Holding my own

Having survived two of corporate Australia’s most turbulent takeovers, Paula Dwyer FAICD believes boards need to get on the front foot with activist shareholders. 

Wednesday 14 September 2022 will live long in the memory of Paula Dwyer FAICD. That day, the board of energy giant AGL was scheduled to meet to ratify her appointment as chair, taking over from Peter Botten AC CBE MAICD. It was to be Dwyer’s third public company chair role after nine years at gaming and wagering group Tabcorp and five at private hospital operator Healthscope, where she was at the heart of two of the most bruising takeovers in recent Australian corporate history.

In the first, she guided Tabcorp through its protracted and complex merger with Queensland rival Tatts Group. At Healthscope, she fended off a hostile takeover from private equity group BGH and AustralianSuper — the latter being one of her shareholders — before backing a rival $4.4b bid from Canadian infrastructure behemoth Brookfield.

Yet at the point where the AGL chair role was set to become another chapter in her storied corporate career, it never happened. Dwyer withdrew her candidacy before the board vote after at least three institutional shareholders voiced opposition to her appointment, worried she might fail to execute a green transition for the company. Reportedly, they were also critical of her Tabcorp tenure. The loudest was AGL’s largest shareholder Grok Ventures, the private investment office of billionaire Atlassian co- founder Mike Cannon-Brookes.

Shareholder activism

Dwyer will not comment about the AGL affair, but she worries more broadly that amid the rise of shareholder activism, too often institutional investors and the proxy advisory firms assisting them criticise the person rather than addressing the issue at hand.

“Unfortunately, we are seeing a focus on playing the person, not the problem,” she says. “This happens in parts of the media and often now among some institutions. Which is inconsistent and often damaging just because it misses the point. The influence of some commentators — including proxy advisers — on investors can really determine the way they view the world. There’s that network effect of people sharing opinions rather than facts, which suddenly gains currency. Sometimes it is the easy way out, but it is not particularly professional. We need to hold ourselves to a higher standard and the business media has a role to play here.”

Dwyer, who is also the longest-serving member of the federal government’s Takeovers Panel, chair of insurer Allianz Australia, on the board of Dexus, and a member of the international advisory board of Japanese drinks giant Kirin, believes the solution for boards dealing with activist shareholders is to take the initiative and be more proactive.

“Individual directors probably need to maintain relationships with key stakeholders outside the company they are involved with — brokers, media, investor groups — so that they have a rapport with them,” she says. “If an issue emerges, you can pick up the phone and talk about it rather than sniping from the sidelines.”

She stresses that the engagement can come through investor forums or directly.

The AGL chair role has been taken by NSW Ports and Sydney Desalination Plant chair Patricia McKenzie FAICD. Dwyer hopes that McKenzie can successfully oversee a reset of the nation’s largest and oldest power generator.

In 2022, Grok led a successful campaign to block a demerger proposal that would have split AGL’s coal-fired generation unit from its energy retail business, arguing that the plan would lead to two smaller, weaker companies and undermine target setting in line with the Paris Agreement.

“I am full of admiration for Patricia McKenzie,” says Dwyer. “She has accepted the shareholders’ view of the directors and is now getting on with it. She deserves a chance to be a good chair and to do the job — without the sniping.”

Women on the board

With her extensive experience in the public and private sectors across a range of regulated industries, including insurance and banking, Dwyer has long been a role model for women aspiring to be non-executive directors and chairs of public companies. However, she acknowledges that complete corporate gender parity has yet to become a reality.

“The hurdles women have to jump over through the course of their careers are more demanding and I don’t know how you change it,” she says. “Australia needs to do better in terms of embracing female leadership and taking gender away as an issue — and the consequent stereotyping.”

Dwyer has been criticised for events that happened on her watch at Tabcorp. In 2017, the company was fined a then record $45m by AUSTRAC over money-laundering breaches, while a year later its shareholders delivered a big strike against the remuneration report over the bonuses paid to management. She has previously argued that the strike was part of a general backlash against corporate Australia, especially following the banking Royal Commission.

Dwyer and her board were also criticised for resisting a spin-off of Tabcorp’s lucrative lotteries business, acquired in the Tatts merger. When the demerger finally proceeded earlier this year, it was a shareholders’ bonanza. Dwyer has long rejected the criticism, and while she won’t comment specifically on Tabcorp, she worries that too often women are being held to a higher standard on boards than are their male counterparts.

“You look at the different commentary on the CEOs of Optus and Medibank Private during the cyber breaches late last year,” she says. “The Optus issues were personalised around Kelly Bayer Rosmarin, who was vilified in a nasty way. I think it’s unbalanced. I’m not a victim in any way, shape or form — I can hold my own. But I have experienced it [being held to a higher standard] first-hand.”

Turning green

Speaking more broadly of the pressure on ASX- listed boards in dealing with pressure from investors and other stakeholders over climate change and environmental, social and governance (ESG) principles, Dwyer has nothing but praise for how ESG has now become embedded in business strategy. “It is exciting that people are now thinking about responsible capitalism and the broader set of issues — and not just the shareholder interests,” she says. “That has got to be a good thing.”

