Stephen Bartholomeusz
Walking the plank at Fairfax
Ron Walker made a major miscalculation when he attempted to cut short agitation for his replacement as Fairfax Media chairman at November’s annual meeting by giving an interview to one of his own papers saying that he intended to retire in the second half of 2010.
That was the final straw for shareholders, including John B Fairfax, who had already been coalescing around the view that his term should end this year – and making preparation to ensure that it did.
Walker, having conducted meetings (which apparently didn’t go smoothly) with major institutional shareholders over the past few days, would have been very aware that they wanted him to go and go early.
For them, Walker’s decision to give an interview to the Australian Financial Review outlining his plans to go late next year after overseeing a renewal of the board and after he had ‘settled’ the new chairman’s role would have been transparently tactical and extraordinarily provocative, given that his fellow directors were given no warning that he was about to go public with a position they hadn’t agreed to and didn’t agree with.
By nominating his own timeline to his departure Walker may have believed he could placate the increasingly agitated shareholders, or at least prevent them from moving against him formally. Instead he incited a very public revolt.
The extent of the ire among the shareholders can be measured by the fact that it was John B Fairfax’s Marinya Media, which owns 9.7 per cent of Fairfax Media, which went public, in very strong terms, with its intention to vote against Walker’s re-election to the board at the annual meeting.
John B Fairfax, who co-authored the statement with his son and fellow-Fairfax director Nicholas, is regarded as a modest, conservative, mild-mannered, limelight-shunning person. They said the decision to vote against Walker hadn’t been taken lightly and described it is "uncharacteristic", which is something of an understatement. They also said that it wasn’t personal.
Walker, they said, was well aware that there was significant shareholder dissatisfaction with his tenure. They failed to see how his stated intention (in the AFR interview) to delay his retirement assisted the company or its shareholders.
There is, apparently, sufficient support from Fairfax’s institutional shareholders for Marinya to be completely confident that it has the numbers to eject Walker at the AGM if he chooses to fight for his position. If he comes to that same conclusion, he will go quickly and quietly rather than risk the embarrassment of being voted out.
It was institutional unrest, and some boardroom tensions, that led to the departure of David Kirk as chief executive last year and his replacement by former Rural Press chief Brian McCarthy. At the time there was some institutional pressure for Walker to depart as well, but Kirk’s exit averted a confrontation.
The shareholders are unhappy that under Walker the company went on a debt-fuelled acquisition spree (including John B. Fairfax’s Rural Press) that created a leveraged exposure for the group to the financial crisis and forced it into a massively dilutive capital raisings and savage cuts to its dividend payout ratio on earnings that have tumbled.
The two Fairfax family members of the Fairfax Media board said inadequate attention had been paid to corporate governance matters during Walker’s four-year chairmanship, that an unacceptable degree of risk had been introduced to the group’s capital structure and that the cyclical nature of the company’s earnings meant its financial and sharemarket performance had deteriorated dramatically.
Walker has been intimately involved in the development and implementation of the Fairfax expansion strategy. He has been more of an executive chairman, and a dominant and entrepreneurial one, than a non-executive. During his period as chair, Fairfax made a string of significant acquisitions of traditional media businesses.
While some of those – Rural Press and the radio assets acquired with the Southern Cross Broadcasting carve-up with Macquarie Media – have performed relatively better in the crisis than other Fairfax businesses (which doesn’t say that much), they did broaden and deepen the group’s exposure to the dire advertising recession.
They were also all bought expensively – although one could argue that the amount of Fairfax scrip issued to Marinya for the Rural Press deal meant that it was John B Fairfax and his family that have been most financially damaged by the Walker era.
It is apparent that Marinya and key institutional shareholders were incensed by Walker’s assertion that he would remain in place and oversee the board renewal program.
They want a new chairman – potentially from outside the existing boardroom, despite the recent elevation of former Woolworths CEO, Roger Corbett to deputy chairman – to restock the board and establish a new strategy, saying it would be "inappropriate that a departing chairman" would be influential in the choice of new directors.
John B Fairfax would probably be an acceptable candidate for the institutions, but it isn’t clear that he particularly wants the role. It is very apparent that Marinya and the institutions want a transfusion of new blood into the board.
There is also some urgency to their position. "Renewal must start today," they said. The two directors also made it clear that their position wouldn’t be a shock to the rest of the board – "Mr Walker and the rest of the board of Fairfax Media will not be surprised by our views."
Indeed, there has apparently been considerable tension within a boardroom for some time, with the board fractured and politicised.
The Fairfaxes said they didn’t believe that under Walker the board was unified, functioned effectively or provided sound strategic direction – which means they believe it was fractured, dysfunctional and bereft of a strategy for responding to the structural changes and challenges occurring within the traditional media sectors.
The old core of Fairfax, its metropolitan newspapers, and its two big broadsheets in particular, are imploding as cyclical and structural forces have converged. No-one expects the classified advertising volumes and yields to return to their pre-crisis levels.
While the Walker acquisition spree has provided diversification into less competitive and vulnerable media segments, that’s an issue of degree rather than direction. Fairfax has yet to devise a strategy or asset base that will allow it to grow while the old media declines, and both the capital it has raised and the structural issues it confronts will dampen its traditional leverage to economic recovery.
Whatever the share of responsibility for Fairfax’s position that should be assigned to Walker, there is no doubt that the group does need some new blood and talent in the boardroom and new ideas and that John and Nicholas Fairfax are right – the new chairman, not Walker, ought to be the one to oversee that process of both boardroom and strategy renewal.
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