Dear Gina, I still don’t get it

You could be forgiven for thinking that iron ore billionaire Gina Rinehart is on a one-woman crusade to bring back the lost art of writing letters.

At several points during her battle with Fairfax chairman Roger Corbett, Rinehart has penned open letters to try and get her point across. Perhaps it’s not surprising – Rinehart is a person who likes to tightly control her message, and a letter sets out your position without those pesky journalists inserting interpretation or taking things out of context.

Rinehart’s latest effort to prove that the pen is truly mightier than the board is a letter to Fairfax’s retail shareholders, the mum and dad investors who have seen the value of their stock decimated in the last five years and who could only be watching the Rinehart tussle with bemusement.

There’s not much new in Rinehart’s letter. She has a crack at Roger Corbett, says Fairfax needs to make changes to keep up with a new technological environment and raises questions about Fairfax’s editorial charter of independence; Rinehart says adherence to the charter should be by choice and only if adherence is in the interests of shareholders.

Probably the most important point Rinehart makes in the letter is that she does not want control of Fairfax: what she wants is two board seats and the appointment of an independent director. She argues that, even taken as a block, this would still be a minority board position.

“We are eager to resolve these items and focus on the real issue that confronts the company, which is the abysmal performance of Fairfax Media.

“We believe Fairfax Media is a company whose performance can be improved with the right direction and resources and your support.

Helpfully, Rinehart’s letter contains an email address to allow retail shareholders to respond. Presumably Rinehart is hoping for a flood of letters of support, which she will then wave in front of Corbett’s face.

I’m not sure whether Rinehart will get that – I actually doubt it.

But let’s have a bit of fun and put ourselves in the shoes of an ordinary Fairfax investor. Let me be clear that I am not a shareholder, but if I was, here’s what my reply would look like:

Dear Mrs Rinehart,

Thank you so much for your letter dated August 6. Most of the correspondence I receive from Fairfax these days usually concerns either a cut to my dividend payment or the umpteenth structural review of the business, so it was nice to get a letter about something different.

It was also nice to finally hear from you directly. There has been so much written about your investment in Fairfax – most of it very negative – that it was good to get some context directly from the source.

I agree with many of the points in your letter. Clearly, the performance of Fairfax under our chairman Roger Corbett has been terrible and I have no confidence that he knows how to turn things around, although I would point out that this only makes him a member of a large club of media company bosses who are fumbling for the way forward.

I also agree that Fairfax needs to adapt to technological change, although I would suggest that this is a lot easier to say than it is to do, so fast are things moving.

I even agree broadly that a 15% shareholder should get board representation – that’s certainly the case in some other companies in which I invest. And you are correct – almost all of those other companies do not have another layer of board rules for their directors to adhere to, as Fairfax does with its charter of editorial independence.

Of course, that’s really the point – media companies are a bit different to most other companies. They have a very specific set of levers that drive them and, as you’ve pointed out, a very specific set of challenges.

Which brings me to the question that has been puzzling me about your letter, which is, at its core, a pitch for board seats: What do you bring to the Fairfax board?

One of the biggest criticisms of the Fairfax board is that it lacks media experience – the old line about Roger Corbett being a grocer and not an experienced media player still rings true.

But while I respect your skills as an entrepreneur, I have to ask what media industry knowledge you will bring to the company?

Appointing your friend, Jack Cowin, as an independent director does make sense, as he has been around the media for decades. But what specific skills will you and/or your board representatives bring? What specific knowledge do you have about the changing technological environment facing the media sector? What strategic direction would you advocate?

As an investor in a company that looks like it is sinking fast, that is all I care about right now:  Who can help improve Fairfax’s performance and share price?

Since the start of the year, when your battle with the board effectively started, Fairfax shares have fallen from 73c to a low of 51c. I don’t blame you for this, but there’s no doubt it would have distracted a board that is already under immense pressure.

My plea is for you to help restore some value for Fairfax investors and there are two ways to do this.

If you don’t want to buy the entire company, then outline actual, practical strategic changes you think Fairfax should make. Show the board and investors that you have real ideas to help turn this company around, and you’ll be much more likely to get your board seat.

Otherwise, end our pain. Buy Fairfax outright with a big, fat takeover premium attached and put us all out of our misery.

Either way, the time for letters is over. The investors are desperate for action.

James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.


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delilah slater
delilah slater
3 months ago