Macquarie’s day of reckoning: Millionaires’ factory shareholders draw the line

Macquarie Group’s board has been served a rare taste of a dish called consequences de jour.
The financial group, commonly referred to as the millionaires’ factory and lauded for its entrepreneurial and innovative culture and growth, is feeling the ire of shareholders who are concerned that executives have not been financially punished for some serious regulatory issues.

Shareholder blowback was clear from Macquarie’s annual meeting on Thursday when a number of large shareholders registered their protest by voting against executive remuneration. It was a humiliating first strike.

Macquarie chairman Glenn Stevens, and managing director and chief executive Shemara Wikramanayake.

Macquarie just got culture checked.

The outcome was embarrassing for Macquarie, which on this occasion clearly hadn’t adequately read the room, despite chairman Glenn Stevens saying he had heard shareholder concerns.

So it was a rare day of shareholder reckoning as a company whose traditional riding orders have been to increase earnings by being ahead of the curve felt the imposition of boundaries.

The shareholder backlash was a reminder to the management that in achieving its objectives, executives also need to colour within the lines.

The bigger beef for shareholders appears to be a lack of any pay repercussions for those executives responsible.

In its quest to ensure that the company didn’t receive a vote of 25 per cent – a first strike – against its remuneration report, Macquarie managing director and CEO Shemara Wikramanayake engaged in a last-minute lobbying exercise to placate disgruntled shareholders, according to The Australian Financial Review. That itself is an unconventional course, since that is a job that usually falls to the chairman.

Macquarie CFO Alex Harvey and Wikramanayake before the Macquarie annual meeting in Sydney on Thursday. Credit: Louise Kennerley

The Australian Securities and Investments Commission had taken three regulatory shots at Macquarie over the past 12 months, but in May, it pulled out the big guns, alleging the firm’s failures have led to a misinformed and misled financial services market over a 14-year period around reporting short-selling.

Sure some shareholders would have been unhappy with this regulatory record and any financial ramifications, or troubled by ASIC chairman Joe Longo’s assertion that the organisation is guilty of complacency and hubris.

But the bigger beef for shareholders appears to be a lack of any pay repercussions for those executives responsible.

In a general sense, the blowback represents a departure for shareholders who have been happy enough with Macquarie’s remuneration culture, which is the corporate equivalent of allowing executives/staff to eat what they kill.

Macquarie culture is known for rewarding those who make money – hence its brand as the millionaires’ factory – or in more recent years, the multimillionaires’ assembly line.

Glenn Stevens, who is a former governor of the Reserve Bank, took a defensive stance at Thursday’s shareholder meeting, saying that where shortcomings were identified, the board holds staff accountable, seeks to incentivise future improvement and “reflects on what the issue might tell us about the organisation’s culture”.

He said this was what Macquarie had done in response to ASIC’s imposition of licence conditions earlier this year. As a result, various executives had pay penalties imposed.

The pay impacts of the ASIC short-selling legal action would be imposed in the current financial year, Stevens said.

The Australia’s home-grown-hero gloss was also slightly tarnished by a quarterly earnings update that was described as mixed, with some divisions over-delivering and others slightly underperforming. This news was primarily responsible for the 4.8 per cent fall in Macquarie’s share price on Thursday morning.

ASIC chairman Joe Longo has accused Macquarie of complacency and hubris.Credit: Louie Douvis

Shareholders may have also been somewhat shocked by the decision of the firm’s chief financial officer, Alex Harvey, to resign, given he had been a hot favourite to take the top job. Wikramanayake is expected to go sooner rather than later given she has been in the role for almost seven years and has presided over a 75 per cent improvement in the company’s share price.

The multimillionaires’ factory will continue to spin its magic, but Thursday’s meeting serves as a reminder that it requires a regular culture check.

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