Corporate governance unlocking value: The case with Washigton H. Sol Pattinson (SOL)
Corporate governance is the set of processes, rules, and structures by which a company is operated, regulated and controlled. Over time best practice arrangements have evolved which are described on the ASX Corporate Governance Council’s website. From a shareholder perspective, good corporate governance is important because it protects shareholder capital by ensuring that the board and management act in the long-term interests of shareholders..
The case of Washington H. Soul Pattinson (SOL) is a great example of how active institutional shareholders can seek to influence companies but also why on occasion more drastic action is needed to bring about change. While we currently own shares in SOL and the related companies, Brickworks (BKW) and New Hope Coal, because they are good businesses which have performed well over the years, we believe even greater value is being masked by the existing corporate governance arrangements and we would like to see this value unlocked.
We have been a shareholder in SOL for almost 20 years and have been engaging with them on corporate governance for around the last 5 years. SOL has a variety of corporate governance issues which we have been encouraging the company to address including;
- lack of independent directors
- cross ownership (SOL owns 48% of Brickworks (BKW), and BKW in-turn owns 42.9% of SOL)
- use of the cross ownership and shared directors to entrench control of minority shareholders the Millner family over both companies
- lack of an independent audit committee for SOL.
Despite our best efforts we have not seen sufficient improvement in the company's governance and so have decided to nominate a new independent director to the board - Robert Fraser to represent all shareholders. Unfortunately the nomination does not have the support of the Chairman of SOL.
We have a duty to our unit holders to act in their interests which goes beyond buying and selling stock and extends to being good stewards of their shareholdings. We believe better corporate governance will be of benefit to all SOL shareholders and we are working hard to realise these benefits for our unit holders.
This information has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. The views expressed in this article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor's capital.

