Thursday, 15 November 2012

Should you vote for the GetUp! proposal at Woolworth's AGM?

In a previous post I had touched briefly on shareholder activism, how you defined shareholders interests and used the Woolworths battle with activist group GetUp! as an example of when activists work to promote their agenda which may not necessarily be in the broader shareholder interest.  At the time the issue was put off until the Woolworths AGM.

As this AGM gets closer - it is now only a week away (on Thursday 22 November 2012) Woolworths shareholders need to seriously consider how they are going to vote on this issue.  There are several things to consider which I have addressed below.

What are the proposals?

There are three proposals being put forward by shareholders that form the vote that will take place at the Extraordinary General Meeting (which is being held at the same time as the Woolworths Annual General Meeting).  The proposals are summarised below.  It essentially changes the constitution of Woolworths such that from 2016

  • The company limits it's Electronic Gaming Machines (Poker Machines) to a maximum bet of $1 per push;
  • Limit the profit each machine can make to $120 per hour; and
  • The machines are only allowed to operate for 18 hours in any 24 hour period

Is this motion in the best interests of the company and shareholders?

The first thing you need to remember as a shareholder in Woolworths is that this is a real investment for you and this is real money that you stand to gain or lose as a result of this investment. Therefore, while it should not be the only consideration, you need to think about whether voting for this resolution will be good or bad for the company in the long run.

From this framework I would consider the following

  • Woolworths is naturally going to lose profitability if you limit the money they can make from these poker machines
  • The argument is that they will get some sort of social benefit, or rather avoid a social cost by being seen as a responsible operator
  • I do not find it convincing that the benefit (or lack of cost) that they will receive from implementing these measures will outweigh the actual money they will be losing through implementing these measures
I actually find this case analogous to the selling of cigarettes.  Everyone knows that smoking is bad for you and creates real social harm however it is a legal thing to do and therefore stores (including Woolworths through their shopping centres) are allowed to sell them as long as they obey the law.  The idea that people will not want to invest or shop at a store that operates gaming venues seems strange to me because they are more than happy to invest and shop at one which sells cigarettes.

Will the measures work to stop problem gambling?

In this area I think both sides have been a bit disingenuous.  Woolworths has downplayed the Productivity Commission's reports on gambling and in their letter to shareholders was quite misleading on several aspects of this.

However GetUp! is also being a bit sly about it's motives.  It keeps talking about how Woolworths is the largest operator of poker machines in Australia, which may be true however they still only have 6% of the market and GetUp! is obviously targeting Woolworths because they are a soft target (unlike a casino or the actual manufacturer of the gaming machines themselves, Aristocrat, which is also a listed company).

I think the reason that GetUp! is targeting Woolworths is because if they can force Woolworths to operate in a certain way then Woolworths will lobby the government to ensure that everyone operates in the same way.  There is currently very limited political will to implement such measures and GetUp! wants an influential player pushing for rules they want.

Do I think problem gambling is a problem and do I think this is the solution?

I absolutely do think problem gambling is a problem and although it does not affect a large proportion of the population, it is devastating to those who it does affect.

Having said that - I do not believe this is the solution.  I believe that this problem needs to be dealt with by policy makers in this country.  I believe that to really tackle the problem that everyone should be playing by the same rules with the aim of reducing problem gambling.

I think that the Woolworths vote will not do anything to curb problem gambling, will cause Woolworths shareholders to be worse off and therefore do not believe shareholders should vote for this measure.

If you have an opinion on this matter or if you think I am wrong please comment below

You May Also Be Interested In

Shareholde​r activism: Defining shareholde​rs' interests and the way in which companies respond to shareholde​r complaints
Corporate Governance: All Posts
Founders' voting rights decreases the value of your shares
FKP's terrible corporate governance screws retail shareholders

No comments:

Post a comment