STEVE MABB | Chair of the Australian Shareholders' Association

The Australian Shareholders' Association (ASA) is a not-for-profit organization that represents the interests of individual investors in Australia. They aim to empower and protect the rights of shareholders, especially small investors like beginners in the share market.

ASA offers a range of services to its members, including educational resources, advocacy on shareholder issues, and opportunities to engage with companies through shareholder meetings. They also provide guidance on corporate governance and best practices for shareholders.

You may not be interested in voting at company AGMs but that's not a reason to not have a say:

You can listen to Steve's previous interview on this podcast, or check out the companies that ASA monitor.

We chatted about a couple of questions that Steve will be bring up at the AGMs of Codan ASX:CDA and JB Hi-Fi ASX:JBH

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Chloe (1s):

Shares for Beginners, Phil Muscatello and Finpods are authorized reps of MoneySherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Steve (12s):

One of the core roles of a board, it's really about succession planning and overseeing and developing talent within your management team. So if you're turning over your management team a lot, there's probably two things happening there. You're possibly not recruiting or developing the right people, or when you have put them in place, you're not all aligned and not all on the same page and they're leaving. But both of those situations aren't great for the stability or the long term performance of the company.

Phil (39s):

G'day and welcome back to Shares for Beginners. I'm m Phil muscatello. How can you tell the company that you own what you actually think about them? What's the best way to make your displeasure felt? I'm joined today by Steve Mabb, chair of the Australian Shareholders Association with some advice on how to blow public raspberries at our not so favorite companies. G'day. Steve

Steve (1m 0s):

G'day. Phil, thank you very much for, for having me back on.

Phil (1m 4s):

It's great to have you back on and always good to hear about the great work of the Australian Shareholders Association. So it's been a while since we've had someone from the association on, so just to give us a little potted history about the association and what you guys do.

Steve (1m 17s):

Yeah, thanks Phil. So obviously been around for a long time. I think o over 60 years now that the shareholders association's been doing what we do, And that. And that's basically two things. So the, the first one is education, where we try And, you know, help individual investors on their journey with lots of good information conferences, a, a magazine, a website, all of that kind of stuff where you can learn more about, you know, the share market and, and different companies, different funds, et cetera. So yeah, lots of that happening on a daily basis. We have 50 meetings all over the country where members get together and, and talk all things investing and, and share market every month. And then the other big thing we do, which is quite different is, is what we call advocacy or, or monitoring, where we basically, you know, follow a group of companies, roughly the ASX 200.

Steve (2m 5s):

And we have a volunteer that that goes out and, and meets with the companies before their annual general meetings and, and works through the issues that they're putting the shareholders to vote on. And then we put together what we call voting intentions for shareholders if they need some help with how they should vote their shares at that year's AGM. So there's not really anyone else that does that on behalf of retail shareholders. There's big, what we call proxy advisors that do it on behalf of institutions like super funds and and managed funds. But no one really that does it on behalf of the small or the individual shareholders. So, so that's where we can come in and possibly help you if you're interested in having your voice heard and knowing what's happening with the structure And, you know, changes and remuneration and the board and all those kind of interesting things that, that might be relevant to your shareholding in the company.

Phil (2m 53s):

And these voting intentions are publicly available, aren't they? Anyone can log in and have a look at them? They

Steve (2m 58s):

Are, yeah. They're all available on our website. So you can just go to Australian shareholders association.com and there's a little section there on companies we monitor. If you go in there, you can put in the ticket code or the name of the company and if it's a company that we monitor, you can read the report generally comes out a couple of weeks before the AGM. So if the AGMs in November for example, that won't be up yet. But as we get closer to the AGM and those things are finalized, that report goes up on the website and you can see how we're suggesting you should vote and why. We also put a, an AGM report on the website after the AGM happens. So once the voting's happened and whatever's happened at the meeting, you'll get a nice concise report of what happened there. And, you know, that can obviously be very interesting for people if they weren't able to get to the AGM themselves.

Steve (3m 41s):

We, as I said, we only cover about 200 companies and we'd love to cover more, but it's all predominantly volunteer.

Phil (3m 47s):

It's incredible. It's incredible that you can cover so many with a volunteer base. Yeah,

Steve (3m 51s):

Yeah, that's right. And that's why it's volunteers. So, you know, it is a difficult job. It's, it's pretty tough to read an annual report and figure out, you know, what's good, bad or indifferent about those particular issues that you're voting on. So we have a great group of volunteers across the country that do it, but we'd love some more. And if anyone's interested in being a volunteer or monitor and learning more about the companies and getting involved, we'd love to hear from you. 'cause it'd help us cover even more companies.

Phil (4m 16s):

I find them very educational as well. Once you read these voting intentions and the report that the volunteers have done, it really gives you an incredibly detailed dive into a company, what it does and where the money comes from as well. Because sometimes it's coming from unexpected sources.

