Important highlights from upcoming meetings, provided by Glass Lewis’ global research team:
Elders Limited Australian Securities Exchange December 12
Despite delivering weaker financial outcomes compared to the prior financial year which resulted in no short-term bonuses for FY2019, management received a rather surprising payout under the long-term incentive (LTI) plan.
LTI awards granted in FY2017 are a subject to multiple performance conditions, one of them being Elders achieving a 15.0% earnings per share (EPS) compound annual growth rate (CAGR) over the three years ending in FY2019. Payouts under this hurdle are on an all-or-nothing basis.
While Elders has cited in several places in their annual report an underlying EPS result of 52.6c, the board has used a underlying EPS result of 55.0c for remuneration purposes, resulting in the achievement of 15.0% EPS CAGR which just so happens to be the all-or-nothing threshold.
Why the board used a 55.0c result and not the Underlying EPS 52.6c result is not discussed in the annual report. The resulting payout to the CEO is equal to almost half a million Australian dollars.
Westpac Banking Corporation Australian Securities Exchange December 12
After a year of scandals and a Royal Commission, one of the big four banks has been hit with yet another controversy just weeks before its annual shareholder meeting. In November 2019, Australian government financial intelligence agency, the Australian Transaction Reports and Analysis Centre (AUSTRAC), applied to the Federal Court of Australia for civil penalty orders against Westpac.
The allegations include that Westpac failed to carry out appropriate customer due diligence on transactions to the Philippines and South East Asia, and that the bank had failed to introduce appropriate detection scenarios to identify known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessment.
According to AUSTRAC, “Westpac has contravened [the Anti-Money Laundering and Counter-Terrorism Financing Act 2016] on over 23 million occasions, each contravention attracting a civil penalty between [A]$17 million and [A]$21 million.” Doing the math, the potential penalties go up to the hundreds of trillions of dollars – although such a penalty would be unprecedented.
The allegations have resulted in the several leadership changes: MD/CEO Brian Hartzer has stepped down, chair Lindsay Maxsted will step down in the first half of 2020 and non-executive director Ewen Crouch, who chairs the bank’s risk committee, will no longer seek re-election at the upcoming shareholder meeting.
As the matters have only come to light in recent days, the timing of the 2019 AGM does not allow much time for Westpac to conduct a full investigation into the allegations. Will the recent/pending leadership changes, coupled with the board’s decision to withhold the payment of bonuses to management, be enough to satisfy shareholder concerns around the matter? Or will other directors standing for election come under fire?
One such person who will be feeling the pressure is Peter Marriot, the third longest serving non-executive director on the Westpac board after Maxsted and Crouch. However his tenure, while opens him up to criticism around accountability, may also be a reason to keep him around so as to secure board stability. Shareholders will need to consider these conflicting elements when voting at the AGM.