My guest this week is Nathan Bartrop, a corporate governance and company secretary specialist with experience across ASX-listed, unlisted, and not-for-profit companies. We discussed his background in law, accounting, and ASX compliance, including his time as a listings advisor during the global financial crisis. Nathan now lectures on corporate governance and runs his consultancy, White Label Corporate, while serving as Principal Consultant at CSB Corporate Services.
Nathan explained the role of a company secretary. He handles governance, advises boards, ensures compliance with the Corporations Act and ASX listing rules, and manages meetings. For listed companies, he reacts to market events like share price changes or news, but I aim to be proactive often serving multiple companies as an outsourced secretary, training executives to take over eventually.
We dove into continuous disclosure, a key ASX rule requiring companies to immediately release material information that could affect share prices. This promotes fair access for all investors. Breaches lead to penalties, class actions, or director bans. Nathan cited James Hardie, where an acquisition sparked shareholder revolt, ousting three directors including the chair. Bapcor's multiple earnings downgrades showed how surprises erode confidence.
Nathan advised investors to set up ASX announcement alerts for their holdings. Read them carefully for clues, not just what companies say, but what they omit. For mining stocks, he warned of volatility from commodity cycles, unlike stable blue-chips.
Boards lose sleep over takeovers, requisitioned meetings, and activism, Nathan said. Egos clash, and preparations involve security or legal chairs for heated AGMs. Super funds are especially pushing for better governance.
We try and figure out how many corporate regulators it take to change a light bulb while navigating ASX rules and investor rights.
TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE
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EPISODE TRANSCRIPT
Nathan Bartrop: Shareholders have the ability to vote at a shareholder meeting for these directors, whether they want to actually vote them in or out. So I think continuous disclosure plus other shareholder rights are actually very effective for investors and certainly something, you know, because companies have to potentially upgrade or change their earnings and other, you know, material requirements.
Phil Muscatello: G' day and welcome back to Shares for Beginners. I'm Phil Muscatello. How many company regulators does it take to change a light bulb? And what's the legal industrial complex that's designed to keep corporate Australia and companies on the straight and narrow? Joining me today to talk all things governance and regulation is Nathan Bartrop. G', Day, Nathan.
Nathan Bartrop: Hi Phil, thanks for having me on the podcast.
Phil Muscatello: Nathan Bartrop is a corporate governance and Company Secretary specialist. Nathan has significant experience across a broad spectrum of ASX dual listed, unlisted, not for profit and private companies in Perth and Sydney. He specialises in company secretarial practice, company officer training, ASX listing rules, ASX Registered agent, dual listed corporate governance and compliance chess, depository interests, Corporations act relationship management, directors meeting, shareholder meetings. Have I missed anything out there, Nathan?
Nathan Bartrop: No, that's great coverage, thanks Phil.
Phil Muscatello: Uh, that's great.
So let's get started. Just give us a little bit of a view of your background. What's led you up until this point in your life.
Nathan Bartrop: Well, Phil, thank you for look, over a period of time I've got a legal background but I've also got a degree in commerce with Accounting, corporate finance, which certainly holds me in good stead for listed companies. So some of my experience has been in anything from stamp duty to litigation before I saw the light and decided that litigation wasn't quite for me. And that's when I decided to then become an ASX Listings Compliance Advisor in Perth. That gave me a broad spectrum and understanding of what company life is like. And I guess, you know, being part of the ASX was certainly very exciting time, although it was a little bit daunting during the global financial crisis where share prices were tumbling and the ASX was down 100 points and looked like by Christmas it would be at zero, is obviously not possible because of mathematical probability. But from there I decided then to actually as part of being at the asx, I studied the Graduate Diploma of Applied Corporate Governance, which I am now a lecturer of for Governance Institute. So from that study that led me to actually attain the ability to become a Chartered secretary. And that meant that I'm now a Fellow of the Governance Institute and Fellow of the Chartered Governance Institute in London. And now I can call myself a Chartered Secretary, which is a little bit more than what is an actual company secretary. So from that I've also then been a listed company secretary. I've also been enlisted company secretary at any one time, uh, from what I can understand, probably about five listed companies. And then I've also had another sin today as sex in between, whilst I was in Sydney and then was able to then go on and be part of being a corporate advisor and in Sydney advising companies on listing. And since relocating back to Perth From Sydney in 2019, I've largely run my own business, white label corporate. But primarily at this point in time, I've been assisting and hold the title of principal Consultant at CSB Corporate Services. And also my main role there is as ASX educator, which really highlights my experience in listing rules and assists CSB Corporate Services clients and potentially new CL in navigating the choppy waters of ASX listing rules.
