Westfield

The 2013 BRW Rich List is out, and the Lowy family of Westfield fame have clawed their way back into second place, having increased their pile by $400 million to $6.87 billion.

Westfield shareholders have been very generous to the family over the years, but will they continue to tolerate excessive salaries to Frank Lowy’s two boys, Steven and Peter Lowy, who pocketed a combined figure of almost $20 million in 2012?

This question comes into even sharper focus after the family raised $663.7 million in February selling their 7.1% stake in Westfield Retail Trust at $3.09 per security. For the first time, the Lowy family have a substantial majority of their wealth outside of Westfield’s two listed vehicles. The family’s residual 179.6 million shares or 8% stake in parent company Westfield Group is today worth $2.17 billion, so BRW estimates that this comprises 31.6% of the net wealth of $6.87 billion.

On the same day as the Westfield Retail Trust selldown on February 28, the Lowys received their last distribution, worth $20.4 million, from this entity. The distribution on the retained Westfield Group shares totalled $88.9 million in 2012 and is forecast to rise to $91.6 million in 2013.

In light of these developments, the big question at next Wednesday’s Westfield Group AGM in Sydney is whether the family should continue helping themselves to excessive salaries.

The Australian Shareholders’ Association says no and is actively pitching the case for an against vote on the remuneration report to key institutions such as Blackrock, Vanguard, AFIC, Unisuper, Argo and the like. The ASA is attempting to put together a coalition of shareholders who will seek to negotiate a commitment to pay reform from the Lowy family on the floor of the meeting.

This tactic of floor negotiation was successfully deployed for the first time against Roger Corbett last November, when the ASA agreed to vote undirected proxies in favour of the Fairfax Media remuneration report after the chairman verbally undertook in front of shareholders to cut his fee by at least 10% to no more than $400,000.

In light of the $300 million-plus in gross salary payments that Lowy family members have pocketed from Westfield over the past 20 years, it is extraordinary that independent shareholders have never got organised to put an end to these excesses.

The ASA’s voting intentions report makes the case very clearly and was covered extensively in The Australian and The AFR on Saturday. The key extract from the voting intentions relates to the leverage available to shareholders from the fact that 82-year-old Frank Lowy is seeking re-election for another three years. It report includes the following:

“Frank Lowy is one of the highest paid non executive chairs in Australia ($750,000 PA) and has overseen the continued payment of excessive bonuses to executive staff over a long period of time. Indeed, he has personally received more than $100 million in cash salary payments from Westfield entities over the past 20 years and his children have collectively received more than $150 million over the same time frame.”

The projected distribution on the Lowy family shares for the 2013 year will be $91.6 million. The family does not need to continue drawing excessive remuneration, whether as executive directors or as the non-executive chairman. ASA notes that both James and Kerry Packer have never drawn salaries or director fees from Crown Ltd or its predecessor bodies. The dividends are enough and we encourage the Lowy family to take note of this precedent:

“If Mr Lowy undertakes at the AGM to revise down cash payments to his family members in future years, ASA will support his re-election. If not, we will vote undirected proxies against his re-election.”

ASA has represented an average of 1185 Westfield shareholders owning 3.375 million shares at the past four Westfield Group AGMs and it will be interesting to see if media interest in the AGM lifts that figure next Wednesday.

Westfield has consistently had solid protest votes against its remuneration report and certain insider and long-serving directors over the past decade. Here are the figures going back to 2004:

2004: no remuneration vote but long-serving director John Studdy received 13% protest vote.
2005: 120 million votes against remuneration report equivalent to almost 12%. No protests against directors.
2006: 172 million votes against remuneration report as protest rose to almost 17%. Protests of 6-7% against two remuneration committee members, David Gonski and Fred Hilmer.
2007: 180 million votes against remunderation report as protest pushed 18%. Director protest peaked at 16-18% against Gary Weiss and Fred Hilmer.
2008: remuneration protest dropped to 100 million votes or 7.7% as director protests against David Lowy and David Gonski reached double figures and Frank Lowy suffered biggest ever protest at 7%.
2009: remuneration protest back up to 122 million votes and former CFO Stephen Johns suffered biggest ever director protest at 35% or 500 million votes. Stephen Lowy hit with 100 million protest or 7%.
2010: remuneration protest back up to 225 million votes or 16.2% but Frank Lowy only opposed by 3% as Fred Hilmer hit with 13% protest.
2011: remuneration protest 177 million shares or 11%. More opposition to former CFO Stephen Johns and still no poll on any resolutions.
2012: 16% against rem report as all independent directors strongly supported.

*Stephen Mayne is policy and engagement co-ordinator for the Australian Shareholders Association and was not paid for this item