Steve (4m 32s):

Exactly. Yeah. I mean, we're not necessarily in there trying to give you investing advice. So when we write the report, it's not about, you know, is this a good or bad company to invest in Right now it's more a report on you, as you said. Where's the, where's the revenue and the, you know, the business been over the last 12 months, And, that's all, you know, basically taken from the annual report, what's going on with the composition of management and, and the board and then the specific resolution. So when we talk about resolutions, we're talking about things like the remuneration where the, basically the remuneration report. So how the, the management team are being compensated for the year that gets put to shareholders to vote on if a new director's up for election or reelection that gets put to shareholders to vote on things.

Steve (5m 17s):

Like any changes to their constitution if they're proposing to change, you know, how much money they can raise or maybe how they hold their AGMs. Those things get put to shareholders to vote on. So they're the kind of things that basically shareholders get a chance to have their say once a year. And, and I know a lot of people don't do that 'cause it is pretty tedious sometimes reading through those reports and trying to figure that all out and some people just go, it's all too hard. But There Is an alternative if you do want to have your voice heard. That's where the ASAc an help you. And we can probably talk about it later, but there's some ways that you can allocate your votes to the as s a if you want some help with that.

Phil (5m 49s):

No, I think let's talk about it now. Okay. It seems to be the na in the natural flow of the conversation. Yeah, yeah. No, but that's about proxies and every time there's a notice of an AGM that we get hopefully in by email at the moment you're asked to vote. But that's right. Often people dunno what to vote on, but the ASA can look, look after that for you.

Steve (6m 8s):

Exactly. So a lot of people will get the email or maybe the notice in the, in the mail saying the AGM's coming up, And, you know, here's your chance to vote. If you were like me early on, a lot of people probably just, you know, delete that or throw it in the bin or whatever 'cause it's all too hard. But the alternative is you can allocate what's called a proxy or you know, someone to vote on your behalf and that's where the shareholders association can come in. If you weren't gonna vote, you can just write in Australian Shareholders Association in as a proxy and then we'll vote the way that we think is in the best interest of most retail shareholders on your behalf. We don't know who you are and how many shares you've got or anything like that. It just all gets aggregated together by the registry. So you know, if you familiar with computershare or Link or Atomic, those kind of share registries, they'll just collate all the votes that were given together and give it to us on the day.

Steve (6m 55s):

And say, here's all the votes that you've got to vote at the meeting. So it's all very anonymous. But yeah, it is a great way to still have your voice heard as an individual shareholder. And typically we're in the somewhere between the top 10 and top 20 shareholders most of the time when we collate all those votes together. So the companies generally do listen to us and are, are interested in the way that we're gonna vote and what we think because often we do hold a significant number of shares when all the smaller retail shareholders have allocated their proxies to us. We don't get anything out of that. There's nothing financial in it. It's really just about, again, sticking up for or standing up for individual shareholders and making sure their voice is heard.

Phil (7m 32s):

It's interesting the remuneration report side of things. I just was reading a little thread on Twitter this morning and it's this guy who's basically looking at what he calls shit cos and what Watch Out for, and he, he's got this category of lifestyle companies, okay where you can actually look at companies and their market cap might be $4 million and the directors and management are being paid, you know, $2 million a year and he calls them lifestyle companies for obvious reasons.

Steve (8m 1s):

Yeah, exactly. I mean if you look at the whole ASX, I think, you know, there's just over 2000 companies most years that are listed on the ASX and somewhere between two thirds to three quarters of them don't make any money.

Phil (8m 14s):

It's incredible isn't it, when you look at that that that metric. Yeah,

Steve (8m 17s):

Yeah. So what's happening there a lot of the time is that the, you know, the companies are listing and they're raising capital, et cetera, and then they're paying, you know, management and the boards wages each year and eventually if the money starts to run out, they have to go and raise capital again to, you know, keep funding the company and keep funding management salaries. So I'm not saying there's necessarily anything wrong with that. There's plenty of times companies don't make a profit 'cause they're investing and they're gonna grow into a profitable company in the future. That in and of itself isn't necessarily a problem. But certainly if you've got a company that isn't making money, you do wanna have a good look at the remuneration report I think and make sure that it's, you know, it's fair and reasonable And that management aren't taking excessive salaries when they're not producing any profits yet.

Steve (8m 58s):

Because it's basically shareholders that are funding that at the end of the day, they're having to provide the capital or possibly they're borrowing money to pay, you know, management salaries and board fees basically.

Phil (9m 10s):

Well I I guess this is a good point to start talking about capital and capital raisings. 'cause I heard you a lot of this interview we've, based on your recent appearance with TK and Cam on the QAV investing podcast. Yeah,

Steve (9m 21s):

Absolutely.

Phil (9m 22s):

Yeah, which was a a a lot of fun. I'd recommend that to anyone to have a listen. Yeah, always

Steve (9m 26s):

Great to talk to those guys. But yeah, capital raising, you know, most people that have been investing for a while are probably had some kind of capital raising offered to them at some point. And what's happening, There, Is, the company's basically coming to the market and saying, you know, we need some more capital. We wanna raise some money from our shareholders or potential shareholders. And there's a few different ways that that companies do that. So what often happens is the company will go out and talk to investment banks and big institutions and try and raise a significant amount of the capital they're looking for from large institutional type shareholders, And that normally happens before you as a retail shareholder even aware of it.