Phil Muscatello: So when you're talking about listing, that means for companies that are undertaking an initial public offering, is that the case?
Nathan Bartrop: Yeah, that's correct, Phil. So the majority of them are listing for the first time. There are other things called backdoor listings and other sort of similar sort of things, but when we think about listing, we mean initial public offering.
Phil Muscatello: So we met at the Australian Shareholders Association Conference, the summit up in the, uh, Gold Coast. Were you there as an investor or as a governance guru?
Nathan Bartrop: No, I was there as an investor, Phil. It's been one of my passions for a long period of time. And largely I got this from my dad, who was. When we were originally based in Melbourne, he decided to flick a bit of money the way of oil and gas and mining exploration companies. And he was mildly successful, as he does tell me, and that sort of fueled my interest in shares. And even as, you know,
00:05:00
Nathan Bartrop: even when, as early as say, year two and year three, I love reading the West Australian and reading the articles about business and checking all the share prices, and that's what got me interested in investing. So as well as being a company secretary, I've been an investor over, uh, a long period of time. It's certainly really exciting. Always good to learn from other investors. Ah, certainly, you know, at the summit, good to talk to those that are, uh, more even, you know, inexperienced in their 60s and 70s and just to see what others are sort of investing in and get, learn from anyone and everyone and then take that away, pause and then decide what to do after that.
Phil Muscatello: For us over on the east coast, it seems like so many, so much about Perth is about resource companies, isn't it? And that's, that's an area where you specialise a bit in.
Nathan Bartrop: Yeah, that's right. Look, thankfully even when I was in Sydney I was able to have that expertise as a company secretary of a coal exploration company and certainly even in, as a listed compliance advisor in Sydney, I was able to assist some of the other advisors about mining and it's effectively known as the JORT code, which is still undergoing revisions as we speak and hopefully there's a new code in place in 2026. This does take time, but certainly in Perth probably, let's say out of any one, uh, hundred companies, there's probably about 90 that have some in some form have to do with mining.
Phil Muscatello: So is there any warnings that you would give listeners or viewers about investing in mining companies? I mean it's pretty, it's very different to say investing in a Woolworths or Coles or whatever.
Nathan Bartrop: Yeah, look, I think it's fair to say that Woolies or Your sort of ASX top 20, top 50 company, even top hundred, doesn't have some of the swings and roundabouts as mining companies. And there's generally going to be a lot of different cycles and things that do happen. So anything from the fact that gold is quite hot now we're looking at rare earths is quite hot and some of those other things like lithium is not so hot. But not too long ago, say two or three years ago, Lithium was absolutely on fire and gold was actually probably not doing as well as what it is now.
Phil Muscatello: Okay, so let's get to your expertise, your particular expertise. What is a company secretary? What do you do?
Nathan Bartrop: So effectively the company secretary is a governance professional. It provides advice to the board and management and also looks at uh, complying with the Corporations Act. So to be a company secretary all you have to do is be over 18 and not bankrupt or banned from managing corporations. That's all you have to do. Now in reality, pretty low bar, is it? Extremely low bar, Phil. And look, that's why I've sort of outlined what a chartered secretary is as compared to a company secretary. So that low bar, effectively a public company has to have a company secretary, but a proprietary or commonly known as a private company doesn't have to have one. But thinking about plumbers and others, generally these types of companies do have a company secretary, but As I am sole director and sole company secretary of my company, then a large number of company secretaries will probably be mums and dads running businesses and they probably don't even know what they actually have to do to comply with the Corporations Act.
Phil Muscatello: What do you do every morning when you first turn on your computer? What are the sort of things that you're looking at or are uh, you actually responding to what companies are asking what they need to be compliant in?
Nathan Bartrop: So when you're a listed company it can be quite reactive because you are on a listed company's market and in reality what are some of the things you'd be looking at was just share price, other sort of corporate news like in the financial review you'd be looking at, you know, what the S&P 500 has done overnight, see what potentially the share price is going to do. Maybe, you know, if you're a gold company, you'd be looking at the gold pricing, what, what's going to happen and generally just some of the commentary and some of the, anything coming from the fin, which is often a good source of information just to set the tone for the day. But certainly the other thing would be, is I think now especially, you know, being part of CSB corporate services, the idea is not to be reactive. To be a really effective company secretary is to actually be proactive and to actually potentially plan for things in the future rather than be behind the eight ball. And that's certainly some of the things I've been doing more effectively is to be able to actually plan out things during the year. But having said that, the company sector is a bit like, you know, on the cricket field, the 12th man suddenly coming in, realizing that they don't exactly know what they're coming into, but they have to step in and they can do anything from fixing up a website, looking at corporate communications, reviewing ASX announcements, talking to directors, talking to management, preparing board papers. There's a broad range of skills required for a company secretary. It's a bit like being an all rounder with the cricket analogy. You can't just be good at batting, you need to be good at batting, fielding and also bowling.
