Harvey Norman Holdings Ltd (ASX: HVN) executive chairman Gerry Harvey blasted disgruntled shareholders earlier this week, telling them that if they didn't like the way he ran the company, they should 'sell their shares and stop complaining'.
Shareholders are unhappy with the board's structure, as well as the short-term and long-term incentives. The Australian Shareholders Association (ASA) recommended shareholders vote against the remuneration report because of a lack of independent directors, and unsuitable hurdles for short term (STI) and long term incentives (LTI).
The ASA says STIs are all paid in cash, rather than a mix of shares and cash, and financial results account for just 20% of the total award. Like the STIs, the ASA says the LTIs are also subjective. In other words, Harvey Norman's board can award bonuses to management and executives, with very little of that based on financial results.
Harvey Norman received a 'first strike' last year, after more than 25% of shareholders voted against the remuneration report, but an overwhelming majority voted for the report this year, avoiding a 'second strike'.
The ASA also says that Harvey Norman's so-called three independent directors are no longer independent, having being on the board for 10, 12 and 28 years respectively. ASA monitor Allan Goldin said, "We say after 12 years you're no longer independent – you've been drinking the same Kool-Aid as the executives for a long period of time."
One independent director, Christopher Brown, owns 183 million shares in the company.
Gerry Harvey disputes the ASA comments, saying they did not pay directors or executives too much and directors need to have skin in the game. Personally, I have no problem with directors owning large chunks of shares – skin in the game has been proven to add to a company's performance.
The real problem for retail shareholders is that Gerry Harvey runs Harvey Norman like a private company – his wife Katie Page is also the CEO. The company recently spent $34 million buying a dairy farm – totally unrelated to Harvey Norman's existing business of selling household goods and consumer appliances.
Foolish takeaway
Allowing other shareholders a say in how you run your business is the price you pay for having a publicly-listed company. As part-owners, they have every right to complain if they aren't happy.
Instead of suggest investors sell their shares and stop complaining, maybe Gerry Harvey should stop complaining about them and take the company private. Then he can do what he likes and avoid those bothersome and pesky shareholders.
