Contact Energy annual meeting – “Do the right thing, Grant”

Contact Energy annual meeting – “Do the right thing, Grant”

Contact Energy chairman Grant King hit New Zealand minority shareholders for six at this morning’s annual meeting. The Australian swung a big bat, in the form of proxies representing over 50% of the company, and showed no sympathy for the views of minority shareholders.

The main issue was the proposed increase in directors’ fees from $770,000 to $1,500,000. King argued that Contact’s board fees were in the bottom quartile as far as Australasian companies of a similar size were concerned and it needed to pay more to attract high quality directors. He also said that the company may only utilise 25% of the increase in the June 2009 year with the remainder being held back for future years.

Shareholders took the view that it was inappropriate for directors to promote a 95% increase in the current environment and if the company wasn’t going to use it all, why didn’t it go for a 25% rise now to be followed by further increases in the years ahead.

One shareholder made a passionate appeal for King to rise above the situation and take the big picture view. He pleaded “Do the right thing, Grant”.  But King was totally unmoved. He said he had thought about the issue and decided that a 95% fee increase was in the best long-term interest of Contact Energy.

By contrast Vector chairman Michael Stiassny took the big picture view and pulled the company’s proposed 22% fee hike. He told shareholders this afternoon; “In the context of the local and global economic conditions, with your shares being impacted by the market decline, New Zealanders losing their jobs, seeing equity in their homes erode and wondering how to make ends meet, your directors could not have their blinkers on and ignore what is going on around us”.

The Contact Energy motion was put to a show of hands with not one shareholder voting in favour. Most of the large attendance voted against the 95% increase but the motion was carried on a poll vote because Origin Energy supported the rise.

The contrast between King and Stiassny is quite startling. The latter has his ears to the ground whereas the Australian seems to have his head in the sand as far as New Zealand shareholders, politicians and consumers are concerned.

This is a major concern now that Contact Energy is the largest listed New Zealand company on a capitalisation basis. The last three largest companies, Telecom, Fletcher Challenge and Brierley Investments, were knocked off the top perch through a combination of poor corporate governance and decision making, an inability to respond to a changing environment and a determination to stick with directors who did not have the full support of minority shareholders.

Contact Energy’s determination to snub its nose to shareholder, political and public concerns is a worry as far as its long-term sharemarket performance is concerned.
      
Brian Gaynor, 23 October 2008