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Nathan Bartrop: And you need to actually be able to manage and talk to people, including regulators, including directors, including management. And so it's a lot about communication and not just being able to draft an ASX announcement, lodge it's and respond to things. It's actually being able to talk to people and talking to across a wide range of industries. Anything from if you're in property management to Talk to the directors about property to anything from technology, you know, mining, which I've mentioned. But I've probably had a number of my latest sort of skills. More lie in the health area, being company secretary of an unlisted public company. And so I've had to actually get down into the detail or at least understand some of the terminology, which is key to being a good company secretary.
Phil Muscatello: I'm not sure if I heard it before, but did you say that you were a company secretary for say five or six companies at a time, is that correct?
Nathan Bartrop: Yes, in a previous role I have been, uh, what's called a contract company secretary, which is being an outsourced co company secretary where I actually had to manage five listed companies at one time. So you can imagine how that can be quite reactive because you can't always be so, you know, down in the detail with every one of those companies. But that's where some smaller companies can actually benefit outsourcing their cosec role. So rather than having a full time person in the office all the time, you've got the ability to actually outsource that to someone else like me and to then be able to then comply listing rules. And you know, further to that, it's a key point being able to outsource because it gives the benefit of someone like me having all that experience and being able to add real value to the organization. And then potentially it might be a transitional arrangement. So where I've found my key skills is actually assisting people such as chief financial officers, legal counsel, anyone where their main role is not the company secretary. And so the idea is to me to effectively make them shine and make their experience, broaden their experience and effectively train them up in a period. So then either one of two things, they would then take on the role potentially full time or part time as part of their role. Or there may be an ability over time as the company grows, to hire someone full time and then I would transition out to, uh, a full time company secretary.
Phil Muscatello: Track your investments like a pro. Sharesight is Investopedia's number one portfolio tracker for DIY investors. Simplifying your finances. Get four months free on an annual premium plan at sharesite.com sharesforbeginners when we were chatting at the conference, you seemed keen to talk about continuous disclosure and this is something we haven't covered on the podcast.
So, uh, tell us about continuous disclosure and why it's important to investors.
Nathan Bartrop: So continuous disclosure, uh, is one of something that's relatively quite unique to Australia, but other jurisdictions have IT but effectively public companies. And I guess the majority of the time we talk about continuous disclosure, we're talking about listed companies. So listed companies on the ASX or another exchange in Australia. But effectively continuous disclosure obligation is an entity must immediately notify ASX once it becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price of the entity's shares or securities. Now that is embedded in the listing rules as Listing Rule 3.1. The most important rule of the rule book for the ASX listing rules is and it's also embedded in the Corporations Act. So when you actually sign up as a company to join ASX and being a listed company, you sign on to comply listing rules. And also that means that the Corporations act also acts as if you breach listing rules. You also breach the Corporations act if you fail to comply with your continuous disclosure obligation. Now a few things with this Phil, is that, uh, it's great in that it's a paragraph rule, but it's one that is interpreted differently in different circumstances. When I say that it's a rule that I don't think anyone can ever potentially master in the sense that there is judge made law and there are cases on this, but in fact it applies to a certain set of circumstances any one particular time. M Obviously the ASX can and does monitor continuous disclosure obligations. But the idea around continuous disclosure about why it's important is that that immediately doesn't mean like instantaneously, but a company is required to release that information promptly and without delay. That means promptly doing as quickly as it can. And without delay means not postponing it to a different time. So in that example earlier, uh, I said about what does a company secretary do? So if for example there was potential information such as drilling results, or it could be, you know, major profit change or something like that, then that effectively means that company is required to disclose that information, as I
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Nathan Bartrop: said immediately. But there are a few caveats in being able to release that to the market. So it needs to be effectively accurate, not misleading. So you need to actually do due diligence and make sure that that announcement is not misleading. You obviously need to make sure you comply with other regulatory requirements. So that could be anything from ASIC requirements to Australian Prudential Regulation Authority, Other Mining act or other requirements in certain jurisdictions. But the continuous disclosure obligation is very important because the idea is that all investors should have equal and timely access to information material to their investment in an entity. And so what can actually go wrong if companies fail to do this, then directors and executives can be personally liable for the company's failure to observe continuous disclosure obligations. And I'm sure a lot of you and listeners to the podcast would also understand that there are class actions for serious breaches of continuous disclosure obligations. And that can obviously result in monetary penalties payable by the company. And certainly that has resulted in increased insurance premiums over a period of time. But I think what we're seeing now with continuous disclosure and class actions is that there has been a lessening of the actually monetary penalties of, or even still recent class actions have resulted in the company breaching continuous disclosure obligations, but no material loss being suffered by investors, and therefore investors receive no actual monetary payment as a result of the company's continuous disclosure obligations.
