‘Everyone is accountable’: Perpetual calls for Crown clean-out

The casino operator’s biggest institutional shareholder has called for all of the board — including chairman Helen Coonan — to consider resigning.

The casino operator’s biggest institutional shareholder has called for all of the board — including chairman Helen Coonan — to consider resigning. Photographer: Adam Yip

Crown Resorts’ biggest institutional investor, Perpetual, has broken its silence on the NSW gaming inquiry into the James Packer-backed casino giant, calling for all of the board — including chair Helen Coonan — to consider resigning following damning evidence of governance and compliance failures at the company.

Perpetual’s head of equities, Paul Skamvougeras, said the NSW Independent Liquor and Gaming Commission inquiry into Crown had “highlighted serious issues in governance and risk management at Crown”.

“It presents an opportunity for Crown to emerge with a significantly improved governance and risk management framework. Also a board that represents all shareholders,’’ Mr Skamvougeras told The Weekend Australian.

“Every Crown director needs to reconsider their position on the board and renewal must take place in an orderly manner.”

Perpetual voted its 9.3 per cent shareholding in Crown against all the resolutions at the company’s annual meeting on Thursday, which led to a first strike against the remuneration report, where more than 25 per cent of shareholders voted down the report.

Mr Packer’s Consolidated Press Holdings abstained from voting its 37 per cent interest to support the resolution. A second strike at next year’s AGM could lead to a spill of the board.

Billionaire James Packer. From source: https://www.nswcasinoinquiry.com/submissions-hearings

Mr Skamvougeras held discussions with Ms Coonan ahead of the AGM, and said he also expected she should consider her own position after presenting herself at the inquiry and at the AGM as the person best placed to lead the company forward.

“The chairman talks to accountability and setting the tone from the top. Every member of the board is accountable, including the chair,” Mr Skamvougeras said. Ms Coonan has been a Crown ­director since 2011.

Other Crown investors are also angry about the damning evidence presented to the ILGA ­inquiry, highlighted in the unprecedented protest votes against the three directors for re-election at Thursday’s AGM: Jane Halton, Guy Jalland and John Horvath.

Mr Horvath, Crown’s longest-serving independent director, revealed at the meeting that he would retire from the board given the vote against him.

On Friday the ILGA inquiry wrapped up its public hearings after a marathon 48 days of evidence spread over nine months.

Commissioner Patricia Bergin will report back to the ILGA on February 1 on whether Crown is a “suitable person” to hold the ­licence for its Barangaroo casino in Sydney. If it finds Crown is unsuitable, Ms Bergin will report on what changes would be required to make it suitable.

However, under the terms of the licence Crown signed in 2014, it is entitled to claim compensation worth 10½ times the estimated negative financial impact from any government action that affects the licence.

The government also cannot amend the Sydney licence without the agreement of Crown.

But Crown is not entitled to compensation if ILGA terminates its licence outright on “disciplinary” grounds, which can include finding that it is unsuitable.

Throughout the inquiry, Ms Bergin has expressed concern about the degree of control exercised by Mr Packer over Crown given his departure from the board in 2018 and CPH’s reduced shareholding since May last year following its sale of shares to Melco Resorts, which were subsequently sold to private equity giant Blackstone.

Cutting ties

The Crown board took decisive action this week in terminating a services agreement with CPH and a controlling shareholder protocol mechanism, both of which have allowed Mr Packer to receive confidential information about the company since he resigned as a ­director.

Mr Packer himself admitted in his evidence to the inquiry that the protocol had to go and that caps may be put on his future shareholding in the company.

Ms Bergin may also find he is not a suitable person to be an ­associate of Crown, citing the ­extraordinary threat he made to Melbourne businessman Ben Gray in 2015 during talks for a planned privatisation of Crown.

How Mr Packer reduces his interest remains a difficult question. Ms Coonan acknowledged at the AGM that unwinding such a significant position would be complex. Blackstone, which owns 10 per cent of Crown and has applied to the NSW gaming regulator for approval to increase its interest, is seen as the most likely buyer of at least part of Mr Packer’s stake if he looks to or is forced to sell.

Blackstone was one of several parties that held talks with Mr Packer’s CPH in 2015 about partnering in a potential privatisation of Crown.

It has been previously speculated Blackstone may seek to engineer a restructure of Crown to release value from the group’s substantial property portfolio.

But Blackstone must pass probity to buy more Crown shares, which is a protracted process.

One point in Blackstone’s favour on the timing is the fact it is already a casino investor, owning the Cosmopolitan casino and the property assets of MGM Resorts’ Bellagio casino, both on Las Vegas’s famed strip.

The private equity giant may also be six months into the probity process if we assume it lodged its application at the end of April, when it bought into Crown.

But it will also have to deal with the Foreign Investment Review Board, which has a significant backlog of transactions to consider after delays caused by the COVID-19 pandemic.

Last month Blackstone head of real estate Chris Tynan complained at a conference about the ­efficiency of FIRB and the government’s emergency crackdown earlier this year at the height of COVID-19 on foreign investment.

Mr Packer may soon look to offload up to 10 per cent of his shareholding to a strategic buyer — perhaps another private equity firm — to get some spark into the Crown share price and begin his staged exit before Ms Bergin hands down her findings.

The worst-case scenario for the billionaire would be a forced selldown in a block trade into the market at a deep discount, especially given Crown shares have fallen 30 per cent this year.