Steve (10m 7s):

So they'll ring around for 24 hours, And, you know, try and raise a bunch of money and then they'll announce to the market possibly before or certainly after that process has has happened that they're raising capital And that they've raised this much from their institutional shareholders and hopefully they'll then also give their retail or individual shareholders a chance to participate in that capital raising

Phil (10m 28s):

The second class citizens.

Steve (10m 30s):

Exactly. Yeah. So that's where we come in. Again, we really advocate very strongly that the individual or the smaller shareholders should be treated equally or fairly as the large or the institutional type shareholders have been. So what we really advocate with companies, There, Is, that they give the retail shareholder the same opportunity to participate at the same discount, same kind of terms. And there's a few different ways companies can do that. Sometimes they don't do it at all. And we take a very dimm view of that if they only raise capital with the big guys and don't give their small shareholders a chance, it's, we think it's particularly unfair because you basically are getting diluted. They've grown the share of the pie if you like, but you haven't got an increasing percentage of your slice of the pie.

Steve (11m 13s):

So you basically get diluted, you own a smaller percentage of the company now than you did before the raising took place. So we take a dim view of that. The next option is that they can do what's called a a share purchase plan. So that's where they basically can raise up to $30,000 from each individual shareholders. So you would apply for however many additional shares you want up to a maximum of $30,000 normally. And hopefully you'll get your full allocation. Sometimes they may put a cap on it and they may get even more interest in the, the raising than they were going to allocate. So they'll scale you back And. that means, let's say they were trying to Mabb raise a million dollars and they got $2 million worth of applications, they'd probably scale everyone back 50%.

Steve (11m 56s):

So you'd get half of what you applied for so that they still got to their million dollars. So it's not super fair, but obviously it's better than not participating at all. 'cause you're not getting diluted if you do want some shares at the discounted rate. The next option, which we think is the best is what's called a, a PATREO raising. So that's where, whether you participate or not, you get compensated. So if you do participate, you'll end up with the same amount of share of the company as you had beforehand. If you don't participate, the company will compensate you for not participating so that again, you continue to hold the same amount on the other side of the raising. So that's the fairest way. It is more complicated and probably a little more costly for the company to do, but it is the fairest way to raise capital and that's what we encourage companies to do.

Steve (12m 40s):

And some companies are increasingly doing that, but before Sydney airport got taken off the ASX into private hands, it did a PATREO raising when it was raising money, which was great. So there's some things to watch out for. And the only other little practical tip, I guess we'd, we'd give There Is that, because you don't have to necessarily make the decision on the day that it's announced, it's often opportune to wait for, you know, a couple of days before the closing date just to make sure that the shares are still trading for a higher price than the capital raising price you're being offered is. 'cause if they're now at a, a lower price than the the capital raising price, you'd be better off probably just buying those shares on market, for example, than actually paying the higher price that that's in the capital raising.

Steve (13m 21s):

So that's one of the advantages you do have as a, a smaller Investor, you can wait till a couple of days before the raising closes to make sure that the prices is in the money as they say.

Phil (13m 30s):

Okay, well let's get back to remuneration reports or REM reports as they're often called and, and ag, upcoming AGM So Qantas, There, Is so much to talk about in Qantas, and I know Rachel, the CEO's been doing a lot of media lately about it. Yeah, because everyone's in interested in it. What what's the, as a's feelings at the moment on Qantas?

Steve (13m 50s):

Yeah, look, it's very, apart

Phil (13m 51s):

From Mango, is there anything

Steve (13m 53s):

Apart from Mango? Yeah, look, it's very topical at the moment. Obviously there's a lot of news coming out on a daily basis about Qantas at the moment. I think we're talking late September, so who knows where it'll be by the time we get to the AGM. But we've been pretty vocal with the company. We'll be meeting with the company prior to the AGM meeting with the board and sharing our, you know, concerns and views. And then again, we'll be putting voting intentions together before the AGM based on all that information that we're able to clarify and collect. The annual report I think only came out about a week ago, so it's, it's still early days as we're working through all of that, but we're obviously very concerned with some of the, you know, reputational damage that's now been done to the company that's, you know, obviously been damaging for shareholders and you're seeing that in the, you know, the share price that's been dropping through these, these last few weeks as more of these issues have been coming to light.

Steve (14m 41s):

We're obviously also concerned about the board because when you think about what a board's supposed to do, board's really there for oversight and governance of the company. They're not there to run the company, but they are there to oversee management and ensure that management are, you know, are doing the right thing and protecting all of the stakeholders and, and looking after the company making good decisions, et cetera. And when that doesn't happen, you are very much within your rights as a shareholder to question the judgment and the transparency, et cetera that the board has been providing or has, you know, been fulfilling. So we've got some pretty significant questions and concerns now for all of the board and, and certainly the chair who's, you know, essentially the first amongst equals on a board around, you know, what they knew when they knew it, what they're gonna do about it.

