Issue: 422
Sent: 23-11-2010 13:50:37
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The Chinese Show Who's the BossA How To Book Of Self Managed Super FundsEmail Marketing WorkshopsEthical InvestingEmail Marketing Business Opportunity - Helen Bairstow
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The Chinese Show Who's the Boss

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

The Chinese investors behind Mount Gibson Iron have flexed their muscles to reject the election of an independent director, effectively raising their middle finger to Australia's corporate governance standards.

Last week's ATC e-mail drew attention to a potential loss of shareholder rights arising from mining companies giving up their strategic independence to corporates investing to gain control of raw material supplies.

The ink was hardly dry on those comments about Mount Gibson Iron and Matilda Minerals before the Chinese investors in Mount Gibson Iron blocked the election of an independent director to the board of the company at a meeting of shareholders on Wednesday.

The effect of the vote was to deliver a majority of board seats to appointees of Chinese companies ultimately controlled by the Shougang iron and steel group whose chief executive has conceded publicly that it intends to control all of the production of Mount Gibson Iron for the life of its operations.

In moving as they did, the Chinese gave notice of a new set of governance standards where they are involved. Their presence means minority investors can no longer assume commonly accepted protections will always be available.

Many investors would have thought participation by Chinese companies acting on behalf of the Asian giant's steel industry made their investments safer because their presence guaranteed market access.

Investors now need to consider whether this comes with too many strings attached.

One lesson from last week's events is the importance of voting. Votes against the appointment of Peter Knowles accounted for 58% of the total votes cast. However, 30% of eligible votes were not cast. If 40% of these votes had not been withheld and, instead, had been lodged in favour of Knowles, he would have retained his position on the board.

Against this background, the attitude toward Chinese investment could change. Companies inviting Chinese participation will become more wary about the benefits and shareholders, given the choice, will be less enthusiastic about embracing capital from this source than they might have been in the past.

The lobbying and vote counting in the approach to shareholder meetings will intensify. Kevin Rudd will have to explain that Australians are not racist. They simply want to stop Chinese investors getting away with behaviour generally regarded as unacceptable.


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