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David Murray's Record, Questions Persist

Extract: Financial Review article, by Karen Maley, 27 Aug 2020


The real reason David Murray resigned as AMP chairman


In the end, Murray built up too many opponents, who simply lacked faith in his ability to turn the company into a big player in the wealth management space.


The genesis of the war of attrition between Murray and key institutional shareholders lay in the arrogant and peremptory way he treated institutional shareholders who were opposed to the sale of AMP's life insurance business to UK-headquartered Resolution Life.

The $3.3 billion deal, which was announced only four months after Murray took the reins as AMP chairman, triggered an explosion of incandescent rage among some of AMP's institutional shareholders.

In the first place, shareholders were dismayed at the price that AMP had accepted for its 170-year-old life insurance arm, which they believed was worth between $4 billion and $5 billion.

But they were even more outraged at Murray's high-handed decision to sell AMP's life insurance business without seeking shareholder approval, or even commissioning an independent report to value the business.

Murray was unrepentant about his actions, claiming that he believed it was the "right decision", even though the deal sparked a share price plunge that wiped $3 billion off the value of the company.

Furious institutional shareholders were not placated when exchange operator ASX ruled in favour of AMP, backing its decision that the sale of its business to UK operator Resolution Life did not need to be put to a shareholder vote.

The tide of anti-Murray sentiment was so strong that there were rumblings about convening an extraordinary general meeting in December 2018 in an attempt to dislodge the chairman.

But this plan was thwarted because AMP's rebel shareholders couldn't muster the support of the 5 per cent of company shareholders required to call a special meeting.

This was because one of AMP's big institutional shareholders – although angry at the sale – was unwilling to go public with its opposition, while a number of the industry funds were wary of fuelling fresh instability on the AMP board.

Murray's opponents decided their best option was to focus their attention on AMP's annual general meeting held in May 2019, where shareholders were asked to ratify the appointment of Murray as chairman.

In the end, 12.7 per cent of shareholders gave Murray the thumbs down, well short of the 50 per cent the rebels needed to oust the AMP chairman.

Still, the dissidents saw the result as encouraging. AMP boasts a very safe share register, with retail investors – who tend to vote with the board – accounting for about 70 per cent of the shares, while the large index funds, such as BlackRock and Vanguard control a further 10 to 15 per cent.

The vote against suggested that about 60 per cent of active institutional investors were now opposed to Murray.

The disillusion with Murray was exacerbated when the sale of the life insurance business hit a regulatory hitch, which forced AMP to accept a further $300 million cut to the sale price.

AMP institutional shareholders were furious as Murray dug his heels in, again refusing to ask for shareholder blessing for the renegotiated deal. But this time around, there were signs that at least some AMP directors were becoming uncomfortable with Murray's autocratic leadership.

Meanwhile, the company suffered a further embarrassment at its annual general meeting in May, when a staggering 67 per cent of AMP shareholders lodged a protest vote to the company's remuneration report.

But Murray's most entrenched critics weren't worried about these temporary humiliations. They were eagerly awaiting AMP's half-year results to see what the group's capital position would look like after the sale of the life businesses.

A fresh battle with Murray was looming, this time over what to do with the proceeds of the AMP life business.

When it released its half-year results earlier this month, AMP duly confirmed that it was sitting on $3.41 billion of capital, well above its minimum regulatory requirement of $1.25 billion.

AMP's plan was to spend about $400 million of its surplus capital buying back a 15 per cent stake in AMP Capital from the Japanese financial giant Mitsubishi UFJ Trust and Banking Corporation, while up to $544 million would be returned to shareholders, in the form of a special dividend and an on-market buyback.

Again, AMP's institutional shareholders were on high alert. They believed the Murray-led AMP had between $500 million and $1 billion in surplus capital that could easily be returned to shareholders

The huge worry was that this surplus capital would be frittered away either on strategic acquisitions or on grandiose technology projects for the struggling wealth management business. And they simply didn't believe that Murray had the license to make such decisions.

It was while Murray was girding himself for a fresh battle over how to deploy AMP's surplus capital that the wealth management giant found itself embroiled in a #MeToo uprising over the appointment of Boe Pahari to run AMP Capital.

As the scandal showed no signs of abating, AMP investors were increasingly worried about the damage the scandal was inflicting on the company's brand. In particular, they were deeply disturbed that the reputation of AMP's star division AMP Capital was being severely tarnished by the Pahari scandal.

They worried that unless there were major changes at AMP, the value of the company's crown jewel would be jeopardised.

This time around, however, Murray's opponents had the numbers. AMP's largest shareholder, Allan Gray, which controls 7 per cent, fired off an ultimatum to AMP, threatening to call an extraordinary general meeting unless Murray and Fraser resigned.

The tactic worked. Murray's critics always knew the mere threat of calling an extraordinary general meeting would be enough to trigger his resignation, because he would never accept being put in the humiliating position of having to defend himself to shareholders.

That meant that the question of whether or not they controlled enough votes to force Murray's resignation was irrelevant.

This puts AMP's new chairman, Debra Hazelton, in an interesting situation.

She will have drawn her own conclusions from watching her predecessor's precipitate departure. In particular, she will have realised that if she wants to avoid Murray's fate, she's going to have to be much more solicitous in addressing the concerns of AMP's institutional shareholders.



Ref: Financial Review, 27 Aug, 2020


Christopher John Burke

Group Against Patent Trolls

Twitter: @Christo40392659

c.burke@microlatch.com

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