Steve (15m 27s):

We've seen on remuneration that they've announced they are gonna hold back some of the bonuses in the short term while they wait to see how the ACCC investigation plays out. They've also talked about potentially clawing back some of the past CEO's bonuses. So we'll continue to watch that. We won't let that drift off into the sunset. Those will be things that we're, you know, continue to watch and comment on as we put together our voting intentions and our AGM report.

Phil (15m 52s):

And we were referring to lifestyle companies before and it seems to be bit of an aspect. Did you see that Joe Aston article about Alan Joyce in the AFR It was a few weeks ago. I've

Steve (16m 2s):

Read lots of Joe's columns on QANTAS And, you know, Joe's a very entertaining and and cutting journalist, but he often does get to the heart of the issue I find pretty quickly and, and then applies a blowtorch that isn't necessarily being applied elsewhere. So I always enjoy reading Joe's columns and seeing what he's got to say about, you know, our, our companies and our directors and our CEOs. It's, it's always a good read.

Phil (16m 24s):

Yeah, I think there was a great line where he was talking about Alan Joyce's closing the gap strategy meant buying the penthouse apartment ne next door and knocking out the wall in between.

Steve (16m 34s):

Yeah, exactly. Yeah, no, there's plenty of pl being plenty of material for him to be talking about, so, and I don't think, think it's gonna go anytime soon. I'm sure this is gonna continue to drag on all the way through to the AGM and there'll be lots more, you know, reporting and commentary made over the next month as we get closer to the AGM.

Phil (16m 49s):

So Fortescu, you were talking with Tony and Kim about Fortescue as well and about the FFI Green Energy Company, which you seem to be taking a dim view that they're allocating capital to green energy and taking it away from Fortescue, which is actually where the profits are being made. Yeah,

Steve (17m 6s):

I wouldn't, well I wouldn't necessarily say that we've taken a strong view on that. It's just something interesting to note that, you know, as you see what the companies, you know, planning and reporting this year as they publish their annual report, things have changed a little bit from where they were a year ago. They, you know, they've been allocating a certain percentage of their profits to, to the FFI or the, you know, the green energy side of the business. And I think it was about 10% that they had been allocating up until now. And I think what they announced was that they're now gonna start to review the projects on a more of a case by case basis rather than just an arbitrary percentage of for skew's, you know, iron ore profits. But what they did also say that I thought was interesting was that the returns on the green energy business business may not be as high as they were on the iron a ore business.

Steve (17m 52s):

So I think if you're a shareholder of Fortescue, that's just something to be aware of that they're allocating capital, you know, almost away from the iron ore business or away from, you know, potentially dividends to shareholders into the Green Energy or the F F I business that's probably gonna have a lower return based on what they're saying. Now that's not necessarily good or bad, it's just something to be aware of, I think as a shareholder that that's a, you know, certainly a change in the business from where it was a couple of years ago. What we'll be digging even more into though is what's happening again at board level and what's happening again at management level has been a lot of management turnover at for Fortescue over the last 12 months. Lots of, you know, C-suite type executives coming and going.

Steve (18m 32s):

And that's something again that, you know, we'll dig into because i I, if you think again of one of the core roles of a board, it's really about succession planning and overseeing and developing talent within your management team. So if you're turning over your management team a lot, there's probably two things happening there. Either you're, you know, you're possibly not recruiting or developing the right people or when you have put them in place, you're not all aligned and not all on the same page and they're leaving. But both of those situations aren't great for the stability or the long-term performance of the company. So look, we, none of us really know what's going on inside a business at that level. We can only make our assessments based on the public information that the company puts out.

Steve (19m 14s):

But as a general rule, we don't like to see, you know, lots of management turnover at a company and it does, you know, have us dig into, you know, what's happening at board level and how the board are viewing management planning and management succession.

Phil (19m 26s):

Yeah, you'd think it was a bit of a, a red light, a bit of an alarm bell going off, wouldn't you? Well

Steve (19m 31s):

It certainly can be. Yeah. I mean maybe sometimes there's good reasons for it, but often yeah, when you do see a lot of management turnover, it tells you that there's some instability or you know, unhappiness in the, in the team. So it's certainly something as a shareholder you should be looking for.

Chloe (19m 45s):

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Phil (20m 2s):

You also referred to, or maybe Tony referred to Warren Buffet and yeah, how he sees a CEO's main job as being a capital allocator. And we've been just talking about capital a lot in this podcast, but it's often something that A CEO doesn't have experience in on the way going up that they've actually suddenly now got all this capital to deal with and how are they going to allocate it appropriately to benefit shareholders?

Steve (20m 25s):

Yeah, exactly. I mean if you think about it, there's lots of ways that the capital can be moved around in a business. You can invest it in new ideas, new opportunities, future growth, you can return it to shareholders at dividends, you can just leave it in the bank and earn interest on it. There's lots of ways that you can utilize the capital that you've got in the business and when you think about, you know, what your CEO's core job is or you know, probably one of their most important functions, it is to allocate that capital as well as they possibly can. If they don't have a great idea for reinvestment for future growth, they probably should give the capital back to shareholders in dividends or buybacks or whatever it might be. If they've got great ideas and they can get a really good return on the capital, then a lot of the time, you know, it might be better for them to reinvest the capital rather than returning it as dividends.

