Family matters

Everyone loves picking on the children of the rich, particularly when they stuff up. Remember when One.Tel went down, taking the investments of James Packer and Lachlan Murdoch down with it?

The latest heir-gone-bad story involves Seven Network boss Kerry Stokes and his son Ryan. Yesterday, Ryan was up for re-election on the Seven board. Institutional investors voted against his re-election and Kerry was forced to his voting power to keep Ryan on the board.

The tabloids have had a field day, particularly the News Limited papers, which went with headline “Media heir’s job rescued by Daddy”.

The real story is a little bit more complex than that. As acknowledged by some of the institutions this morning, this wasn’t a protest vote against Ryan personally. Rather, it was a vote against the way Kerry runs his board.

For most of the last decade, institutions have been displeased with the lack of independent non-executive directors on the board – that is, directors who don’t actually work for the company or are not a related party (literally in this case) of the company’s major shareholder.

Independent directors are there to look out for the smaller shareholders and in a company like Seven, where Stokes controls around 40%, they are seen as being especially important.

Kerry told the company’s annual general meeting the issue of independence has been floating around for 15 years – although it appears he’s not really worried enough to make a change.

There was another protest vote at the Seven AGM yesterday, with a large block of shareholders voting against the granting of options to Seven executive directors David Leckie and Bruce McWilliam.

Stokes openly acknowledged that some investors considered the performance hurdles attached to the options were too low, but said the board considered the hurdles were fair.

While the daddy-saves-son story makes for a nice line, this is really a story about the clear tension commonly seen at companies where a large shareholder dominates.

The shareholders want change, the boss won’t budge and life goes on. It’s not best-practice corporate governance, but at least Kerry Stokes is upfront – an investment in Seven Network is an investment in Kerry Stokes and that’s just the way it is.