Many analysts have warned about the dangers of “greenwashing” as more investment groups launch funds benchmarking listed firms according to their compliance with ESG. Companies, especially those in the resources and energy sectors, have also gone on the front foot with public relations and marketing campaigns highlighting their green credentials.

Dwyer believes the commitments are largely genuine. “People are generally trying to do the right thing, trying to navigate the complexity of calculating emissions, controlling emissions and reducing emissions,” she says. “Some people get ahead of themselves in their enthusiasm and the means of recording all of this are still evolving.”

Data security

Dwyer joined the board of Allianz Australia, which provides insurance and coverage for over three million people and businesses, in February 2019. A year later, she took over as chair in the early stages of the COVID-19 pandemic. With insurance on the frontline of risk mitigation, she is conscious of growing business risks from cyberattacks, natural disasters and the ways in which companies are responding to the challenges.

In November, the federal government said the Australian Federal Police would form a new permanent joint operation with the country’s cyber spy agency, the Australian Signals Directorate, to target online criminals. Dwyer believes that while boards need to work collectively in response to growing cybersecurity threats, individual directors need to have an inquiring mindset on the issue. Especially when it comes to the retention of personal records and information in the wake of the attacks on Optus and Medibank, which led to vast reams of customer data being released online.

“That is super-important for directors, understanding how organisations store and use personal data,” says Dwyer. “But the technical systems are often pretty antiquated and there’s been an under-investment in those because of the misunderstanding of the risk. That risk is now being reassessed and I think there will be accelerated investment in this area, which is appropriate.”

Insurance pressures

The rising frequency and cost of natural disasters is presenting an existential risk to the insurance sector and pressure is mounting on the federal government to expand the current $10b Australian Reinsurance Pool Corporation — known as the “cyclone pool” — established to lower soaring premiums for cyclone cover in northern Australia.

Elsewhere, flood, fire and storm-surge insurance protection is fast becoming unaffordable or unavailable for many. Dwyer believes the solution for these issues is to improve partnerships between the private sector and governments to protect those in vulnerable geographies. “Because there’s not the capacity in the insurance market to really economically insure those sorts of risks in the short term. When you think about floods on the eastern seaboard and other places, there is an opportunity to work with government to put in place some protections for those areas that are most exposed to flood risk.”

She also wants governments to more effectively enforce building codes in vulnerable areas and to be more prepared to spend on infrastructure delivery in regional areas. “Places like Lismore have deficient infrastructure to drain and that must be a government responsibility,” she says.

In November, the Insurance Council of Australia launched its climate change roadmap, which charts a path for insurers to achieve net zero by 2030 by investing in energy efficiency, rooftop solar for office buildings and transitioning corporate fleets to electric. But Dwyer also sees a powerful role for the sector in channeling its billions of dollars of investments into decarbonisation.

“The corpus of funds that insurance companies have is enormous and if you can deploy those funds responsibly in helping the decarbonisation of the world, that is super-exciting,” she says. “At Allianz, for example, we’ve got globally more than €2 trillion of investment capacity, which can be directed to lower carbon alternatives.”

As a member of the Takeovers Panel, Dwyer is uniquely placed to reflect on trends and themes in merger and acquisition disputes, as well as the outlook for capital deployment. Looking to the year ahead, she says the panel is scrutinising so-called “lock-up” devices to ensure they are not used by target companies in takeover deals to shut out potentially higher competing bids.

She says the panel is also increasingly alert to issues of association between investors, especially at the smaller end of the market. In particular, she worries about the transparency of the market outside the ASX 200, and whether the risks in that space are being properly understood by investors.

On the economic outlook, she believes many in business are currently looking to preserve capital, “sitting on the sidelines” of the markets. “With the uncertainty around Europe and what is happening in the US, next year is going to be a tough year, and the availability of capital will be tight,” she says.

Dwyer no longer has any Australian public company directorships to her name after last year stepping down from the ANZ board, a year after she left Tabcorp. Yet the 61-year-old is still interested in public company life, as her AGL candidacy showed.

She is also chair of the advisory board of the Geminder family’s Kin Group and chair of tech firm Elenium Automation, which is backed by the Fox family and the Sayers Group.

Dwyer wants to contribute to corporate Australia, but also to society at large. “I’m still full of energy and engaged,” she says. “AGL really interested me because I knew it would be an interesting challenge - difficult, but it’s such an important company in a hugely important transition phase. I’ve demonstrated over my career an ability in dealing with complexity and solving problems. For the AGL chair role, I balanced the risks, but in this really unusual case — probably because of various other agendas — we know where that ended. I’m agnostic between listed or unlisted companies. It’s about the industry, the company, but most importantly, the people.”

Paula Dwyer FAICD will speak at the Australian Governance Summit in Melbourne, 1–2 March. aicd.com.au/ags23