Phil Muscatello: Do you feel that continuous disclosure works reasonably well on the asx?
Nathan Bartrop: Look, I think in the main it works significantly well, and I think it sets Australia up as a trusted jurisdiction around the world. You know, does it have some, um, quirks or does it have some, you know, issues? I think it will always have issues because of those words that I've mentioned to you, things like reasonable person, immediately material effect on price and how companies and people understand what that actually means. And so when you actually have a look at some of these cases, you have to actually look at a significant amount of background facts leading up to the potential disclosure point. And even, you know, the regulator, Australian Securities Investment Commission, commonly known as asic, can also take action. Similarly, like the class action where you have a shareholder then suing the company, ASIC as the regulator, can also sue the company for breach of continuous disclosure obligations. And in that regard, there is a serious requirement for ASX as a market operator to refer any potential breach of continuous disclosure obligations to asic. And, and then ASIC can then investigate and use all of their powers under the ASIC act, which is separate to the Corporations Act. And there's a process, an investigative process that then could potentially include company secretaries, uh, other officers, such as chief executive officers, chief financial officers, chief operating, uh, officers, and others, and including interviewing directors to then potentially lead to an outcome which potentially some of the recent continuous disclosure breaches have ended up, for example, banning a managing director for a period of four years, fining the company over, uh, $2 million, and then potentially, you know, breach of the director's duties provisions of the Corporations Act. And so you can see that recently there has been some prosecutions and not just monetary penalties. They're serious penalties that say to investors, but also to directors and executives, to take this Seriously. So I think there's always going to be an element of sometimes some rogue companies. I think that's always going to be the case and certainly you know, that will happen from time to time. But there is enough regulatory power from ASIC and ASX to be continually investigating. And certainly what I have seen in the last couple of months is ASX has actually released listed at ASX Compliance Update which has targeted ASX compliance 100 or 200 companies. So ASX has the ability to query companies and when they do query companies they send what's called an aware letter, which then I like to think of it as like a who, what, why, when, how? And so the company has to then respond to ASX to a number of questions. And what ASX has said is warn companies in that do have material earning surprises. And one example recently has been James Hardie. They did receive an ASX letter saying why did your material earnings change from the previous period so much? Because we do actually have a guidance note 8 which tells you that you uh, are actually required to change release information to the market in terms of continuous disclosure. So in that case James Hardie was actually able to reply to that letter setting out why it felt that it was complying with its continuous disclosure obligations. But certainly
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Nathan Bartrop: certainly these sort of letters often lead to more other potential actions behind the scenes. And usually an aware letter could then I'm not saying this in the James Hardy case, but aware letters can lead to other circumstances such as ASIC referrals and investigations by asic. And so the particular, you know, I think it's about 15 or 20 letters over the last couple of months reporting season effectively is ASX had a focus on large listed companies and complying with continuous disclosure and particularly earnings surprises.
Phil Muscatello: Let's dig a little deeper into James Hardie. Uh, and also I think Babcorp is another one that you've got an example. Just tell us in a little bit more detail about what was going on there.
Nathan Bartrop: So with James Hardie it decided to actually acquire a US based company. Now there's a number of different things going on with James Hardie. One of the things that has been is that a lot of investors were upset that they didn't get to vote on the acquisition of James Hardie. So that's a little bit separate. But with James Hardie there has been a little bit of shareholder discontent with that acquisition. And so ASX itself is actually going through a public consultation where it's actually going to consider whether it should change some of the waivers that it does give to listing rules. So that's one element of James Hardie which is still to play out. But I think being fair to ASX is that those rules have been around for quite a long time and the waivers is not out of the ordinary in terms of what would ordinarily be expected. ASX size, their discretion, contrary to probably what a lot of investors have been saying, the afr, um, but separately to that is that because they didn't get that vote and the vote was potentially being able to be. The directors had the ability to put it to a shareholder vote and decided not to. And I think investors were a little bit upset that they didn't get a chance to do that. So recently, uh, James Hardy, within the last week, shareholder discontent and as a force of action has actually resulted in three directors, including the chair, being voted out of James Hardie. So this is corporate action and shareholder action in reality. And it has meant that, you know, the ability to vote with your feet and vote at a shareholder meeting has resulted in, you know, for the first time in a while, some pretty serious shareholder discontent. And it's quite unusual for three large listed company directors to vacate their positions as a result of being voted out. It's been certainly quite a number of years that I've seen since I've seen that sort of action happen.
