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Company executives and directors can make a huge difference to the value of your investments. Before you invest, check out the background of the directors, the CEO and the people who report to the CEO. If you can’t verify the credentials of these people (and previous success – as measured by shareholder value – is the key criterion), don’t invest.
We seek via our websites to bring you details of your directors and key managers including their title, tenure and on-market share transactions. In due course we aim to show how the company’s share price performed during their tenure. We acknowledge that our database is far from complete, particularly back before 2002. We are constantly updating and working on its accuracy and completeness.
For obvious reasons, we are unable to name the directors who we believe have failed their shareholders. You will be able to see the companies that have failed and the people who were involved. As a general rule, these directors should not be appointed to other boards and if they are, you should not be investing in those companies.
Before the introduction of this rather pompous and precious notion, a well-managed company naturally possessed all the worthwhile features of good governance. Corporate governance was, is and should be indistinguishable from company management. Today it imposes requirements on companies that are more than sound management practice and it is therefore counter-productive and not in the best interests of shareholders. If you are able to think back 25 years, you will be aware of the existence of well-managed and successful companies prior to the advent of corporate governance.
Badly run companies have never had good corporate governance. Nothing has changed. Today these companies pay lip service only to it.
The introduction of the bells and whistles of corporate governance may have helped support an army of lawyers, governance “experts” and compliance specialists, but it has come at a huge cost to companies and their owners. It has suppressed an entrepreneurial approach to business and diminished personal accountability. The basic functions of management are duplicated, responsible managers are insulated from owners and companies are now preoccupied with compliance and avoiding litigation.
Our views on this subject are supported by independent and extensive research conducted recently by the Australian School of Business at the University of NSW. This illustrious body concluded that the ASX Governance Council “has systematically recommended against the most productive board structures. Uncannily, it would seem that if one simply reverses ASX Council recommendations one can produce the best possible governance structures.” A prominent portfolio manager also concedes that he finds “some of the best companies have boards that don’t pass muster on perfect governance.”
Having independent board directors has been counter-productive for Australian companies over the past decade. The UNSW research indicates that shareholders have lost between $30 billion and $50 billion in the top 200 listed companies on ASX by virtue of the policy of having independent directors.
While independent directors are not “unrepresentative swill” as Paul Keating once described the Senate, they have neither the time nor knowledge to properly oversight and understand company activities. They are therefore ill-equipped to develop and implement long-term strategies for a business. It has always been our view that boards should be largely comprised of the key executives who run the company. Executives should be accountable directly to the company’s stakeholders, in particular the shareholders. We see some benefit in having a non-executive chairman and perhaps one other non-executive director. Even better if the non-executives have significant shareholdings.
The table below shows the preferred composition of the BHP board, one of Australia’s largest companies.
| BHP Billiton Limited (BHP) Board composition January 2014 |
||
|---|---|---|
| Existing board (13) | Existing management committee (12) | Our recommended board (13) |
| Jac Nasser Chairman, Independent |
Nasser – Chairman, Non-exec* | |
| Andrew Mackenzie CEO |
Andrew Mackenzie CEO |
Mackenzie – MD and CEO |
| Malcolm Broomhead Independent |
Peter Beaven President, Copper |
Beaven - Exec |
| Carlos Cordeiro Independent |
Tim Cutt President, Petroleum and Potash |
Cutt - Exec |
| John Buchanan Independent |
Geoff Healey Chief Legal Counsel |
Buchanan – Non-exec* Healey- Exec |
| David Crawford Independent |
Mike Fraser President, Human Resources |
Fraser - Exec |
| Pat Davies Independent |
Mike Henry President, HSEC, Marketing & Technology |
Henry - Exec |
| Carolyn Hewson Independent |
Graham Kerr CFO |
Kerr - Exec |
| Lindsay Maxsted Independent |
Daniel Malchuk President, Aluminium, Manganese & Nickel |
Malchuk - Exec |
| Wayne Murdy Independent |
Jane Maloon President, Governance & Co Secretary |
|
| Keith Rumble Independent |
Dean Dalla Valle President, Coal |
Dalla Valle - Exec |
| John Schubert Independent |
Jimmy Wilson President, Iron Ore |
Wilson - Exec |
| Shriti Vadera Independent |
Karen Wood President, Corporate Affairs |
Wood - Exec |
*We have no strong view on which of the current independent directors to include.
Our BHP board absorbs the functions of both the existing board and management committee. One team runs the company, not two. The executives responsible for the major segments of the business are answerable directly to stakeholders, they are not insulated from personal accountability by part-time, non-executives. Besides the responsible executives, our board has two non-executive directors including the Chairman. Other executives may be drafted in to advise at board meetings as necessary.