Steve (21m 11s):

So those are big decisions and they're not easy things to get right all the time. They probably involve a bit of guesswork and a bit of, you know, crystal ball work and all that kind of thing about what the future's gonna hold. But again, that's something you do wanna be looking for, I think in your CEOs is you know, how well they're utilizing and allocating the capital and what kind of return they're getting on the capital over time that they've got to use in the business and some things to look for. There again are, you know, for example, back to capital raisings, if they do a capital raising and they do it at a really big discount, for example, and, and really dilute the business more than they need to, and you'll see that where there's a, you know, significant oversubscribing of the capital raising that tells you they could have raised money at a lower discount because if you've got way more people applying for shares than you're allocating, you didn't necessarily need to discount the shares as much.

Steve (21m 60s):

So that's a good one to look at. Are you CEOs, you know, doing capital raisings where they're getting, you know, lots more money in than they needed and if so they're probably given away a bit too much. Now we can all make mistakes, but you wanna be looking for a trend of those kind of things with, with CEOs, I think so, yeah, that's a, it's a tough job I'm sure to be a c e O and to figure all these things out, but as a shareholder, that's something you really wanna watch how well they're allocating the capital. And

Phil (22m 24s):

Of course if they're allocating the capital to buying companies overseas, that can be another danger to signal, can't it? Yeah,

Steve (22m 29s):

E e exactly. Yeah, we were talking about that I think on, on the, the previous episode. But yeah, there's been lots of unfortunate stories, I guess, of Aussie companies that have expanded internationally or tried to acquire businesses internationally and, and domestically as well, but only anecdotal, but but roughly two thirds of acquisitions that our listed companies make don't normally work out as well as they're proposed at at the time the acquisitions made. And certainly internationally, I, my guess is it's probably even an even lower strike rate. So that's something you wanna be looking for too. If a company's raising capital or using debt or using some of their cash to, to make an acquisition, just remember that, you know, roughly two thirds of the time they don't play out as well as, as the company was expecting for a whole myriad of reasons.

Steve (23m 15s):

And when they do make an acquisition, you obviously you wanna look at that really closely and and make sure that, you know, you are very confident that it is gonna be earnings, a creative or a good acquisition for the business over the long term. And when it's international, the risks are even higher because it is harder to know what's the detail and what's happening in an international market or you know, an international business compared to, you know, one domestically that you can be much closer to And, you know, understand a lot more about potentially. So, so just something to bear in mind when your companies are doing acquisitions more go wrong than right. And, and the international ones probably get even even less successful over time for

Phil (23m 51s):

And because it's another one of those success stories, isn't it? Because CEOs and management, they want to talk about how great this is going to be for the business. And so they're, of course they're pumping this kind of idea up, aren't they? Exactly.

Steve (24m 2s):

And, you know, sometimes they can be Very good reasons to do it. If you're a pretty mature Aussie business, then we've got a, you know, a relatively small market, we're about 25 million people and it's a pretty, you know, mature economy I suppose. So sometimes, you know, if you do want to keep growing your business, it may make sense to expand internationally and if it's complimentary to what you've already got domestically, there's no reasons, you know, specifically not to do that. But as always, all these things, the devil's in the detail. So as a shareholder I think you wanna be looking really closely at the specific business they're acquiring or adding on And, you know, what management expertise or knowledge that they would reasonably have to embed that business into the existing one And, you know, what are their chances of success?

Steve (24m 41s):

And, and again, it takes a bit of guesswork, but wouldn't necessarily say it's always a bad thing that Australian company expands internationally. It's just the risks are probably higher than when they're just expanding domestically

Phil (24m 51s):

And just watch out for that word synergy.

Steve (24m 55s):

That's right, yeah. I mean sometimes it can go well, I think we, we talked about an example recently with, with Nick Scali the furniture business where,

Phil (25m 3s):

Well, that's a local, but that's a local acquisition.

Steve (25m 5s):

That's right. But it has gone very well. So, you know, there are certainly times where companies acquire other businesses and, and they do get that synergy you mentioned, where they are able to reduce costs by, you know, efficiencies of having, you know, two brands or two businesses now. So in the case of Nick Scali, they bought the plush sofa business and it was a, you know, a different position in the market, I think and a different, you know, kind of customer segment to, to the Nick Scali core customer. And they have integrated it really well. So when you look at that a few years later, you go, well that was a really successful acquisition, And that C e o, Anthony Scali has probably done a good job along with his team of integrating plush into the, the Nick Scali operation and bringing some of the best practice strategies and operational skills that Nick Scali has to the plush business.

Steve (25m 50s):

So that would be a time, I guess for example now where I'd look at Anthony Scali and go, well, he's done a good job with capital allocation there. Mm. That's probably gonna give me a higher degree of confidence in the future if he looks to do another acquisition at some point. Doesn't, again, it doesn't guarantee it'll go as well next time, but it, it gives you a bit more confidence that they've obviously done a good job with their due diligence and they're planning on this first acquisition that they've made as a company.