Phil Muscatello: And it wouldn't bode well for the share price of a company, presumably because, you know, there's a cloud of uncertainty when this is going on, isn't there?
Nathan Bartrop: Certainly. So I think with James Hardie there's a number of things, including that letter I spoke about, but I think in terms of the number of things that are happening with James Hardie, I just think these sort of examples show you that continuous disclosure is important because they are required to comply with the not only continuous disclosures, obviously reporting requirements and also being able to present to shareholders and shareholders having the ability to obviously vote at a shareholder meeting for these directors, whether they want to actually vote them in or out. So I think continuous disclosure plus other shareholder rights are actually very effective for investors and certainly something, you know, because companies have to potentially upgrade their or change their earnings and other material requirements. So let's just take it back to mining companies with drilling results. They can't keep it to themselves, they've got to release it to the market. Then investors then get to read the announcement, then choose what they're going to do, whether they're going to buy, sell or hold. And so it gives you effectively updates on a very, I'VE talked about immediately not being instantaneous, but on a basis that is fair to all and all investors have that information available. So in relation to bapcor, this is a really good example of continuous disclosure in action and a company requiring to update their investors about what's actually happening in their business. And it seems like for Batcor, it's been a number of really hard years and the share price has certainly been heading progressively south over a period of time. Now, just to sort of look at all the publicly available information is BAPCorp, on the 24th of July of this year provided a guidance update, effectively updating their earnings. Then on the 29th of August they uh, then announced their results as they're required to do pursuant to the reporting requirements of the ASX listing rules. That's what's called a, uh, appendix 4e or preliminary final Report, where they effectively are required to release their results. But then strangely enough, under two months later,
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Nathan Bartrop: on the 20th of October very recently, they then had a further business update and financial year 26 guidance. So something's obviously not quite right there, but, uh, the company is required under continuous disclosure requirements to update the market about what's happening now in guidance note 8. Sort of taking you through that. And for investors that probably don't have the benefit of my experience now, ASX requires that if you do have any guidance on foot, then you are required to update the market when you expect a material variance. Now ASX suggests that potentially 5% to 10% is a guide. Entities within the ASX, uh, 300 or with stable earnings should be around 5%. Or for more volatile smaller entities, any change of 10% would then require you to release an update to ASX. Now there's other bits, such as if you don't publish guidance but have analyst coverage and other bits and pieces that are in guidance note 8. And this is where a company secretary of a listed company comes into their own. Now a company secretary, as I mentioned before, is a key part, uh, between executive and management. So if I was company secretary of BAPCOR or similar company, then I'd be talking to the managing director. Uh, there may be a continuous disclosure committee, but I'd be talking to the managing director, the CEO, and then potentially there'd be a meeting to then discuss whether to then release, you know, an update to the market and then testing that. And potentially what you may do in these sort of circumstances is potentially seek legal advice and also effectively get an external opinion. But that doesn't always have to happen. But I Guess in some circumstances where there may be certain conditions that would be a suggested course of action to then effectively protect the directors and the officers from those breach of officers duties and breach of continuous disclosure obligations. So ASX does have uh, you know that Guidance Note 8 is almost 100 pages and it's great nighttime reading if you, if you do want to get, get yourself to sleep. But in, in reality those hundred pages are key to practitioners and certainly as a lecturer in corporate accountability meetings and disclosure. I implore all students to read those sections and look at some of the key case studies, anything from cyber breaches to mineral discoveries, earnings updates. These sort of case examples are uh, in that and also some of the intricacies of continuous disclosure. So I've tried to simplify it on today's podcast but in reality it is quite uh, a rule that takes a lot of time to master and there can be certain circumstances and intricacies of the rule. And I think even reading the Australian Financial Review in the last week or two sometimes there's a different view of continuous disclosure from investors as the reality of companies. And this can include anything from like whether you should disclose a, you know, what is often called a non binding conditional offer to acquire a company. Generally ASX says no, you're not required to disclose that until it ceases to be confidential. And you know, some of these other aspects such as when you're preparing an update to your earnings, you often need to then potentially seek other advice such as accounting advice, review issues with the auditors, treatment of goodwill, treatment of all sorts of other complex, you know, things to be able to actually make the announcement. So it's not as simple as what it's like as an investor. Uh, when I think about companies I'm investing in, I can often think oh well, yeah, to get that out to the market, it obviously does take a period of time to be actually able to actually get that out, prepare it and not mislead investors and to have a fulsome report to be able to put out to the market.
