The independent directors of Fairfax Media had an opportunity, presented by a reasonably graceful announcement by Ron Walker that he wouldn’t seek re-election as chairman, to reduce, or at least not increase, the extent to which the board’s dirty linen is being aired in public. That they couldn’t manage to do so indicates the degree of dysfunctionality within the boardroom and could threaten Roger Corbett’s prospects of succeeding Walker.
The level of continuing emotion also raises the possibility of a complete implosion within Fairfax, which would hand a near-empty boardroom to the two Fairfax family members of the board with whom the independents are at war.
Less than a fortnight ago, long-simmering tensions within the boardroom erupted when the two Fairfaxes on the board — John B Fairfax and his son, Nicholas — went public with a full-scale assault against Walker and his plans to seek re-election when his term expired at November’s annual meeting.
The fault line within the boardroom was fully exposed when all five of the remaining directors (except chief executive Brian McCarthy, who has sensibly so far stayed on the sidelines) pledged their support for Walker, with some of them making their own complaints about the Fairfaxes’ behaviour and motivation.
Walker, having tested the waters and discovered there was a real prospect that an attempt to push forward with his re-election efforts would result in embarrassing defeat, bowed to reality and, apart from a reference to “the unfortunate developments of the previous few weeks”, resisted the temptation to lob any more grenades in the Fairfaxes’ direction.
His independent colleagues weren’t as disciplined. After a quite reasonable and quite fulsome tribute to Walker, and a rather hopeful statement that they hoped that his decision would allow the company to “rule a line” under recent events, they then went on to refute the Fairfaxes’ allegations of poor stewardship and corporate governance during Walker’s reign and to defend the group’s strategy of diversification away from its metropolitan mastheads.
They also noted that all directors — which means the Fairfaxes as well — had voted in favour of every recent acquisition. (The Fairfaxes would say that the final acquisition, of Southern Cross’ radio and film production assets, came at their very first board meeting).
Had the independents stopped there, not too much harm would have been done. Instead they also volunteered that they had been made aware of a margin loan taken out by the Fairfaxes’ Marinya Media, which owns 9.7% of Fairfax Media, by market speculation and not by Marinya or its directors and blamed that speculation for “a dramatic loss in value” for Fairfax shares.
While it is apparent that the independents feel strongly about that episode, which Marinya has tried to down-play (it refinanced the loans supporting its Fairfax stake quite quickly), it wasn’t a particularly sensible thing to raise again publicly — Walker and other independents had already raised it since the stoush with the Fairfaxes became public.
It reveals the extent of the continuing anger the independents feel towards the Fairfaxes and their inability to put the past behind them in the interests of the company.
With Walker going, the priority ought to be to get the differences within the boardroom out of the public eye and, from the independents’ perspective, to ensure that deputy-chairman Corbett seamlessly fills the vacuum Walker’s retirement will create.
Corbett is in the process of consulting with the group’s institutional shareholders seeking their views on his acceptability as Fairfax’s chair. The former Woolworths chief executive has made it clear he will only accept the role if there is strong shareholder support.
The Fairfaxes have made it known that while they would prefer an external chairman, preferably with media experience, to heal the divisions within the boardroom, they will accept Corbett, perhaps because they don’t believe they have the institutional numbers to oppose him. Apart from Corbett’s own credibility, the institutions would be concerned about awarding a 9.7% shareholder dominance of the group’s affairs.
The risk the independents are taking by refusing to choke down on their emotions and by maintaining the public hostilities is that they convince institutional shareholders that the current boardroom, even with Walker gone, cannot possibly function and therefore that there needs to be a wholesale clean-out.
At the moment Corbett, widely respected for creating Woolworths’ retail dominance, should be a near-certainty to succeed Walker. However, if he and the independents — and all five of them signed today’s statement — can’t convince the institutions that there is some prospect of a truce and a workable relationship with the Fairfaxes, that institutional support might well be fractured.
Corbett apparently is lukewarm about becoming chairman of a fractured board and probably won’t take on the role — or remain within the boardroom — without strong shareholder support. If he doesn’t attract that support the potential for a mass exodus of the independents would become quite real. Indeed it is already being muttered about within the independents’ camp.
Corbett is sophisticated and pragmatic. He may not have been able to control the independents and prevent them from venting their continuing ire over the margin-call issue but he would know that Fairfax will be ungovernable, and all its directors tainted, if some kind of relationship with the Fairfaxes isn’t agreed quite quickly.
Today’s statement from the independents really needs to be the last of its kind and he, and the Fairfaxes, who have a substantial investment to protect, need to create a workable relationship of convenience.
What the company — facing cyclical and structural pressures and under extreme pressure to develop a long-term strategy for transitioning from its position in the old media to the new — can’t afford is a continuing confrontation between the two camps or any kind of formal contest in which John B and, it is assumed, McCarthy, lined up against the independents.
That would be an uneven and extremely destructive contest for the individuals and the company.
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