Bruce Sheppard - colourful defender of the small shareholder

By NZPA

Tuesday 8th October 2002

It's still a small force in the world of business but since its formation last May, the Shareholders' Association has wielded a surprising amount of influence.

And right at the helm is colourful Auckland accountant and chairman Bruce Sheppard.

Sheppard, who recently showed up to a Fletcher Forests shareholders meeting in hard hat, checked shirt and shorts, isn't afraid of calling a spade a spade.

In that case, he was opposing the sale of Rubicon shares to Fletcher in a deal which would see Fletcher Forests and Chinese company Seawi snap up the Central North Island Forest.

But the deal failed to get sufficient shareholder support, an outcome which Sheppard said at the time was not so much a victory but a triumph of "voice".

Sheppard's group has few role models, although he believes various groups have tried indirectly to represent smaller shareholders over the years. A similar organisation rose in the '60s only to sink into obscurity again.

"I suspect that part of the reason is that our market is very small, the number of individuals that invest in the market extensively is also small in number... and the flames of discontent had not risen to the point where enough people felt it was time for something other than relying on regulators, to be done."

But Sheppard sensed the climate was changing, and catalogues a long list of aggravations including the fall of Brierley Investments, "Carter Holt's collapse in share price, the destruction in wealth perpetrated by various other bodies over a decade, excessive remuneration, poorly structured option contracts, (and) dysfunctional shareholder meetings where you did only go along for the tea and biscuits because there was no other point".

In Sheppard's case, the final straw was the offshore migration of Brierley, now BIL International.

He was irked by the move which in his view served only "the interests of the largest shareholder...(Camelin) and the absolute callous disregard for everyone else's interests as part of that process."

Sheppard gained notoriety at the company's last annual meeting in New Zealand by wearing a tommy hat and peppering the company with questions.

He thought about forming a small shareholders' lobby group for six months, publicised his thoughts in the media and waited for a response.

At the end of the "drum bashing exercise", he had 40-odd names of willing members, but was unprepared for the 150 people who turned up to the first meeting.

Currently the group has nearly 400 members, who between them voluntarily do research into issues that concern small shareholders.

Sheppard says his primary concern is to see company boards treat shareholders with respect, and see shareholders take up their responsibilities.

"The key thing that I'm concerned about is that shareholders should behave like owners, not like casino gamblers or traders or bankers," chasing share price movement or yield.

"And the reason for that is the way that management and directors interface with shareholders has been to treat them as irrelevant and cheap bankers."

Shareholders also need to pull up their socks, he says. They should buy into businesses that they believed in, back them and always exercise their votes.

But in order for them to feel useful, "it's fundamentally important that they feel they have a say, that their say is important, that what they say will be respected".

Sheppard's not shy about using the media to communicate issues, or galvanise interest. And it's worked. IT Capital complained Sheppard's campaign against a management-led investment plan was largely the reason why it partially failed at a shareholders' vote.

His own experience in the sharemarket comes from quiet investments over time. Although Sheppard does not mention any, he is known for his stake in Christchurch-based company Connexionz, which has devised an electronic passenger information system.

"Almost universally it's never the business that goes wrong, but the people running it," he notes.

"When I've lost money it's been on things like Brierley, Air NZ... What has happened is the business itself isn't stuffed, it's the macro decisions and the governance issues that have caused major problems. Whereas on the other hand, `boring-as-shit' companies that are well run make money and governance and ethics make a huge difference to a boring business."

Governance and ethics are the areas he personally plans to crusade on in future. In a year when Enron fell, Sheppard fears the corporate governance debate is being hijacked by money-hungry consultants wanting to devise new rules.

"If you give him a checklist to fill in, a crook will find his way through the checklist, comply with them and still find a way of ripping you off," he observes.

"My definition of appropriate governance is doing the right thing, more often than not. My definition of corporate governance is: performance, accountability, transparency, honesty, integrity and ethics, at an individual level."

Auditors and directors' fees are both live issues for the association this year. First stop, Telecom's annual meeting this week (Thursday). The Shareholders Association has generically called for firms to separate their auditors and accountants, a move which Telecom has since concurred with.

"I do not believe an audit firm should have more than 15 percent of its fees from any one client, because at that point ...they are vulnerable to losing that client and are not in my view, financially independent."

But it still has a beef with Telecom's directors fees. It calls for an end to retirement fees and share options, but surprisingly, Sheppard does not begrudge paying directors and senior executives high fees -- in fact he believes paying directors a flat fee each year is "dumb".

"We should find a way of paying directors for delivering above average performance and incentivising them. I am not hung on directors getting less fees, I want them to earn more fees, but I want them to work for it."

Options are disagreeable to Sheppard because they give people an incentive to manipulate the company's share price. He favours bonuses being paid in stock which cannot be sold for five years, or at retirement so directors have an interest in the long-term state of the share price.

The association also wants Telecom's board to report back on how its executives are remunerated. However, that's not a criticism -- in fact, outcries over Telecom chief Theresa Gattung's multi-million salary package leave Sheppard unfazed.

"In the US there is a culture of greed and in New Zealand, we have a culture of envy. We look at the remuneration that senior executives earn and say, `Good God, the average wage in the country's $28,000 a year and Theresa Gattung is running off $1.8 million. Is that fair?'

"Well it may well be fair. The issue is not what she's paid, but what she has been paid to do. And we want companies to aggressively explain to shareholders...so it's very clear how that remuneration has built up."

Lest it ever be alleged that the Shareholders Association lacks a sense of humour, expect it to launch its own awards very soon -- the Beacon award for the best public company and the Gold Finger for the biggest -- not to put too fine a point on it -- "pillock of the year".

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