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Phil Muscatello: Advice M so you believe that it's important for investors to actually understand what's going on in company announcements. And I think you recommend that you should set up a watch list or set up an alert procedure where any company that you're invested in as any announcement comes out, you will be made aware of it. Is that your thought on this?
Nathan Bartrop: Yeah, that's right Phil. As an investor, uh, I use this for some of the small amount of companies I invest in. Personally I do invest in a range of ETFs and others and I think that's probably less of an issue because ETFs effectively mark to market every day. They obviously are required to put out periodic reporting and other things. But for those that I do have a reasonable investment in, certainly I'm more than happy. Obviously you can subscribe to these alerts on different brokers such as cmc, uh, comsec
00:30:00
Nathan Bartrop: and others. But I think if you had a portfolio of 10 direct shares and you had say you probably may not put all 10 on your watch list or at least you know, getting those announcements. It may be a little bit annoying to get that pinging of your phone or your email all the time. But I do think if you've got a serious investment it's actually understanding that the company does release announcements and understanding that anything for like application quotation of securities. Although it's not a material announcement, over time you get to know that that's obviously they're issuing more shares and other sort of aspects. But continuous disclosure will mean that you'll get that effectively in real time and then you'll be able to evaluate that hopefully. You know, I mean, I guess in reality most of us are doing their day to day life. You could be out shopping, you could be working, doing anything, but at least it gives you the ability either that time or at a later date to fully read the announcement and to be able to let it sink in and then be able to make a decision. Now obviously your serious investors like your hedge funds, other investors in the marketing, whether it's super funds or others also that also hold stock in those large ASX 200 companies. They've obviously got professionals and others monitoring these in real time. I'm not saying you need to necessarily monitor them in real time and you know, buy and sell and trade. I'm actually saying that what I think it is is actually being able to read the announcement and what it means. Now the other thing I would say about reading announcements and I guess I've probably been on the other side of the fence and been inside companies but sometimes it's what they are saying or maybe what they're not saying that is actually important. And also you know, in the, in the BAPCOR example, multiple earning surprises, it goes without saying are not good for investors. And certainly then the ability to be able to forecast over a period of time will suffer until that company can then stabilize its business and get that confidence back from investors. But I guess that just says to investors, look, the share price might be 20% lower and it might be potentially a, uh, buying opportunity based on certain metrics. But as they say about catching a falling knife, it may not be the sort of stock that you want to invest in long term if it's had a number of earnings changes for the worse, not for the better. But on the flip side, obviously if a company keeps on, you know, increasing their earnings forecast and potentially the share price is going to keep rising. So I think with these sort of alerts and updates, they at least will prompt you to potentially review what's happening rather than just sitting there going, well, I don't know why the share price is down 30%. I don't actually understand how the announcements work. And you know, Fred gave me this, the hot tip to invest in this hot mining stock and I really don't understand why I should actually invest in it. You need to actually do your homework and take it seriously. And I think, I'm, um, sure, Phil, with a lot of your podcast listeners, they may have learned the hard way and you know, look, I've learned the hard way investing in some of these shares, but I think it's not for me anymore in terms of obviously doing my homework before I invest.
Phil Muscatello: Yeah, we love tough love on this podcast and the hard won lessons.
So in your experience, what are the kind of issues that keep boards awake at night?
