The chair of Echo Entertainment (ASX:EPG), John Story, resigned at midday today after a prolonged public campaign by James Packer, the chair of Crown Casino (ASX:CWN), to unseat him.
Packer’s campaign has been personal, unrelenting, aggressive and successful.
Packer’s recent move to call an extraordinary general meeting brought to a head months of destabilisation of Echo; he proposed that Story be replaced at the EGM by former Victorian Premier, Jeff Kennett.
Since then, Crown has run page ads in major newspapers, day after day, attacking Story’s business credibility. These ads point to Story’s record while chair of financial services company Suncorp (ASX:SUN), during which time the value of the shares fell from $20 to under $8.
Story’s response was understated in the extreme; he said little in public other than stating repeatedly that Packer was trying to gain control of Echo without paying its shareholders a premium.
This repeated, depersonalised statement is an excellent negotiation technique according to experts. “It crystallises the problem and puts it very rationally,” Mara Olekalns, professor of management at Melbourne Business School told LeadingCompany. “We know from research that if you are having a competitive negotiation, it is very effective to have one compelling argument and to keep making it.”
But Packer is a master of the competitive negotiation style, says Stephen Kozicki, who is a visiting educator at Macquarie Graduate School of Management and author of a book on negotiation, Persuading for Results.
There are three styles of negotiation Kozicki told LeadingCompany today. “One is competitive, one is compromise and one is collaborative – how can we collaborate and get a much better outcome,” he says. “Clearly Packer decided to use a competitive style and that means take no prisoners.”
However Kozicki warns that Packer has taken a risk. “No one can discount the fact that Packer is very good from a business point of view and in the business of gambling. But what happens when you use one style is that as soon as you get into negotiations, people will says, yes, his negotiation style is to get out a big stick.”
Olekalns, who spoke to LeadingCompany just prior to the announcement by the Echo board that Story would resign, says that by going to the press Packer was confronting and adversarial from the start. In addition, ads by their nature cannot contain sufficient information for a persuasive approach to negotiations. “It is quite difficult to communication as much as you need to by taking out an ad,” she says.
Although Story’s public statement about Packer’s motives was a good negotiation tactic, it failed to take into account that shareholders, while wanting a higher share price, fear instability and uncertainty above all, says lobbyist, Jody Fassina.
“Institutional shareholder hate uncertainty, and they don’t want directors facing an ongoing distraction such as a shareholder fight,” Fassina says. “In effect John Story was trying to play this as an old school gentlemen but the Packers are renowned for playing it tough. In terms of the board’s decision, it is a reflection of the institutional shareholder having lost faith, reinforced by Packer’s campaign.”
Fassina says Story’s claim about Packer gaining control was “gilding the lily”. “Echo is not like a normal company where you can launch a raid and put in a takeover bid. He has to have [state] government approval to increase his stake. No doubt that is his ultimate aim, but at this stage he is saying Echo has an incompetent chair and he wants to get his own man on the board,” Fassina says.
The board’s accession to Packer’s plans came less than a day after another major shareholder, Perpetual, rejected Packer’s proposal. Perpetual’s head of equities, Matt Williams, told the Financial Review yesterday that his company “does not support Crown’s move to appoint a director to Echo”.
This is the point of “coalition building” in negotiation, Olekalns says, in which the various players establish and build support by making public statements.
But that coalition came too late for Story and was not sufficiently strong; Packer had unsettled enough of the other 80% of shareholders to spell the end of the chair’s career with Echo.
Ending Story’s career at Echo was unnecessary, Kozicki says, as Story is “fairly accommodating” and has a consultative negotiation style. “If Packer had come and said let’s find a way through, Story would have done that. If they had looked at the possibilities, Packer would have got his way, and so would the other stakeholders.”
Packer successfully forced a quick resolution by going public, Kozicki says, but the win may not stand the test of time. “In public stoushes, people align themselves too quickly to one set of stakeholders, and in public companies it is easy to say the most important stakeholders are shareholders.”
This happened when the chair of Qantas, Margaret Jackson, came out too quickly in a support of a bid from a private equity group in 2006. Jackson felt the deal was a great result for shareholders, but shareholders ultimately disagreed and scuttled the deal.
Fassina says the board decision was inevitable. “What was clear was that Packer was not going to give up. He has the time, money and energy. It was always clear that Story’s departure was not a matter of if, it was a matter of when.”
What Packer did wrong
Packer failed in almost every acknowledged technique of negotiation, which Zozicki summarises in four points and against which we measure his behaviour:
- Separate people from the problems: Packer turned issue of Echo’s business performance into a personal attack on Echo’s chair John Story.
- Focus on interests not positions: Instead of opening a dialogue about the interests of shareholders, Packer immediately took the position that Story should go, and his interests must be represented by a director on the board.
- Develop creative options: Packer offered no options. His message was my way or the highway.
- Focus on results: Rather than avoiding tactics and discussing a proposal that would result in Echo’s improved performance, Packer used a competitive negotiation tactic and an aggressive, public attack on the company’s board to win his point.
Why he won anyway
Packer won the battle because he attached two significant weak points.
The first was that Story’s negotiation style is accommodating, gentlemanly style, which he overrode with his competitive campaign.
The second understanding that institutional shareholders fear uncertainty more than anything, including a higher share price.
What’s the risk ahead?
The problem now is that Packer has so damaged the board that it becomes dysfunctional and does not exercise its corporate governance role, Kozicki says. “Instead they could become more focused on who is going to stay and go and that instability can last for 12 to 18 months. It is very serious,” he says. Other stakeholders could emerge and say, this is not the style of corporate governance we want in the gambling environment.”