As another fund manager quipped this week: “We wouldn’t touch Crown with a barge pole”, especially given the announcement on Monday of financial crimes regulator Austrac’s investigation into Crown Melbourne’s dealings with its junket partners, which bring offshore high-rollers to Australia to gamble.

“We get huge pressure from institutional clients owning any ­casino stocks. You get less grief owning a coal stock,’’ the investor said.

‘Sufficient support’

Cathie Armour, head of financial services and corporate regulation at the Australian Securities & Investments Commission, told a parliamentary hearing on Friday that ASIC was “certainly very alive to the matters that are being covered by the (Crown) inquiry, we are watching that carefully. If there is a referral made to us, we of course will go and investigate the matter further.”

She was referring to the bombshell announcement late on Wednesday that former Crown chair Robert Rankin may be referred to ASIC for breaching his directors duties after refusing to co-operate with the Bergin inquiry.

Perpetual has been privately questioning the influence of Mr Packer over the Crown board for at least the past year.

A letter sent by the funds management giant to Crown over 12 months ago criticised the composition of the board, with particular reference to the number of associates of CPH.

CPH chief executive Guy ­Jalland only retained his directorship at the AGM when Mr Packer voted his stake to support him, suffering the biggest backlash vote against a director in Crown’s history. But Ms Coonan supports him remaining.

CPH finance boss Michael Johnston also declared at the AGM he should remain on the Crown board despite the cloud hanging over him from the inquiry. He also has the strong support of Ms Coonan.

Perth businessman John Poynton is also a CPH-nominee Crown director and a relative newcomer to the board.

Perpetual has also highlighted the extended tenure of Mr Johnston, Mr Horvath, John Alexander and Harold Mitchell in its private dialogue with Crown.

Specifically, it has argued for a rotation of directors with more than eight years’ tenure.

Mr Alexander resigned from the board at Thursday’s AGM and there is growing speculation Mr Mitchell and his fellow director, former AFL chief Andrew Demetriou, could step down, the latter after his disastrous performance before the Bergin inquiry.

Late last year Perpetual and other minority investors pushed hard for the separation of the CEO and chairman roles, which prompted the move to appoint Ms Coonan in January as Crown’s first independent chairman.

Ms Coonan told Thursday’s AGM she was now looking for ­“astute, qualified and fiercely independent directors working in the best interest of all shareholders” and outlined an extensive reform agenda for Crown to strengthen its risk management processes, especially its anti-money-laundering functions.

So far as chairman she has said all the right things but as another fund manager said on Friday, the track record of former politicians chairing public companies is not good.

One of her allies will be former top public servant and ANZ director Jane Halton, who said on Thursday she considered resigning given the proxy vote against her at the AGM. But given 75 per cent of the votes cast were in her favour, she believed she had “sufficient support” to continue.

She has only been a director since 2018 and is believed to be deeply committed to changing the company’s flawed culture. Ms Halton and Ms Coonan have been in almost daily contact in recent weeks as the Bergin inquiry has reached its climax.

Sydney opening

But none of the raft of reforms and changes outlined by Ms Coonan this week addressed what appears to be Ms Bergin’s biggest immediate concern: the opening date for Crown Sydney.

Ms Bergin has challenged the “good sense” of the planned ­December 14 opening before her report is released in February.

To open, or not

She pointedly asked Ms Halton whether Crown had considered “that it may be perhaps inappropriate to open a casino which is the subject of a suitability inquiry”.

Curiously she didn’t ask Ms Coonan the same question. That was instead left to counsel assisting Naomi Sharp. Ms Coonan gave a long-winded answer but suggested the timing was not necessarily in Crown’s hands.

“The management of Crown has been engaged extensively with various agencies and/organs of the NSW government and, as I understand it, the regulator, to be in a position to deliver the build, to deliver the opening” by February 14, she said.

Ms Coonan has also not been helped with the inquiry by her legal team at Minter Ellison, which became starkly apparent this week when it was revealed the firm sent Ms Bergin and her legal team a letter at 9.15pm on Tuesday complaining about procedural fairness and reserving Crown’s rights.

It prompted a sharp rebuke the next afternoon from Ms Bergin. “I do not think that adversarial correspondence helps anyone. Particularly Crown and particularly me,” she snapped.

Surprisingly, Ms Coonan revealed at the AGM that she had no knowledge of the letter.

Ms Coonan’s frustrations had crept out a day earlier in the witness box, when she said she would have preferred Crown to have acknowledged a statement of agreed facts or found “a better way of engaging … than having to have had such exhaustive hearings”.

It prompted Ms Bergin to recall a suggestion she made in January when the inquiry began that she expected everyone, including Crown, to own up to their problems when “there was no issue”.

Ms Coonan replied: “One has a lot of people who advise you on these things and so I think you can draw conclusions from that, commissioner.”

She gave evidence that Crown had not conducted a review of all the events surrounding the arrest and jailing of its staff in China because of legal advice that it could compromise its defence in a class action flowing from the affair.

The former federal communications minister denied to The Australian in January that she was risking her hard-won reputation in politics and now in business by taking on the Crown chairmanship at such a difficult point in the company’s history.

“I don’t think I’m being foolhardy about it,’’ she said.

“There are opportunities that come with all of these challenges.”

It has proved to have been one of the understatements of 2020.

She continues to look at the positives, declaring similar sentiments to shareholders this week. But whether she can finish the job she started will now probably be taken out of her hands by the likes of Perpetual and Crown’s minority investors. And Ms Bergin.