Nathan Bartrop: So some of these, what we've already mentioned is obviously the Batcorp example about earnings surprises. They're obviously not good being able to front, but I think some of those larger things at play that take a long time to play out. So anything from takeovers, that's obviously a company wanting to obviously bid for a company. And there's some companies that have been in takeover mode for like a year or two and it's a serious investment in time by management, but also the board. And certainly if you've got a number of suitors and run a data room and other sort of things. I mean, there has been one company, MainPharma, that has been in that sort of takeover mode for a while and is having, you know, had court action and other things recently to rule on that takeover. But these are the sort of things that would keep you up at night because they don't always have a nice neat resolution. And therefore like with takeovers they potentially could. You know, if you're defending a hostile takeover, you've got to use everything in the rule book and everything, draw on the experience from your advisors. So you would have corporate advisors, you'd have legal advisors, but also other things that potentially are not nice, that I've also had to deal with things like requisition shareholder meetings where your investors effectively say to you, look, we don't really think they may call for the removal of, say, two out of your five directors. They don't like what you're doing. So the James Hardy example that's a little bit different than the James Hardy example is that they're up for election anyway. But in the James Hardy example, some of the new directors were spared, but the old directors were
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Nathan Bartrop: certainly, uh, shown the door where I think when we're thinking about requisition shareholder meetings, that's the shareholder's right to be able to, if they do have, meet certain conditions, such as 5% of the share capital of a company, they can effectively write to the directors and say, we are going to push. And you need to then hold a, uh, general meeting of shareholders to consider the removal of directors. Now, these sort of things end up being inextricably quite personal. And I've seen anything, and certainly the stuff that does keep directors up at night, because it's personal, it can get quite heated. But I think the key is to obviously, you know, to pause for a SEC and understand where the company is and choose what strategy. But there's a number of different things I've seen with requisition shareholder meetings. Either there's just some investor that, want a better word, the crazy investor that's just trying it on, that they're not going to be successful. The company is just obviously, you know, it's got a really good strategy. And more than likely the requisition shareholder may get, you know, say 10% of the vote, but effectively they just go away. That doesn't tend to generally happen, although you may have some sort of potential crazy investor, uh, there's usually some substance to it, but then there's serious investor or the one that has got a strategy that is potentially, you know, going to be successful. And so inevitably, I think directors have to realize that there has to be some sort of negotiation or potential settlement or an ability to, to trade through those waters. But to realize that potentially there may be a sacrificial lamb, whether that's, say, you know, letting, uh, one of these investors may actually nominate another director, either themselves or Someone else. And so inevitably that may mean that there's a compromise, such as one current director going and one new director coming in. Or what I tend to see is that sometimes it goes all the way up to the date of the general meeting. So let's just say a general meeting was going to be held this Friday. All the negotiations will go all the way up until Thursday night, and then they'll resolve everything and announce it on the Friday and then they'll choose to call off the meeting. That's one option. And then potentially what does happen with some directors is that they, to save face, they actually go through with a whole meeting and they get voted out, which is probably the worst one, which is the James Hardy situation, having it. I've obviously spoken about these directors being removed, but it's certainly not, you know, from a personal point of view, it's obviously not the way to go. And certainly we've seen in other sort of corporate governance issues in the last couple of years, such as Qantas and some of these other, you know, some serious companies in the Australian landscape. Some of these directors have chosen not to resign, or they've chosen to resign after a period of time once they've steadied the ship. So these are sort of the things that were just eat away at you every day and you can't often see what the outcome is or you may not know the outcome until the very, very last minute.
Phil Muscatello: And often there's some outsized egos involved in this as well, aren't there?
Nathan Bartrop: Yes, indeed, Phil. And I think, look, in certain circumstances, I often think that, you know, in terms of these directors, the chair is the leader in the boardroom. So if you are a company that is in these choppy waters where potentially some of your directors are going to be removed, then the chair needs to be the leader, uh, facilitate the discussion. But if the chair is not able to or thinks that they may need some help, there's some other options, like appointing a law, uh, firm partner as the chair if they think that it's going to be very difficult meeting, or if they think that there's going to be, you know, certain discontent from shareholders. But the key part going back to the company secretary, it obviously would keep company secretary up at night as well. And certainly the preparation for these meetings, even just a normal shareholder meeting can be in the large companies up to six months. But even a normal company sector of a small mining company could still take one to two months to prepare for the meeting. And look, we say that, you know, a Short meeting is a good meeting, but the success really can come from all of the preparation and preparing for the unexpected. So in some companies, this is all real, Phil. These are, uh, drawn from real examples, but anything from barricading a car park on the entrance to a convention center that's happened to a listed company, anything from potential investors with placards and banners and other things, having security, being prepared, having a script, and having the ability to be able to, if the going gets tough or there's an issue at the meeting, potentially being able to adjourn the meeting and understanding what power that the chair has in those particular situations and really cooling the situation down because the chair is the leader of the boardroom. But also at these
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Nathan Bartrop: general meetings, they have to have a cool and calm, collected head. Now, having seen some of these online, and the good thing is, shareholders can also, if you're a shareholder of Commonwealth Bank, Telstra, any of these major listed companies, even if you're not an investor, you can actually see these recordings of the meeting. And they often give you indications and they give you an overview about what the company treats seriously. And also it shows how the chair is actually able to facilitate questions. And again, for investors, that you do have the ability to ask questions of management at these general meetings. And certainly you do have that right. And you should exercise that right if you're concerned about your particular company. And I always think of it is that, uh, this is the day, often the big day for shareholders, where if you're a small shareholder, particularly, they may not.
