Is It Time For New ‘Independent’ Directors At Harvey Norman As Insiders Lift Shareholdings

Hedge funds don’t have many shares in Harvey Norman Holdings, with insiders who pocket millions in salaries perks and bonuses, that outside investors don’t get now controlling 43% of the mass retailer.

Some investors are questioning whether this is a good thing, with the business that is controlled by a small group of share owners with organisations such as the Australian Shareholders Association calling for the appointment of independent directors to the board.

The obstacle to this is one defiant Chairman Gerry Harvey. He claims that he won’t be told how to run his company and won’t make any changes to the board despite ongoing protest votes by retail and institutional shareholders over the company’s corporate governance.

“I’m not going to be bullied by anybody, I’m not going to be intimidated by anybody,” Mr Harvey told The Australian Financial Review on one occasion.

He describes people who question his business practices as ‘deluded’ activist shareholders and proxy advisers “with no commonsense”.

Two of the top shareholders have a majority ownership in the mass retailers via their 52% stake.

Institutions own 11% of Harvey Norman Holdings then there are private Companies, that could be controlled by insiders.

Analysts recently claimed that While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders.

Management ultimately answers to the board.

However, it is not uncommon for managers to be executive board members, especially if they are a founder or like Gerry Harvey the CEO of the business.

Last year as the shares were and after poor trading results, falling Gerry Harvey snapped up more than $76 million worth of his company’s shares.

At the time he believed that Harvey Norman share price of $3.71 is far too low.

Today Harvey Norman is trading at $4.43.

Harvey Norman Holdings’ significant insider ownership has been a subject for debate with such a notable stake in the company, insiders would be highly incentivised to make value accretive decisions.

But then again, they could well be looking after their own interests ahead of all shareholders claims the Australian Shareholders Association.

Harvey Norman Holdings already has institutions on the share registry that delivers a degree of accountability amongst professional investors.

Motley Fool claims “But we can’t rely on that fact alone since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth”.

The largest shareholder is 86-year-old Gerry Harvey with 36% of the shares in the retailer who recently lost the services of long-time Director David Ackery who retired.

In most Companies management ultimately answers to the board.

In Harvey Normans case the CEO of the business Kay Leslie Page who is married to Gerry Harvey and also owns shares in the business, along with the likes of John Slack-Smith are both senior management and board members.

The question now is whether too much power is concentrated within this management group that also includes Gerry Harvey.

These insiders have a $2.5b stake the 5.7b business.

The general public, who are usually individual investors, only hold a 28% stake in Harvey Norman Holdings.

Private Companies own 18% of the Harvey Norman Holdings stock, what’s not known is how many insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual.