IAG's shareholder revolt
James Strong is today expected to become the latest prominent professional director to suffer the ignominy of a strong protest vote when shareholders of Insurance Australia Group meet in Sydney.
Strong, chairman and non-executive director who is up for re-election at the meeting, deserves a kick in the pants for his role in the company's disastrous expansion into the United Kingdom. He is also likely to cop a backlash for failing to put a takeover proposal from QBE in front of the shareholders.
The QBE proposal of 0.145 QBE shares and 90 cents in cash for each IAG share was worth $4.60 a share when it was put forward in April. Today it would be worth about $4.90 a share. IAG shares last traded at $4.01.
IAG rejected QBE just as it was reporting an $800 million profit turnaround in the year to June 2008. The 2008 loss of $261 million was after $400 million in restructuring and impairment charges.
IAG doubled up on its bet on the UK. It bought a direct insurance business just before its profit margins collapsed and also bought a reinsurance business in Asia that was loaded up with risk from the UK. Mike Wilkins has since replaced Michael Hawker at chief executive.
The institutional shareholder leading the protest vote against Strong's re-election as a director is Peter Morgan's 452 Capital. Morgan has attacked the board for being a “mutual appreciation society”, for failing to provide a valuation of the business when the QBE offer was lobbed and for failing to be accountable and transparent about the UK losses.
Shareholder anger at the UK disaster would have been exacerbated by Strong's half-hearted mea culpa in the annual report. However, Strong admitted he was on the way out by saying the board was “aware of the need for a planned and orderly succession in the chair role”.
One block of votes that Strong can count on at today's meeting is the shareholding of the National Roads and Motorists Association, the mutual roadside assistance organisation that previously owned the IAG insurance business when it was called NRMA Insurance.
IAG was spun out of NRMA in 2000. As a result of that many of IAG's shareholders and insurance policyholders are members of the NRMA. The NRMA owns 29 million shares in IAG that were issued to it at the time of the NRMA Insurance demutualisation.
The NRMA suffered an unrealised loss of $65 million on its IAG shareholding in 2008. But NRMA cannot sell the shares even if it wanted to. A contractual arrangement entered into between NRMA and IAG in 2000 forces NRMA to hold the shares in perpetuity.
As well as voting its shares in favour of Strong's re-election, NRMA is likely to vote against the election of former NRMA director Richard Talbot. Talbot, who has been disqualified from standing as a director of the NRMA until 2014, is standing of a platform of shareholder democracy.
He says the QBE bid for IAG should have been put to IAG shareholders. IAG has recommended shareholders vote against Talbot's election.
Strong will almost certainly survive today's IAG annual meeting with his job intact. If he doesn't it will mark a new high watermark for shareholder activism.
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