letter to the chairman #2

For the edification of fellow-shareholders in Skilled Group, below is a copy of a letter sent to our company's chairman on 24th November.

I exhort all shareolders who are believers in the United Nations Principles for Responsible Investment to actively enage our company, by voiving opposition the Transition Arrangements for the Former MD & CEO (refer ASX announcement dated 24 November).

Even small shareholders can be instrumental in encouraging improvement in governance practices in the interests of protecting the prosperity and reputation of our company.



Dear Ms McFadden,

TRANSITION ARRANGEMENTS - MR GREG HARGRAVE

I would like to welcome you to the position of Chairman of the Skilled Group Board of Directors.

Unfortunately, it is with umbrage that I write to you about the announcement submitted to the Australian Stock Exchange by Skilled Group today, dealing with transition arrangements for Mr. Greg Hargrave, former Managing Director (MD) and Chief Executive Officer (CEO).
As a shareholder in Skilled Group, I consider these arrangements to be not only totally unacceptable, but I take their sheer brazenness to be an act of egregious contempt by your office for shareholders in our company.

Specifically, I wish raise the following objections:

1. Why is Mr. Hargrave today still an ongoing executive of Skilled Group, given the intention stated as far back as April this year for him to disengage from the position of MD and CEO? No doubt it might be argued by whatever supporters Mr. Hargrave retains within the company that he has significant relevant history and experience; however, my long and considered observations have concluded unequivocally that, as MD and CEO, Mr. Hargrave presided over significant destruction of shareholder value. (In the interests of brevity, I will omit the justifying of this assertion within this correspondence. Instead, I have attached as the Annexure hereto, a copy of a letter sent in September this year to your predecessor, Mr. Ken Loughnan. This earlier missive, I believe, makes an unambiguous case for the wholesale value destruction that has taken place in our company during the past several years.)

2. Why does the new CEO need "ongoing support" and "assistance to ensure a smooth transition"? Surely Mr. McMahon was appointed on merit as an experienced and capable executive? Certainly, he comes to Skilled Group with excellent credentials, which shareholders should rightly expect would render him functionally effective straight away, without having to "have his hand held" for two months, as it were. Indeed by far the greater precedent in corporate Australia is for incoming CEOs to "hit the ground running". I fail to see why the duplication of senior executive salaries has to be incurred by our company in this regard.

3. The proposal to make an ex-gratia payment of $630,000 to Mr. Hargrave is a vulgar and outrageous one and should cause offence to all conscientious shareholders. Ostensibly, this payment is in recognition of "past services to the Company". Yet Mr. Hargrave in his various executive roles within the company was, what I would consider to be, handsomely remunerated for the services he provided. Why is it now proposed that he be, in effect, doubly-remunerated? After all, he is not leaving the business entirely, but is simply having an extended break.

This sort of executive largesse, Ms McFadden, is shameful, and the sort of practice that gives company executives a reputation of "gouging" at the trough of corporate excess.

4. Mr. Hargrave?s proposed "leave of absence" seems to me to be of asymmetrical benefit to Mr. Hargrave, at the expense of board integrity. I know of few other instances where company executives enjoy what is effectively a call option on a board position, which is effectively the case here. Either Mr. Hargrave is considered to be an asset to our company, and he remains on the board, continuing to fulfill his executive obligations, or another suitable director is appointed as soon as possible. But to simply keep a board seat vacant, for almost twelve months for when (and if) Mr. Hargrave returns to duty, smacks of corporate crony-ism, to my way of thinking. I recognise that the pressures and strains on contemporary executives are significant, but that is why they are remunerated accordingly. If Mr. Hargrave has a need to be absent from the cut and thrust of the corporate arena, then he is well within his rights to choose to disengage from the business. But for our company to be with an unfilled board position for the bulk of what is likely to be a critical year for the business, I contend is ill-considered governance practice.

On a more positive note, I was pleased to note in Mr. McMahon's Open Briefing paper of 18 November 2010, that the business review that Mr. McMahon will be undertaking in coming weeks "will be managed in-house, utilising resources from within the business and functional experts in specific areas on an as needs basis". That sort of new-found frugality is pleasing to see in our company. (Of course, cynics might rightfully argue that the costs avoided by conducting this latest strategic review - the second one this year - are simply being incurred, instead, in unjustifiably enriching Mr Hargrave to the tune of $630,000!)

Also, following my earlier letter to the chairman's office, I had the privilege of meeting personally with Mr. Loughnan wherein he kindly articulated to me the strategy for the company going forward, and specifically provided assurance of scope and prospect for improved governance practice.

Regrettably, however, today's announcement has extinguished any hopes I had kindled that our company would in the future cease to be managed like a mere fiefdom for the benefit of a privileged few. As a loyal and faithful shareholder in Skilled Group, I look forward to assurances that my fears are unfounded. Abandoning the proposed transitional arrangements for Mr. Hargrave would go a long way to doing so.

I hope you do not interpret this letter to be facetious or hostile. I am simply a shareholder who is concerned about the fate of our company and the threats that ongoing poor governance judgment pose to its prosperity and reputation. That this is only the second letter I have ever drafted to a chairman of any company in which I am a shareholder I believe speaks volumes for how seriously I take this matter.

Ms McFadden, it is time that our company was managed in the interests of all shareholders, and not just for Mr. Hargrave's benefit, seemingly just because his father founded the business. Skilled Group is no longer a private family fiefdom; it is now a publicly-listed company, and I urgently exhort you and our Board of Directors to start operating it that way.

Yours Faithfully,