The directors' cut

Rick Allert says he had a relaxing family dinner and a nice glass of Penfolds Bin 389 to help him recover from the most torrid annual general meeting he'd ever faced. But the fiasco veering into farce was far from over.

The Coles Myer chairman kept getting calls that night about the status of the late Lew proxy votes, all 117 million of them, that Solomon Lew had apparently managed to forget to lodge until he got back to his office.

Given that Lew had spent more than $10 million in an advertising blitz to acquire them from those he proudly called Mr and Mrs Australia, this was quite some oversight and suspiciously unlike his typically meticulous attention to detail.

It more than matched the company's bungling of its own voting forms where it had 13 check boxes and only 11 names of would-be directors.

For the angry crowd at Melbourne's Vodafone Arena, the mood was more reminiscent of watching a disappointing team fumble yet another footy final. The spectators roundly abused all the players in front of them, questioned the independence of the umpire and suggested the whole lot find a new line of work. Yer mugs.

But if the public show was vicious, it had nothing on the brawl that is going on behind the corporate curtains. A brawl that will continue indefinitely rather than for a mere five hours of riveting viewing. Allert keeps insisting this is not about personalities. He couldn't be more wrong. This is the raw essence of Solomon Lew on display. And he's already regrouping.

Lew will now be watching the Christmas sales more keenly than anyone, supremely confident that the company management and board simply don't possess the skills to make a success of Coles Myer's incredible franchise. Allert says the process to find two new board members will be ``a matter of months rather than weeks".

The likely course of action, then, is that sometime early in the New Year armed with what they expect will be more bad second-quarter results from the company and ready to challenge the qualifications of any proposed new directors Lew and his supporters will call for another extraordinary general meeting. Their aim will be to try to topple the board yet again with their own selection of candidates, including, of course, King Sol.

``They think of themselves as a government in exile," says one Lew ally. And as the natural leaders in a sham of shareholder democracy rigged against them by the opposition of people who, as Lew scathingly described them, ``don't have their own money invested". It's the ultimate put-down from a self-made entrepreneur. Those people are not ``the true owners", Lew declared. The true owners, it seems, are Solomon Lew and the 170,000 households which supported him.

Allert just as acidly pointed out that if Lew got the votes of 170,000 households, it meant he didn't get the votes of 390,000. But it still was a high turnout from individual shareholders, who normally stay well away from any corporate games, at most turning up at an AGM for a cuppa and a plate of bickies to vote whichever way they are told.

In total, there are 1.2 billion Coles shares and nearly 700 million were voted this week. Institutional shareholders all sided with the board against Lew. Lew controlled around 115 million shares directly through his shareholding of just under 10 per cent of the company. He got just over 267 million all up just under 40 per cent of the total voted if his oops-I-forgot numbers are included.

Despite the threats from the Lew camp of keeping all options open, he's unlikely to sue the individual Gang of Eight directors who managed to oust him or unless something unexpected happens to try to overturn the results of the election in the courts. He doesn't want to be seen as vexatious.

The idea is to concentrate on the next full-on assault in his self-declared role as shareholder champion. But Lew is more determined than ever to win in the end. To win what, of course, is an extremely complicated question.

Forget, for a start, most of the furore about related party transactions and Lew's family companies supplying about $70 million of goods to Coles Myer annually for a profit of a couple of million.

Appearances may matter, particularly in these post-Enron days. But they shouldn't obscure the larger reality. The figures for his family companies are not only minuscule compared to the $26 billion in Coles Myer sales every year. They are also minuscule compared to the now substan-tial Lew family fortunes and the fact that the great bulk of his wealth is tied up in his share investment in Coles Myer itself. Nor will they be affected by whether or not Solomon Lew is on the board. Indeed, as Lew's one board ally, Mark Leibler argued, Lew's exit will probably make it easier for his family companies to supply Coles Myer rather than have auditors crawling over the purchases.

Maybe, as some suspect, Lew does give the family members who run specialty chains competing with Coles Myer the benefit of his fatherly advice on the retail market. That certainly won't stop now either. But it's ludicrous to consider that an issue of damaging significance compared to the much broader problems facing Coles Myer.

So what is this all about then?

In his speech to the AGM, Lew nominated a few reasons, including his own significant financial investment in the company, but also claimed it was a matter of principle and passion. ``I will not quietly slip away," he said firmly.

He had merely been diligently carrying out his director's duties by disagreeing or asking the tough questions, he argued, and been targetted for doing so. He also believes fervently in the economic potential of the company despite the travails of the past few years a decline he repeatedly links, hardly coincidentally, with the period after he was forced to step aside as executive chairman in 1995.

He certainly has no time for John Fletcher's ``vision" and version of cultural change, his independent way of operating as managing director, and what he sees as Fletcher's inability to grasp the core of retailing.

The real issue is that Lew just can't help his own obsessive personality. He thinks he knows best. He always has.