Phil Muscatello: This is the AGM referring. You're referring to, aren't you?
Nathan Bartrop: Yeah, that's correct, Phil.
Phil Muscatello: Where you can go and shake your fist at the board.
Nathan Bartrop: Exactly. So having your day in the sun, you can ask those tough questions. And then the idea of the chair is that they will often keep you to say, look, you've got two questions, Phil, you've exhausted your two questions. We'll now move on to another shareholder. But at the same time, you can ask those tough questions. And often there has been some really tough questions asked, especially when you think about the Royal Commission into finance in 2018 and beyond that. And I think some of the Royal Commission has sort of faded a little bit for large, uh, banks and things like that. But certainly I have seen in the last year or two, there has been an uptick in shareholder activism and also being able to utilize the rules and you know, your rights as a shareholder for the great good of all others. And I think largely this year, seeing James Hardy and what shareholders have done. Obviously small shareholders play a part, but obviously the large shareholders obviously voted with their feet and decided that it's not good enough and that more action was required. So I think we're going to see as a result of James Hardy and those directors leaving potentially thinking about good corporate governance, but also what is expected of a company such as James Hardy that's listed on multiple exchanges. And some of the previous issues that they've had is that, you know, good corporate governance, good culture and being a good corporate citizen is extremely important in the Australian landscape, if not the world landscape, despite what we've probably seen in the last year in certain other jurisdictions around the world.
Phil Muscatello: And in terms of shareholder activism, we're quite behind the United States in this department because shareholder activism can be quite robust in the states in terms of even turning the ship around in many ways and installing new management and trying to unlock what is perceived to be more shareholder value that the existing board and management are not achieving.
Nathan Bartrop: Yeah, that's right. I think we're a little bit behind. I mean, we have had quite a few shareholder activists through time. Off the top of my head of some of the directors that have been activists, Gary Weiss comes to mind. And certainly there's been other sort of activists probably a little bit before my investing time. And I think it was Guinness, Peak Group and some of these others were really good corporate activists. I think some of the subtle changes have probably been more in the fact that super funds are, uh, actually large investors now, where they probably weren't historically in the 90s or early 2000s. So this trillion dollar dollar pool of money that Australia has, we're finding out now, even with some of the examples in the past year, is that there are investors such as super funds that are putting companies on watch lists and deciding to potentially sell their stock if they don't believe that there is good corporate governance in particular entities. And that certainly played out in the Financial Review in the last year or two.
Phil Muscatello: So how many corporate regulators does it take to change a light bulb? Have you got any m good answers for that?
Nathan Bartrop: I'd say probably a lot, Phil. Maybe I'll just pluck a number out of the air, like 162 to change the light bulb, because there's many different iterations, consultations, and other things before you actually decide to change the light bulb. So that's my insight for the day.
Phil Muscatello: And so many of the regulators, let's face it, they're a bureaucracy that metastasizes, aren't they?
Nathan Bartrop: Definitely, yeah.
Phil Muscatello: I put a few into artificial intelligence to get an answer for that. And my favorite one was you need five to change the light bulb, one to assess the risk, one to draft the policy, one to approve the budget, one to audit the process, and one to finally change the light bulb eventually.
Nathan Bartrop: Well, yeah, my guess was a little bit out, but, uh, I was sort of thinking all the people behind the scenes and all the other people would have feed it up and, you know, I mean, it's probably the same as, like, how many lawyers take to change a light bulb as well. Probably a similar amount.
Phil Muscatello: Oh, how did that joke go? What was the answer to that one?
Nathan Bartrop: I don't know.
Phil Muscatello: Oh, uh, God, there were so many. Anyway, we won't go into jokes too much now. Look, this has been
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Phil Muscatello: great. I'd love to have you on again to chat even further about this because I love talking about this because there's so many other issues that sort of came in and there's even some questions that we didn't get around to asking.
But sadly, we've come to the end of our time today. Nathan. So, Nathan, thank you very much for joining me today.
Nathan Bartrop: Thank you, Phil, for having me on the podcast, and thanks to all listeners for listening.
Phil Musatello: Thanks for listening to Shares for Beginners. You can find more@sharesforbeginners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.
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