shareholders amend the constitution by the required 75% majority.
The details of the proposal are as outlined in the Notice of Meeting and in our letter to CEL shareholders. They do not require any additional comment at this stage.
It is however appropriate to talk about our involvement in this process so that the difference between consultation and collusion is clear. NZSA is fiercely independent and will not be bought off or enticed into collusion. Our track record with GPG and Telecom speaks for itself and independence from CEL is no different.
Initially Phil Pryke requested a meeting to discuss the manner by which retirement allowances could be abolished while preserving the commercial arrangements with Directors who had accrued "expectations". He also wanted to discuss with us the level of proposed increase in fees and the basis on which those fee increases would be paid. We were broadly supportive of the proposal, however we wanted the issue of "accrued expectations" dealt with once and for all rather than leaving the issue until the actual director retired at some future point. At this point the concept of crystallising the obligation and paying it in restricted shares subject to shareholder approval was born. The refreshing things about this solution are that any payment in shares or in cash is subject to shareholder approval, and the payment is in shares that cannot be traded until retirement, aligning directors' short and long-term interests with those of shareholders. The Board, in respect of the intended base fee increase, already proposed the restricted share concept. While we gained the impression that the level of base annual fee may well have also been open to debate, we chose not to negotiate this item as we felt that the level was appropriate given other fees payable by large NZ companies, the complexity of the group, its performance, and the structure of the increase taken as a whole.
When we received the final form of the notice of meeting prepared by CEL and approved by NZX we noticed that the increase in fees resolution was capable of being passed in isolation. This raised the prospect that the fee increase could go through with a 50% majority and the 75% majority required to eliminate retirement allowances would not go through. Clearly our support was for the package. We asked that the resolution be amended to make it contingent on the package being passed, or a comfort letter from the major shareholders that they would support all resolutions, or alternatively a Board undertaking not to act on the increase if all resolutions were not passed. As a fall back position the latter two would have been made available if the first was not given in time. All credit to the NZX in that they processed no less than 2 amendments at short notice both of which were at our request. This level of co-operation from a public company is unprecedented in our experience.
For the avoidance of doubt we have not been paid to provide the letter to CEL shareholders, and we are honoured to have been offered the opportunity to do so. Quite obviously it puts our name and purpose in front of over 100,000 NZ shareholders, and clearly we wish to expand our membership. It is only through numbers that we will be seen as an effective lobby group on law reform which over the last week or so you will have noticed is urgently needed.
Phil Pryke has agreed to join the NZSA, and he did that at our first meeting. The only change is that we asked him to do it publicly and he has agreed to do so. A number of directors are now members and this in no way implies any change in our philosophy, it simply implies that some of our views are gaining widespread support.
In the new year CEL and the NZSA have agreed to co-operate in assisting CEL to meet its shareholders and our members throughout the country. Again this collaboration is of mutual interest to all parties. CEL shareholders will get to meet management and directors on the shareholders' home turf, which has to improve their understanding of the company in which they have invested. Our members will get to meet CEL management whether they are shareholders in CEL or not which is useful exposure to a market and company in which they may wish to invest. (This is not an NZSA recommendation) We get to pitch our benefits to CEL shareholders and grow our membership.
CEL will also provide a Hotlink from its website to the NZSA website.
This fully discloses the process and the level of cooperation to date. Both parties understand the independent stance and perspective of each other and appreciate that differences of opinion in the future are possible.