Underneath that is a cold disdain for those Lew regards as ``professional" company directors those who don't put their own money on the line; those who don't live and breathe retailing as he does.

But there's also the outraged feelings of the permanent outsider, shunned once more by the Establishment, and fighting to prove he's more worthy of respect than they are.

``This man's idea of weekend relaxation is to visit a shopping centre," says one close observer.``His only topic of conversation is business. And being a director of Coles Myer is still his passport to recognition and respectability."

Respectability that remains elusive after all these years.

Remember Lew is the scrappy Jewish entrepreneur who inherited his immigrant family's almost defunct clothing business in Flinder's Lane and built it into a powerhouse. Remember him doing so well that the Myer family asked him to invest in the financially struggling Myer company in 1983 ( the same Myer family which has just voted against him). Remember how influential he was in the 1985 Coles bid that also featured his good friend and neighbour and then member of the Coles board, Lindsay Fox.

Lew became chairman of Coles Myer in 1991, joined the Reserve Bank Board soon after, and dined regularly with the Prime Minister, Paul Keating, and his good mates Lindsay Fox and Bill Kelty. He had officially made it.

But Lew remained intensely paranoid about publicity and highly sensitive to any opposition. The stories about conflict of interest never went away. Nor did his image as a bit of a bully, a person not prepared to brook disagreement, presiding over a culture of mates and deals. Although he can be charming when required, popularity was never going to be his long suit.

Then came Yannon, a complex share-buying scheme using a shelf company which ended up costing Coles Myer millions of dollars. No charges were ever laid despite an extensive investigation. When details became public, institutional and corporate Australia told him it was time to go. He was just as hostile to the idea then as now. The final compromise was that he stayed on the board but quit as executive chairman.

A humiliated Lew has never forgiven what he sees as the hypocrisy of the institutions or of corporate Australia. He concedes nothing, insisting he did nothing wrong. The embarrassment of the aborted bid for Ansett with Lindsay Fox a year ago only increased his sense of alienation and resentment. It all meant that not being locked out of Coles Myer became even more important to him and to his fierce protection of his own battered reputation.

But things had changed at Coles Myer too, especially in the last year. Lew hadn't approved of the appointment of the non-retailer John Fletcher. The then chairman Stan Wallis told the board he had checked out Fletcher with his new chairman at Brambles, Don Argus. It's a conversation Argus doesn't recall and in any case, Argus and Fletcher had a strained relationship.

Nor did Fletcher seek Lew's advice constantly like his predecessor, Dennis Eck. Lew's long-term ability to influence and talk to other senior executives was also waning.

So he was increasingly infuriated by what he considered Fletcher's mistakes and U-turns and by the acquiescence of Wallis, who had formed a close and largely exclusive partnership with his new managing director.

Despite all his complaints about strategy and direction now, other directors suggest that Lew has been a relatively quiet member of the board in meetings over the years, preferring to use his separate relationships with executives to influence things.

``We certainly didn't get the benefit of too many of his good ideas on how to change course," says one. Some blame him for encouraging the disastrous slide of Myer Grace downmarket into consumer irrelevance. Lew insists he opposed the phasing out of the shareholder discount card which he has used so effectively in his campaign to court small shareholders but maintains there was a limit to what he could achieve as one of 10 directors bound by confidentiality. What he clearly did most ferociously oppose, however, was the sudden change by management last June to contemplate splitting up the company.

The superficial cordiality that had existed with Wallis had already broken down. From May, Lew made his feelings plain in angry correspondence with the chairman correspondence which Wallis later told the rest of the worried board was ``private", even though it went to the heart of company performance.

Lew already knew some other board members were also unhappy with Wallis's failure to consult and were thinking of a new chairman themselves.

Yet when Wallis called into Lew's office in early September to tell him he was quitting at the AGM and, oh by the way, it was the general feeling of most board members that Sol should go too, Lew's rage with everyone became intense.

He was always going to fight this unexpected and quite unbearable humiliation.

``They thought he'd react in the way that would be rational and predictable for a professional director," says a Lew ally. ``But he was never going to walk away. With his history, his character, his investment and his view of the rest of the board and the CEO to deliver on the company's potential, he had no choice."

But with battle lines drawn, the rest of the board, except Mark Leibler, didn't believe they had a choice either. Rick Allert wryly told the meeting that he got the job as chairman because he was the only one who put his hand up.

But he says he now feels privileged to be chairman of one of Australia's most ``exciting companies" and is confident he can persuade some good new directors to join ``a very exciting future".

``We are one of Australia's leading companies," he says. ``We want to have one of Australia's leading boards. It's in the interests of all shareholders and I underline all to let management get on with the job of delivering on strategy. That's how they will realise on their investment."

Lew's got his clock ticking already. Some opponents suggest he won't be able to do as much damage now that he is no longer on the board. That suggests they still don't understand their man and his personality.

``Now he'll be outside the tent and hostile," says one backer. ``That's far more dangerous."