Brokerage chair attacks ‘cookie cutter’ proxy advisers

In his final AGM as chairman of Mortgage Choice yesterday, Peter Ritchie took a parting shot at proxy advisers, who assess company results to large shareholders and advise them which way to vote.

“These proxy advisory do a pretty thorough job of analysis, but unfortunately they take a “cookie cutter” type of approach and have quite fixed views on most things,” Mr Ritchie said.

“The reason I want to speak about this approach today is not to defend the company, or the board, but because I believe this approach, by those remote and close‐minded advisers, is actually hurting Australia,” he said.

The Mortgage Choice chair, who served as managing director of McDonald’s Australia from 1974 to 1995 and as its chairman from 1995 to 2001, said proxy advisers had recommended to vote against the broker’s remuneration report for two major reasons: “We pay dividends to our executive team on the shares they have in their incentive program which have not yet ‘vested’, and, the CEO has received 100 per cent of their bonus for the past few years,” Mr Ritchie said.

“Let me, first of all, put some perspective into this picture. Mortgage Choice paid dividends to shareholders in the last 12 months of more than $20 million! The amount paid to the executive team in the incentive plan, in total amongst 16 people, is only approximately $150,000.

“An ‘easy fix’ for this ‘problem’, of course, is to pay them the same amount as part of their base package – we chose not to do that because getting those dividends ensures that the executive team have a vested personal interest in the amount of dividend. If we pay less to the shareholders the executives also get less – isn’t that exactly how you would want it?”

Regarding the CEO package, Mr Ritchie said the issue was “really only a difference in philosophy”. As a chairman, he said he understands the importance of establishing goals for the organisation which are a “stretch”, but feels people are most inspired if they are “succeeding”.

“The ‘easy fix’ would be to make the goals just unachievable (which would satisfy the proxy advisers) but just failing to get there each year is NOT where I want my CEO,” he said.

Mr Ritchie highlighted that some proxy advisers recommended to vote against Mortgage Choice’s two directors – Deborah Ralston and the company’s co-founder Rodney Higgins - who were up for election at yesterday’s AGM.

According to Mr Ritchie, some proxy advisers argued that the pair had been at Mortgage Choice for too long and were are no longer ‘independent’.

“But hang on, independent from what? Oh, “from the CEO and management” – but wait a minute, we’ve appointed a new CEO within the last 18 months and changed the structure and the membership of the management team,” Mr Ritchie went on. 

“So they are recommending that we throw off our board the most senior of our founding partners (who knows the business from the grassroots up, and is close friends with many of our older franchisees) and Dr. Ralston who is one of the most respected women in the finance industry in Australia! Is anybody doing any thinking here! 

“And here’s how they are hurting Australia – It’s those sort of thoughtless recommendations which are resulting in boards who are so INDEPENDENT they don’t know what business they are in! How did Woolworths get to the point where they have no retailers on the board? Or BHP finding themselves without a miner? How, and why have we allowed these remote advisers to have so much influence in the Australian business community?"

Mr Ritchie concluded his address by reassuring shareholders that the Mortgage Choice is well set‐up for the future.

[Related: Mortgage Choice questioned over share price]