AFR have taken a flamethrower to Hamish Douglass this morning! I have to say that for me, most of it rings pretty true. MFG management needs to get creative in order to restore shareholder value. The Magellan name is now trash and some decisive action is needed. Article Below:
Magellan Financial Group released its FY22 accounts on Wednesday.
These revealed that upon the resignation of co-founder Hamish Douglass as chief investment officer in June (though he’d been on a medical leave of absence since February and quit as a director in March), Magellan’s board paid him $2,499,000, a clean $1000 below the statutory threshold for a shareholder vote.
Magellan Financial Group chairman Hamish McLennan is so confident that Douglass’ retainer is good value for the company, why not tell shareholders what it costs? Oscar Colman
Golden handshakes exceeding one year’s base salary require AGM approval and Douglass’ fixed annual remuneration was $2.5 million.
“Although Mr Douglass ceased to be [key management personnel] on 19 March 2022,” went a self-congratulatory note to the directors’ report, “his remuneration for the entire period of employment up until his resignation on 15 June 2022 is included in this [report] for purposes of transparency.”
But what about the terms of his consulting agreement? On June 9, Magellan announced that Douglass would “cease to be a permanent member of Magellan’s staff” the following week and that on October 1, he would commence as a consultant to Magellan, providing “valuable investment insights, including geopolitical and macroeconomic views”.
For all its (empty) talk of transparency, Magellan has never disclosed the economic value of this consulting agreement, which is clearly a collateral benefit of Douglass’ termination. It was a design feature of his exit package! Absent his resignation, it would never have been entered into.
The 2009 words of then treasurer Wayne Swan ring in our ears. “We will also broaden the definition of ‘termination benefit’ to catch all types of payment and rewards given at termination”.
Swan’s and Chris Bowen’s amendments to section 200B of the Corporations Act put “any payment or other valuable consideration” into the 12 months’ base salary limit for departing public company officers.
This law is routinely flouted by companies because the Australian Securities and Investments Commission – just for a change – has never enforced it. Executives have only been forced to return termination overpayments in rare instances where the companies themselves, after a change of control, have sought through the courts to claw them back.
This is an incredibly bad look for Magellan’s feckless board of directors, whose longstanding indulgence of Douglass seeded the staggering shareholder value destruction wrought in FY22. Contrary to chairman Hamish McLennan’s February depiction of a “wonderful opportunity to reset Magellan”, the continued precedence of Douglass’ interests over other stakeholders’ proves that, actually, nothing’s changed.
The board has enacted the tortured pretence of extracting Douglass while still keeping him around. If McLennan is so confident that his retainer is good value and a positive arrangement for the company, why not tell shareholders what it costs? In Magellan’s own words, “for purposes of transparency”.
Douglass’ aptitude was never geopolitical; it was in charging mug punters 135 basis points per annum to hold KFC shares.
An entirely reasonable argument could be made that his macroeconomic insights are, at best, worthless. More likely they carry a negative value. It could well be argued that paying Douglass for those insights, and letting him bask in the misplaced intellectual satisfaction of marketing them, is an act of madness after his gross hubris crashed Magellan and he left on the first lifeboat.
The Magellan executives who stayed behind to right the sinking ship will be shell-shocked by the sight of Douglass swanning back in to collect his pay as a consultant (during his paid notice period) when, through the company’s ghastly loan-funded share scheme, they owe their employer $33.5 million for Magellan shares now worth less than $20 million.
You might ordinarily have some compassion for Douglass, ill-equipped emotionally for anything but unqualified public laudation. What doesn’t evoke compassion is his greed.
Given what he’s inflicted upon the (other) shareholders of this company, what was he thinking exercising his right to a $2.5 million severance cheque?
We know the price of horse feed is rising steeply at the Douglass equestrian centre, but couldn’t he eke out an existence on the $40 million of dividends thrown off this year by his Magellan stock (nearly half of which he was given for free!) or the $10 million of shares he sold in June?
Douglass has been comprehensively found out. The world knows he is not an investment genius. His facade of frugality and self-denial has been shattered. None of this ludicrous shtick plays any more, so he’s just taking as much loot off the table as he possibly can.
It’s abject stuff from the high priest of an investment house built on an endless stream of hollow superlatives, where everything was always the best, of the highest quality, or world class. The only superlative resonating with Magellan investors now must be the first-rate fools they feel like.
