The Motley Fool

Why I think corporate governance has gone mad at these companies

In this article, I argue that the focus on executive remuneration has gone too far.

In the year to June 2018, Mineral Resources Limited (ASX: MIN) delivered an 83% rise in profits and dividends.

Its share price rose 29% to $10.85, compared to 8.2% for the All Ords. Since the year end, and following publication of these results, its shares have risen another 85% to $20. Over the whole period, the company’s market capitalisation has risen by $2 billion.

If I were a holder, I would be quite happy with that, thank you very much! But no, at the AGM earlier this week, proxy advisers managed to get 41.5% of shareholders (I presume nearly all institutions) to vote against a $2.1 million rise in remuneration for CEO Chris Ellison. $2.1 million against $2 billion? Good luck to him I say.

Also this week, Qube Holding Ltd (ASX:QUB) was heavily chastised for having its chief executive’s short and long term bonuses linked to a rise in shareholder value.

There are many large ASX companies that are not delivering, either operationally or in share price terms. Yet their senior management generally receive pay increases, or at worst stay flat. It’s all but unheard of to take a cut. Yet proxy advisers rarely make a fuss.

I would prefer that they targeted their ire at these companies, not the successful ones that are making shareholders money.

I also don’t recall proxy advisers objecting to executive bonuses at Wesfarmers Ltd (ASX: WES) when the ACCC found that its Coles subsidiary had engaged in unconscionable conduct with its suppliers.

Or more recently, Lend Lease Group (ASX: LLC). Three employee deaths have occurred on their sites in separate incidents in the last year.

Corporate governance has simply gone mad, in my view, when it comes to executive remuneration.

In fact, in Qube’s case, the Remuneration Report goes on for 23 pages. That’s 5 pages more than the operational reports about the business!

That length of remuneration report may be good for remuneration experts, proxy advisers and the printing industry, but not for me. Arguably not even for the Board of Directors. Their time becomes distracted from what I as a shareholder really want them to do. Run the business.

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 Motley Fool contributor James Middleweek has no financial interest in any of the companies mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.