Fears over MyState…

BILL GODFREY
Concerns with the myState proposal are broadly in 3 groups:
1. The nature of the proposal itself
2. The process by which it has been developed and presented
3. The fact that there is a lot of information (perhaps too much!) about what a good idea the proposal is. There is no statement of any alternative view and no channel through which members can learn this view and make their own minds up.

The proposal itself:
It seeks to put together two very different organisations with very different types of membership in a new organisation in the form of the smaller entity (TPX) – i.e. a public company. Members of public companies hold shares in the expectation that they will get annual dividends and capital growth. Typically their loyalty is to their own money and where they judge they can get the best present and prospective returns.
Member of credit unions do not have shares – their membership is not tradeable and they do not expect a financial return from the fact of their membership. In myState’s case there are probably three dominant motives for membership.
• One is a commitment to the credit union ideal of a group pooling its funds for use for the benefit of themselves, their families and their fellow members (something like 80% of myState’s investments are in personal mortgages to members).
• A second is to find refuge from the big banks, which many people regard as impersonal and predatory. Many people probably belong to both these groups.
• A third is people, mostly younger people who have joined out of convenience or because that’s what their parents suggested.
Together there are over 100,000 members, roughly one fifth of the State’s total population.

Trying to join a large credit union with a small funds manager in a public company is to go against the aims of a large proportion of members. Because its aims will be to maximise the returns to shareholders, the company can not have the benefit of its members and their families as the primary aim.

The process:
Whatever the legalities, the members of myState would have had the expectation, in electing its Board that the Board members would see it as their duty to preserve the credit union form and to promote its purposes. Instead they have chosen a ‘financial engineering’ path designed to maximise the financial leverage available from the deposits of members.

It is reasonable to think that the average member would have expected that, before embarking on such a course, they would seek the agreement in principle of members to develop a proposal in detail. The Directors did not do this. Instead they announced (Oct 2008) that they had reached agreement with TPX on a merger and proceeded to spend a very large amount of the myState members’ money without asking the members whether they should do so. As Directors they were probably not legally required to do so, but a substantial number of members would have expected that action.

Having reached a unanimous Board decision that this was the best deal they circulated an enormous and very complex document, which gives no space for any alternative view that might be put forward by an opponent of the scheme. I can not know the motivation of the Board but issuing a large complex document is exactly what I would do if I wanted to deter those likely to be opposed from voting. Experience of other such schemes has shown that the longer and more complex the document, the greater the chance that members, particularly the older and less financially sophisticated members will simply ‘bin’ it (quite a high proportion of the members of Connect failed to vote at the last attempt to turn that credit union into a public company).

The document contains, among other things, an assurance that there is a degree of “protection from unrecommended takeover” and that the 10% cap on individual shareholding is itself a protection.

The so-called protection from takeover is, of course, absolute nonsense. The 20 biggest shareholders in TPX have 44% of the shares and at least 12 of these shareholders are corporate entities. This sort of concentration is typical of public companies and puts control in a very few hands. There is nothing in the proposal to stop any or all of these shareholders – or indeed anyone else – from building their share in the proposed company to the 10% limit, provided only that enough shares are offered for sale. If that occurs – as is likely – the so-called ‘merger’ will be a de facto takeover. The 100,000 plus members of the former credit union will have no further effective say in the policies of the new company. If a further takeover were proposed that offered substantial benefits to shareholders, this small number of substantial shareholders would be able to ensure that it was ‘recommended’, regardless of the wishes of the many minor shareholders.

This brings us to the next point of process. The Board (again without the prior consent of members) has hired a telemarketing company. Again I don’t know the process, but from my personal knowledge two members of my extended family have been ‘cold called’ by this company to “explain the advantages of the proposal”. They did not fail to point out that sale of the shares might result in them getting ‘perhaps around $1200′ in cash. As neither of these people had a listed number and both were contacted by name, it is fair to believe that the Board must have made the list of members available to the tele-marketing company.

Is the members’ list public? That is a very interesting question to which I do not know the answer. Share registries are open to the public. Is a list of members, each of whom has one non-tradeable share, a share registry within the meaning of the legislation? If it is not then the Board may have breached their duty under the Privacy Act – a very serious matter.

Again, I cannot say what the Board’s purpose is. If I were a consultant advising on how best to ensure that the proposal is accepted, I would suggest that they deter older members from voting by making the proposal long and complicated and contact the younger and newer members who are least likely to be committed to a credit union as such and most likely to be attracted to the possibility of cash in hand. Within my extended family the two members (of a substantial number) who have been contacted happen to be the two youngest and newest members of myState.

There are other anecdotal process points of concern. One acquaintance told me that she was standing behind an elderly man at a myState enquiry desk and heard the employee advise that ‘the easiest way to go is just sign the form. If you leave the rest blank we’ll be able to handle it from there’. Nothing illegal about that, but it is hardly impartial advice!

No channel to express an alternative:
If a member does not agree with the proposal, no channel has been provided to identify alternatives and there is almost no way in which members can learn – before the day of the meeting – that anyone else is opposed to the proposal. A few letters have been published in The Mercury and presumably in the Examiner and The Mercury published one interview with a well-known opponent, but that is all. The myState help line’ is solely concerned with explaining away any concerns that members may have. In other words, it is in effect part of the effort to ‘sell’ the proposal.

That is why I looked at the constitution to see what is needed to call a meeting to voice concern. I don’t think anything can be done to abort the meeting called for August 18th. What we who oppose the proposal have to hope is that enough members vote against it to ensure that the necessary 75% majority in favour is not reached or that the apparent deficiencies in the process result in the proposal not being ratified by the authorities. For those who are against the proposal, it has never been more important to vote and to encourage their friends to vote against it. It is quite safe to name the Chair of the meeting as proxy as long as your vote is clearly stated. By law, a proxy is required to vote at a meeting in accordance with the declared wishes of the member.