Phil (26m 14s):

I also just wanted to point out in terms of getting in touch with management or hearing what management have got to say directly as analyst calls now it's pretty easy to jump onto an analyst call and you're presuming that the analysts that are asking the questions are some of the finest minds in the finance industries, but often the questions they ask, and I've jumped onto a couple of them over the last couple of years just out of interest and it's incredible the lack of depth to the questions that are asked.

Steve (26m 46s):

Yeah, yeah. Unfortunately we don't probably have as many analysts in Australia now as we once did, which means I think they're probably spread a lot thinner than they used to be in terms of how much time they can really devote to each company that they cover. And yeah, I do tune into most of the presentations that the, the companies that I invest in give and, and try and listen to those earnings calls or, you know, AGMs, annual report updates, et cetera, half year report updates, all those kind of times where management's, you know, put on a call or a webinar and speak to their investors. And you'll often have, you know, four or five analysts on that call as well that are from, again, the investment banks or the brokers, the fund managers, et cetera.

Steve (27m 28s):

And, and at the end of those briefings you normally get some analyst questions and And, you know, sometimes there can be really good questions from some of those analysts that maybe have covered the company for a long time. But equally there can be some pretty, you know, skin deep questions I think where it's just a quick, hey, you know, are you gonna grow again next year at the same rate you did last year? you know, that kind of stuff. So I guess my personal takeaway from all of this is, you know, listen to those calls if you can and see how you c e o or your management team responds to those questions, you know, how frank and transparent and detailed are they with, with answering those questions. But feel free to ask some questions yourself. And I, and I've got a few examples of some questions that I'm gonna be asking of some of my companies in upcoming agcs and I can give you that are probably a deeper or, or a, you know, more probing question than maybe you'll get on a, on an analyst's call at times.

Phil (28m 18s):

Okay. Let's have a listen to those questions. Well,

Steve (28m 21s):

Yeah, there's

Phil (28m 21s):

A, so there's a company JB HiFi isn't it? Yeah, yeah.

Steve (28m 23s):

These are just examples obviously, but you know, I, I do as a habit now, read through the annual reports of all the companies I invest in and, and then I, you know, look at the resolutions that they're putting to shareholders to vote on and in particular remuneration and the board. 'cause I think they're the two things that are really important to you as a shareholder. What kind of directors or what kind of board have you got overseeing your company? And then how is your executive team being paid and, and incentivized? So, you know, JB HiFi for example, I own shares in JB HiFi. Certainly not a recommendation, just, you know, using it as an example of, you know, a couple of questions you might be interested in or might be wanting to ask this season.

Steve (29m 4s):

So they have a

Phil (29m 5s):

Kind of gives, it kind of gives you the ticket to the AGM, doesn't it? Yeah,

Steve (29m 8s):

Exactly. That's right. So they have a couple of interesting metrics on their remuneration structure. One of them's around employee engagement. So basically they measure how engaged their employees are every year through some kind of survey, I imagine. And then they report that to shareholders and And. that is a really good thing to know because if you've got a whole bunch of people working for your company that aren't engaged or aren't committed to the business, they're probably less likely to deliver good results compared to someone that is really engaged that does care about the company a lot more. So what I'm proposing to dig into here with them is how are you measuring your engagement?

Steve (29m 49s):

It's listed as a key metric for management and one of the ways that you're incentivizing management. So, you know, how do we know our employees are engaged and what's the tool that you're using to measure it to make sure that it's hopefully a, a really legitimate tool. They also, you know, don't specifically call out this year what are the key financial metrics that management are being incentivized on. So last year or and previous year it's been rolling four year earnings growth and they, you know, shared that retrospectively. But I wanna know what this year's financial metrics are that management are working towards. Is it something that's aligned with me again as a shareholder? Are management trying to grow the earnings per share or are they trying to grow the revenue or what's the actual metric?

Steve (30m 32s):

So given that that wasn't disclosed, I plan to dig into that and ask them, you know, what are the specific financial metrics? Now they may not tell me 'cause they haven't disclosed it in the annual report that I could find, but hopefully they'll answer and you'll then get an idea about whether the c e o and the management team are, you know, working on a metric or being paid on a metric or incentivized on a metric that's, you know, consistent with what you'd want as a shareholder. So there are a couple of examples at JB Hi-fi, there's another ASX 200 company called Codan, probably not quite as well known to most people. It's a south Australian based business that's been around for a long time and it does metal detectors. So they sell metal detectors all over the world for hobbyists and, and mines and military applications.

Steve (31m 14s):

They also have a communications division that provides communication equipment to first responders all over the world. So think, you know, ambulance fire services, also broadcasters, so think, you know, channel nine showing the, the cricket they might be using codes equipment to broadcast and interview, et cetera. So specifically on Codan, they're a bit different to a lot of listed companies. They have quite a small board. There's only five board members at Codanof which one of them is the, the C E O. And what's notable I think is that they publish a skills matrix in their annual report like most companies do. And I like to look at that to see, you know, what are the skills that the directors that are currently on the board have and are they the right skills or the best skills to kind of oversee and, and take the company forward?

