Are directors meeting their obligations?

THE risk and reward balance for directors is the subject of major debate in the business community.

Directors are under more scrutiny than ever for their decisions, while many of them are bewildered by a growing list of responsibilities and the increasingly harsh penalties for failing to meet them.

So I was intrigued by a snippet of information that slipped out of the WA Newspaper Holdings annual general meeting, which I attended last week.

It seems that Don Voelte spends 15 days a year in his role as a WAN director.

This detail was revealed by Australian Shareholders’ Association representative Doug Armati, who took the floor for some time during the meeting to explain why his organisation supported the re-election of several directors, including Mr Voelte and Rio Tinto Australian chief Sam Walsh.

Mr Armati took the trouble to inform the AGM audience that the ASA had had lengthy discussions with the pair because it was against the group’s policy to endorse directors whose primary allegiance lay with another entity. In this case, Mr Voelte runs Woodside Petroleum and Mr Walsh is an important executive in mining giant Rio Tinto.

From those discussions the ASA had gleaned that Mr Voelte considered his WAN directorship a community service, he had the full backing of his company to attend to the non-executive role, and he donated his fees to charity.

It also found out the amount of time Mr Voelte devoted to the task. The ASA’s point in revealing that he spent 15 days a year on WAN duties, including preparation for meetings, appeared to be aimed at providing some comfort that the WAN task was not too onerous to be in conflict with his primary role managing Woodside.

Mr Voelte was present when the statement was made and didn’t make comment on that. There was no clarification as to whether 15 days represented a typical annual contribution or simply his 2008-09 appointment period, which started on December 11 last year. I presumed it was the former.

He attended all of the five board meetings and two remuneration committee meetings held during that time. His total remuneration for the six-and-half-month period was $70,000.

I am by no means critical of Mr Voelte’s dedication or the ASA’s endorsement but it does raise interesting questions.

What is an appropriate level of time devotion in this age of investor scrutiny? One would think that if the ASA approves, then that question must be settled.

But what are investors really getting? Is having a big-name CEO on your board akin to having a celebrity director, or do they bring more to the table even if they are constrained by their day-to-day management duties?

I guess that depends a little bit on the circumstances of the company, the director and the risks they and investors are willing to take. Even the ASA put the caveat that their endorsement was reviewable.

In asking a few directors around Perth, the view was that a full-time non-executive director – that is, someone who makes their main living from such activity – would normally be occupied somewhere between 20 and 30 days a year per company.

But that number was by no means set in stone.

When I asked one leading director about it, he said he would love to have someone like Mr Voelte on his board because of his business acumen.

“Do you want someone who spends 30 days a year because they are struggling or someone who is across the issues easily?” my contact asked rhetorically.

“I think there is value for them.

“Some people have just got it, they have the energy to take on 10 boards.

“When they turn up they make incisive comments and cut to the chase and you really have to listen to them.”

However, there is no doubt that the WAN board composition has changed, with a strong-willed chairman in Kerry Stokes leading a bigger group dominated by executives from other companies.

Aside from Mr Voelte and Mr Walsh there was also Graeme John, the long-running managing director of Australia Post, a position he relinquishes at the end of the year.

Perhaps this is the right balance. Investors may have needed some strong-minded individuals who did not see a WAN directorship as their bread and butter to counterbalance Mr Stokes.

While investors appeared very happy with WAN’s performance, they will still need to be wary of having Mr Stokes and Seven Network having such influence on their company. It’s hard to judge what is mutually beneficial.

Already there is much consternation the in newsroom at The West Australian about the news relationship with Channel Seven being a one-way street. We have certainly seen much coverage of the network’s personalities and its big events, including Mr Stokes on the front page having given a huge donation to Seven’s Telethon.

News is also being shared between the two organisations, but is due credit being given?

Much more difficult is managing the corporate side of the equation.

When the boardroom battle for WAN was truly on, Mr Stokes made a number of pledges that he would not repeat the tactics he used to take firm control of Seven.

For instance, creep purchases and buy backs have resulted in Mr Stokes taking strong control of the network without paying a takeover premium, according to his opponents.

Seven has already crept up the WAN register since the boardroom battle started, though that did occur after the first major skirmish, which Mr Stokes lost. At the time, he justified it as supporting the share price at its lows.

More recently, the WAN dividend has been cut from the customary 100 per cent of reported profits to 80 per cent this year.

That is despite Mr Stokes telling the WAN AGM last year that he supported 100 per cent unless circumstances dictated otherwise. This year we heard that WAN had cut the dividend as part of a new policy of “paying the maximum appropriate dividend, having regard to the company’s debt and capital management requirements”. Surprisingly, shareholders did not question this shift at last week’s AGM.

WAN’s CEO, Chris Wharton, reckons 80 per cent is high by any standards, which is true. Nevertheless, it is a change from the previous stated position and may well upset some shareholders.

Just like getting the board composition right, making sure you serve the investors is more of an art that a science. It will be interesting to see whether the relatively new board will hold Mr Stokes to account over his promises made during a fight with a completely different board.