Boral defends board seats for Seven Group’s Ryan Stokes and Richard Richards

Building materials supplier Boral has defended a decision to appoint Seven Group’s Ryan Stokes and Richard Richards to its board.

Boral chair Kathryn Fagg is under pressure to seal her re-election. Picture: Jane Dempster

Building materials supplier Boral has defended a decision to appoint Seven Group’s Ryan Stokes and Richard Richards to its board, following criticism from major shareholders, while chairman Kathryn Fagg faces a battle for survival after influential proxy advisers recommended against her re-election.

The Seven duo were handed Boral board seats on September 28 to reflect Seven’s 19.9 per cent stake in the company.

However, the move drew the ire of investors John Wylie and Perpetual and also proxy advisers, who complained about the disproportionate nature of Seven’s influence compared to its shareholding, and lack of transparency over contractual arrangements between Boral and Seven.

Boral released a six-page rebuttal on Wednesday of concerns raised by “a few” shareholders over the appointment of the Seven executives.

“The board gave it considerable thought, and given the quality of the individuals put forward as nominees by Seven Group, the board was ultimately not uncomfortable with having two Seven nominees on the board on the basis that it was reasonably proportionate with the size of Seven’s shareholding,” Boral said.

Boral plans to appoint extra independent directors, including replacing current board member Paul Rayner, and said it had put in place information sharing and conflict of interest protocols to protect shareholders.

The Seven executives can be excluded from decisions where a conflict of interest may arise and where directors think Seven‘s interests might diverge from those of other shareholders, Boral noted.

Still, The Australian understands Boral’s explanation for the Seven board roles has done nothing to hose down concerns held by both Mr Wylie and Perpetual, along with proxy advisers Ownership Matters, ISS and CGI Glass Lewis.

Ownership Matters advised against the election of Mr Stokes and Mr Richards “in the interests of board balance”, director Dean Paatsch told The Australian on Wednesday.

Despite the conflict management protocol put in place, the proxy firm said in its advisory report that shareholders should “consider the likely impact on board dynamics should both Seven representatives be elected and one or both of the incumbent Boral directors seeking re-election fail to be re-elected”.

ISS also recommended voting against their election due to concerns over the level of board independence.

“Their appointments would result in Seven Group holding a potentially material disproportionate influence of the board and committees, whereas the notice of meeting and market convention may accept only one non-independent nominee,” ISS said in its report.

CGL Glass Lewis said it was reviewing its position, following Boral’s statement on Wednesday, after also previously advising against the election of the two Seven executives.

Boral will hold its annual general meeting on October 27, with Ms Fagg under pressure to seal her own re-election as chairman amid investor discontent over the company’s stuttering performance under her watch.

Ownership Matters recommended against Ms Fagg’s re-election noting Boral’s total shareholder return had dived 36 per cent in the three years to June 30, 2020, following the $3.5bn takeover of US building manufacturer Headwaters, along with multiple profit downgrades and the discovery of accounting irregularities.

ISS said a vote against Ms Fagg was warranted.

“As a director on the board which approved the Headwaters acquisition in May 2017, and subsequently as chair of the board, significant shareholder value has been lost. The company has now accelerated a whole-of-business review which includes the Headwaters business. Shareholders may seek accountability,” ISS said.

Ownership Matters said it was told by Boral the re-election of Ms Fagg and director Paul Rayner “would provide stability and continuity as Boral undertook its portfolio review under its new CEO in a difficult external environment. If re-elected Fagg would probably not serve beyond her term, expiring in 2023”.

Long-serving chief executive Mike Kane stepped down in August after a string of profit downgrades with new boss Zlatko Todorcevski to publish the results of a company-wide review by the end of October.

Boral also announced on Wednesday its finance and strategy officer Ros Ng, a 24-year veteran of the company, will also depart to be replaced by former Qantas executive Tino La Spina.

Shares in the company closed down 0.4 per cent on Wednesday, at $4.89.