Steve (32m 0s):

And what's noticeable this year is they had a couple of directors resign last year that had a lot of military and metal detection type experience over many years. Those directors have resigned, they've replaced them with a couple of new directors this year that don't have the same skills. So what I want to dig with them here is, you know, you've got a small board, but it looks like you're missing some really key skills around someone with extensive military experience. Someone with really extensive communications experience, someone with us experience. 'cause a big part of their business is now in the us So is the board addressing that? Are you planning to add additional directors? you know, how are you gonna plug those skills gaps going forward so that we've got some people on the board that are asking the right questions of the management team in the future. And again, hopefully we'll get a good answer at the ag g m to those questions.

Steve (32m 43s):

What is the chair and the rest of the board thinking and doing there in terms of plugging those significant gaps they now have on their board? In my opinion,

Phil (32m 51s):

We'll get back to the show right after this brief message. Why am I buying, holding, or selling a share? If you can't answer that basic question, then you don't have a plan. The best investors are ruthless in executing their plans. I've been fortunate to meet many great investors on the podcast. Tony Kynaston is one of the best. He has a clear and systematic approach to investing that is honest, sensible, and methodical. It's called QAV Quality at value. Q a v now offer an excellent light plan for only $29 per month. You can follow their buy and sell recommendations and learn the ropes and the first month is free using the promo code SFB l go to qav podcast.com au to sign up.

Phil (33m 32s):

That's q v podcast.com au. Using the promo code SS f b light past performance is not a guarantee of future returns. Please read the Q A V F S G and consult a financial professional before investing. I receive a small commission for services I recommend, and I only recommend services I use. Myself and the shareholders association are advocates of diversity on boards and some people see this as woke doism, but you've had some experiences, especially when you're doing your company directors course, which kind of maybe not changed your mind but showed you the, the, the value of having diversity on boards. Yeah,

Steve (34m 10s):

Absolutely. It's a really interesting point and I know it can be somewhat controversial sometimes to people around, you know, targets or quotas or whatever you might call it around diversity on, on boards in particular. And one of the easiest ones to identify is gender. Of course. you know, it's easy to figure out how many males and females you've got on a board and for a long time the ASA has supported the same kind of principles that the ASX asks for and institute a company directors ask for, which is at least 30% female representation on board. And 10 years ago we didn't have that. We had a much smaller percentage of females on our major company boards and we've been advocating for quite some time to get that up to at least 30%.

Steve (34m 53s):

We've now moved in line with kind of a few of the other super funds as well that are looking for what's called 40 40 20. So that's 40% female, 40% male, and then 20% can swing or move. And why is that important? Well again, if you think about one of the core or the most important role of a board, it's to oversee the company. And one of the best ways to oversee a company is to have a diverse range of experience, background, you know, knowledge to ask the right questions and probe into the right issues. If you've got a whole bunch of people that all have the same experience from the same background, from the same industry, you know, obviously the same gender at times, it's more likely that they're all gonna think pretty similarly And that they may not be asking the question that they weren't aware of or that they didn't think of because they don't have, you know, different experience.

Steve (35m 44s):

So I had a, you know, really good personal experience with this when I did my company directors course, I'd previously, you know, had a private business and we had a board and we were all the same, we're all a bunch of, you know, Aussie guys from the shoe business that all had a pretty similar, you know, history. And as I reflected on it, I realized that, you know, there were lots of things we didn't know or that we hadn't experienced that weren't necessarily good things to be missing on our board. We got a little bit lucky, but when, when I did the company directors course, one of the things they do, There, Is put you through a mock board scenario at the end of the course and they'll say, you know, you are a board of listed company X. Here's a problem that you've got. What are you as a board gonna do to try and solve this problem?

Steve (36m 25s):

And in my group they break you out into a, you know, a dummy board situation. And in my group we had a lady who was in the legal department of Virgin Airlines. We had a lady that was the financial controller at one of the super funds. We had myself, we had a, a doctor from one of the top hospitals and we had a, a senior officer from the military. And so you get this problem and you all start to read it on your own at first And, you know, see if you can figure it out before you meet as a group. And I read it and I thought, oh, I've got all the answers, I know what to do here. And then realized as we then started to talk about it as a group, that the rest of the group were asking some really different questions or coming up with some really different ideas or issues that I just, you know, wouldn't have thought of with my lack of knowledge or expertise from their respective areas.

Steve (37m 11s):

So it really showed me that having a broad different range of experiences, backgrounds, et cetera, is much more likely to get you to the right outcome or a better outcome than if everyone's thinking the same and only has the same kind of solution to a problem or an opportunity. That doesn't mean that, you know, people should just get appointed to a board based on their gender of course or any kind of, you know, diverse background. Of course you wanna be qualified and have the right skills that the company needs, but equally it doesn't mean everyone should be the same or we should have only have all male or all female boards or all the same age or all the same industry. you know, that's not really gonna give you the best chance of overseeing the company and managing risk and opportunity.

Steve (37m 53s):

So yeah, just a personal experience, but yeah, I do now see the value much more in why various bodies and folks recommend or advocate for as much diversity as possible along with, you know, the skillset and the experience that's relevant or right for that particular company.

