Slater & Gordon Chairman John Skippen leaves the company’s AGM in Melbourne. Photo by Jesse Marlow. . GRECH BRW 080515 MELB PIC BY JESSICA SHAPIRO… Andrew Grech, manageing Director of Slater & Gordon in his Melbourne office this morning. FBM FIRST USE ONLY PLEASE!!! SPECIALX 84853
MELBOURNE, AUSTRALIA 14 NOVEMBER 2013: Photo of James MacKenzie who is retiring as Chairman of Mirvac, during the company’s AGM meeting in Melbourne on Thursday 14 November 2013. AFR / LUIS ASCUI
Paying Slater and Gordon’s former chief executive Andrew Grech a remuneration package of $1.5 million in a year when the company almost collapsed isn’t a good look.
That the company is valued on the market at $28 million, after overseeing a strategy that resulted in the decimation of billions of dollars of shareholder funds, doesn’t help the optics.
Nor does a board decision to shell out a $1.6 million package to the chief financial officer, Bryce Houghton, whose resignation coincided with the company’s announced full-year loss of $547 million, including an impairment charge of $350 million on its disastrous UK acquisition in 2015.
The way executives are paid, in good times and bad, speaks volumes about a company’s culture. It also says a lot about the board.
Slater and Gordon went on a debt-fuelled acquisition binge that almost destroyed it. But along the way it forgot its core values, which include deep ties with the labour movement and representing the underdog, the victim.
This was epitomised by a decision in 2015 to spend millions of dollars on a high-profile, five-year sponsorship of the Olympics, at a time when money was precious.
Besides being a poor use of shareholders’ money, during the period of Slater and Gordon’s sponsorship, the AOC has been at the centre of a series of scandals in recent years.
Not the least being controversies around AOC president John Coates, including when Coates wrote to senior AOC staff that a young, female employee, who was being treated for cancer, should “get out in the real world” because the AOC was not a “sheltered workshop”.
How the Slater and Gordon board and senior management could have thought such an expensive Olympics sponsorship was a good fit with a law firm that represents blue-collar workers is hard to fathom. That it didn’t pull the plug after the scandals erupted is equally curious.
Grech resigned as managing director on June 29 as part of a recapitalisation agreement with hedge funds. That agreement included Grech remaining on the board as non-executive director until the completion of the recapitalisation agreement.
But a remuneration report released on Thursday night reveals Grech will continue to receive fees equivalent to his base salary as managing director at $560,384 until he leaves.
It says the board’s approach to remuneration is “balanced, fair and equitable”.
The question is fair to who? Shareholders who will be diluted to 5 per cent after the rescue plan is completed in mid-November?
Interestingly, directors, including chairman John Skippen, took home a similar level of director fees in 2017 as those approved by shareholders in 2015, back when the company was valued on the sharemarket at $2.8 billion.
It meant Skippen pocketed $240,000 during a year when the company had a negative cash flow, massive losses, was under investigation from ASIC and shareholders had launched a class action.
Skippen was chairman when the company received a “first strike” on its remuneration report in 2016 after thinking it was a good idea to pay bonuses to executives as well as issue performance rights to Grech when the company was essentially in a death spiral.
Part of Grech’s $1.5 million includes an expatriate allowance paid while he was in the UK trying to fix the mess and an “end of service benefit”, which he will receive when he ceases being a non-executive director.
In anyone’s books, this is a lot of money for running a company that almost went belly up from poor strategy and execution.
The board, particularly those members who signed off on a series of debt-funded acquisitions over the years, can’t escape blame. The role of the board is ultimately to take responsibility for strategy, culture and reputation.
In the case of Slater and Gordon, the $1.2 billion acquisition of a British personal injury law firm just shy of its own market capitalisation was a big risk. At the time of the announcement, I wrote that it would give it a “massive short-term sugar hit, but the long-term aftertaste could be a concern”.
Britain is a tough market, with a number of n companies losing a fortune. Hubris and greed would add Slater and Gordon to the list.
The consortium of international hedge funds that will take ownership of Slater and Gordon, in a plan announced on Thursday night, will appoint company director James MacKenzie chairman and clean out the other directors.
It will also roll out a new business strategy, which will make the company leaner and take it back to its roots. The strategy will involve growing its personal injury practices in Queensland, NSW and Victoria, improving and restoring its relationships with the union movement and leveraging third-party relationships to build referral networks.
It sounds simple enough but will take deft work and an ability to stop the exodus of good, high-profile lawyers.
Some of the decision makers have already jumped ship, getting off scot-free. Some have stuck around, for now.
But the rise and fall of Slater and Gordon, and the hopeful rise again, will be one for the corporate history books.
The rescue package means Slater and Gordon will remain a listed entity, with lead hedge fund Anchorage Capital committing to remain a shareholder for at least three years. The UK business has been hived off, the class action settled. Now it is a matter of wait and see.