Stokes’ Seven pays the price for proxy advice

Ownership Matters’ own voting advisory, issued to clients on Wednesday, confirmed SWM had looked into EY’s incorrect use of the price-only index, rather than the accumulation index, to calculate total shareholder return, only “upon query by OM when compiling this report”. Outstanding.

This was no rounding error. OM noted: “With the proper index then applied, vesting of this LTI was changed by the SWM board to 0 per cent, down from the initial 87 per cent of maximum vesting.” Poof!

The board believed they had beaten the index by 7 per cent, but were actually short by 4 per cent. It’s a pity the interest accrued to SWM on its $1.87 million loan to Seven Network’s Brisbane and Queensland general manager Ben Roberts-Smith (see usual disclaimers), before Stokes’ private company picked up the tab, didn’t shift the earnings dial!

What could be more worrying? That chief executive James Warburton didn’t know his company’s total shareholder return, or that he did?

But we guess that’s the sort of corporate governance you get from outgoing SWM non-executive director John Alexander (who two years ago outwent as chief executive of Australia’s biggest laundromat Crown Casino).

The result is a lapse of 1,877,000 performance rights, meaning SWM chief revenue officer Kurt Burnette, chief financial officer Jeff Howard, chief people officer Katie McGrath and commercial director Bruce McWilliam will no longer share in rights worth $769,000 at June.

And given the shares were already issued (whoops!), that’s $882,000 at the current price. McWilliam alone missed out on $292,000 (at June prices), which works out to about $1 for every threatening letter he wrote that year.

Surely there was no great reason to be coy on Ownership Matters’ role in aiding Seven’s corporate governance.

It was 2020 when proxy firms ISS, CGI Glass Lewis and Ownership Matters recommended against the election of Ryan Stokes (a Seven West director) to the board of Seven Group (which owns 38.9 per cent of SWM).

Ownership Matters’ co-founder Dean Paatsch, back when he was director of predecessor firm RiskMetrics, recommended against the junior Stokes’ re-election to the Seven Network in 2009, though he was comfortably re-elected with the support of Kerry’s then 49 per cent stake in the company. After all, a father’s most important duty is to protect his son from hurt feelings.

Perhaps then it’s safe to say Stokes is on less than friendly terms with the proxy advisory industry, which would neatly fit in with his bromance with Australia’s former co-treasurer Josh Frydenberg, who was Stokes’ best man when he married Queensland heiress Claire Campbell in 2016.

Here we have another educational outing for Goldman Sachs’ newest adviser, whose legacy as treasurer (other than a budget where debt repayments are its largest expenditure) is an incomprehensible failed assault on the proxy advice sector that even Don Quixote would be ashamed to admit to.

That incredible reform package, if you can call it that, was predicated on the “errors” supposedly rife in proxy memoranda, which even the Business Council of Australia struggled to evidentially justify, and survived just 72 hours in the real world before the senate reversed the bus over it.

And since the proxy reforms were dumped, what’s changed? We still suffer a reality wherein company directors can manage to have their feelings hurt and still retain their jobs. Who says they can’t multitask?

Ownership Matters this month recommended shareholders vote against the re-election of Clinuvel non-executive director Brenda Shanahan, given her other role as a director of Phoslock Environmental Technologies.

Shanahan chaired the Phoslock board’s audit committee, during a period that just so happened to coincide with a massive accounting fraud perpetrated upon shareholders by executives in China (the accounts were signed off by KPMG, whose forensic investigators were then brought in to mark its own homework).

And to be fair to Shanahan, this stuff (“falsification of invoices”, “undisclosed related-party transactions”, “potential misappropriation of funds, including improper payment of bonuses”, etc) can be tricky to spot.

Nevertheless, Clinuvel drafted in Arnold Bloch Leibler to whinge to Ownership Matters that shareholders were “entitled to receive, and would benefit from, information which provides a balanced view”. We doubt they’d have disagreed.

On Wednesday, 23.31 per cent of Clinuvel shares voted against Shanahan, far below the threshold to see the back of her (even though these resolutions are non-binding, as too, clearly, are the recommendations of proxy advisers).

Has there ever been a more spurious episode of masturbatory time-wasting by the country’s chairman’s loungers, a more flagrant misuse of Treasury expertise, than in the former government’s unmeritorious crusade against four little firms that provide proxy advice to investors? The jury isn’t just out, it’s been disbanded.