Phil (38m 10s):

And let's face it guys, and especially in in this end of the, the corporate world and the the business world often do suffer from overinflated egos, which we

Steve (38m 19s):

Yeah, exactly, we can

Phil (38m 20s):

As much that's only anecdotal, but yeah,

Steve (38m 23s):

Well there's there, there's actually, you know, I've read quite a bit of research actually that shows, you know, again, on average these things are all averages. Of course there's exceptions, but on average women actually get better investment results over the long term than men do as a bucket. So I wonder aloud sometimes why that is, is it because men are overconfident and they take more risks on average and women are maybe a little more conservative and a little more, you know, long term in their thinking? Who knows, right? It's hard to know for sure, but there's certainly some good research that's looked at male versus female brokerage accounts over the long term. And on average the, the female bucket tends to outperform the male bucket a little bit, which you wouldn't think when you come into our industry and see how many men there are and how many men are in the media and how many men management funds, et cetera, et cetera.

Steve (39m 5s):

So yeah, maybe that's another good example for why it's good to have a bit more diversity and a range of views and experience around the table.

Phil (39m 12s):

So Steve, how can listeners get in touch with the shareholders association?

Steve (39m 15s):

Yeah, so the best way of course is via the website, australianshareholders.com au. There's lots of great information on there, plenty of free information that you can access and obviously the voting intentions are on there, like we talked about earlier. If you're interested in, in looking at, you know, companies we monitor and how we're proposing you voted in AGM, just

Phil (39m 34s):

Tell us, just tell us in the menu where you get that because that's in, where is it? Yeah, so in the menu

Steve (39m 39s):

Advocacy, ASX monitoring and shareholder advocacy. So you just click on that little box and go to the dropdown that says Companies we monitor. And you can find all the info in there if you put the ticket code, if your company in, it'll tell you whether we cover it or not. And, and again, just a reminder that those reports generally only go up a couple of weeks before the AGM, so you need to be, you know, relatively close to the AGM before you can see them. We also hold member meetings all around the country, so you can normally attend those for free the first time just to come and check it out and see what it's all about. Those are all listed on the website too, so you can click into events or, or members and and see where the next member meeting is, local member meeting if there's one in your area and you're always welcome to yeah, to come and attend and see what the meeting's all about before becoming a member.

Steve (40m 22s):

So there are probably a couple of great ways to find out a little bit more about us and, and yeah, of course you can always contact us as well via phone or email if you'd like to talk to anyone and find out a little bit more.

Phil (40m 32s):

And if you never wanna have to think about those pesky proxies again, you can do it in bulk can't you? And you can,

Steve (40m 38s):

Yeah, that's right. So there's really two ways to allocate your proxies if you just wanna do it case by case, that's where you do write in Australian Shareholders Association into your form or the email online or if you wanna do it, you know, more on an ongoing basis. The other way you can do it is actually to to contact the registry and they can send you a form where you can out permanently allocate your proxies to the shareholders' association for each of the companies that you own. Now if you do sell your shares and rebuy them, you'll have to redo that. Unfortunately, it's a bit clunky, not exactly the way we'd love it to work, but it is easier obviously if you're just happy to permanently allocate. And when I say permanently, you can change it at any time, but so that you don't have to think about it anymore. If you are happy to keep doing it, you can just contact the registry, get the form, put your companies in there and write in Australian Shareholders Association and they'll then each and every AGM allocate your proxies that way to us until you tell them not to.

Phil (41m 31s):

Yeah, and I just wanted to add as well that going to those meetings, they're a great gateway drug into getting into the association and meeting other fellow investors and especially people who've had a lot of experience for a lot of their lives as well that can share That's right, yeah. Experience as as investors and also as people who've worked in certain industries. Yeah,

Steve (41m 50s):

We've got thousands of members who attend those meetings every month and as you say, there's lots of wisdom and experience in the room. So if you, particularly if you're newer on your investing journey, that can be a great place to, you know, pick the brains of some people that have been investing a long time in the share market and, and probably have some, you know, some learnings and some battle scars that they can share with You. And that's the nice thing too. It's very independent, but you're not being pitched to or sold to in those meetings by other members. It's really members talking to other members and sharing their experience. Of course, we have guest speakers that come along to the meetings a lot of the time too, so you can certainly hear from a company or a fund manager or an economist or a, you know, resource expert or whatever it might be each month. So there's certainly people that come along and talk about their story or their companies, but amongst the members you can obviously also have a really good, you know, face-to-face chat and, and pick their brains if that's something that you think could be helpful for you.

Phil (42m 39s):

Fantastic. Steve, thank you very much for joining me again. Thanks

Steve (42m 42s):

Phil, real pleasure to have a chat again, as always, And, you know, thanks so much for all the great work you are doing for investors with the podcast. I, I listen regularly and I'm sure lots of other people really appreciate what you do too. So thanks so much for, for getting all these great guests on and sharing knowledge with us as investors.

Phil (42m 58s):

Shucks. Thanks Steve. No worries.

Steve (42m 60s):

Thanks Phil. Much appreciated.

Chloe (43m 1s):

Thanks for listening to Shares forBeginners. You can find more at Shares for Beginners dot com. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.