The internet has been an amazingly positive development which has changed the way we work and interact.
But it has its dark side, as demonstrated by the responses to a news item in the National Business Review on Monday.
The article, under the heading “Diligent nabs Weldon for board role”, was about the appointment of former NZX boss Mark Weldon to the board of Diligent Board Member Services.
It included a quote from Diligent chairman David Liptak, who said Weldon brought “a wealth of unique and in-depth skills encompassing strategy development, corporate finance, governance, entrepreneurial and operational matters in both the domestic and international areas”.
But many of the 44 comments posted below the news item had different points of view, and were highly critical of Weldon.
These comments were written anonymously, as are most web postings.
Anonymous postings are a dark side of the internet, particularly when they are vindictive and irrational.
Weldon didn’t deserve these spiteful comments, as the NZX has been the third-best performing company on the New Zealand stock exchange since it listed on June 4, 2003, ranking behind only Ryman Healthcare and Mainfreight.
Over this nine-year period, Ryman had a total sharemarket return of 1116 per cent, Mainfreight 875 per cent and NZX 814 per cent.
TrustPower was a distant fourth with a return of 433 per cent.
ASX, the operator of the Australian Stock Exchange, has had a total market return of 282 per cent since June 2003.
The NZX was mutually owned by members until it became a limited liability company on December 31, 2002.
Its main objective as a mutual was to supply a modern and low-cost trading facility for brokers.
It supported a light-handed regulatory regime – including strong opposition to the introduction of the Takeovers Code – and did little to promote new listings and develop the activities of the country’s capital markets.
In other words, the exchange was subservient to its members instead of being a progressive and insightful industry leader.
Weldon, who was appointed chief executive in mid-2002, was 34 years old at the time.
He was a New Zealand swimming representative, and had degrees from the University of Auckland and Columbia University School of Law in New York.
He had also worked for a large law firm and McKinsey & Co in New York.
Weldon was a breath of fresh air at the NZX – he was a complete break from the stuffiness of the past.
As part of the December 2002 demutualisation, each broker member was issued 10,000 free NZX shares, a total of 3,310,000 shares.
On May 30, 2003, shares were split on a one-for-one basis and each original shareholder ended up with 20,000 shares – a total of 6,620,000 shares.
The company listed on its own sharemarket on June 4, and most brokers bailed out as quickly as they could.
On the first day 696,300 shares were traded, and over the first 10 trading days 2.12 million shares, or 32 per cent of the company, passed through the market.
One month after listing the company had a one-for-two rights issue for existing shareholders at $1.50 a share. This was followed by a public offering of 2.78 million shares at $3.60 each.
The public offer was oversubscribed nearly four-fold, and the $3.60 issue price was well above the prospectus indicative price range of between $2.50 and $3.25 a share.
If the brokers had kept their shares, and participated in the one-for-two rights issue, they would have retained control of 78 per cent of the company.
But most of them sold out and five years later only 10 per cent of brokers still held their shareholding.
This was a bizarre course of action for several reasons, including:
•Brokers sold out of one of the best performing listed companies.
•They gave away control of the organisation that is central to their day-to-day operations.
•They demonstrated little support for the country’s sharemarket.
They complained that Weldon didn’t do enough to promote investment in the sharemarket, yet they dumped their NZX shares.
The NZX’s financial and sharemarket performance has been dramatic under Weldon’s stewardship. Group revenue has leapt from $8.6 million in the June 2002 year to $55.6 million in the 12 months to last December.
Over the same 9-year period, the company has gone from a net loss of $500,000 to a net profit after tax of $14.5 million and shareholders’ equity has jumped from $6.5 million to $87.8 million.
Many industry participants, particularly brokers, are highly critical of Weldon – but they have only themselves to blame.
Brokers had total control of the NZX, yet they gave it away and lost their influence over the board and the exchange’s business strategy.
Weldon is also criticised for his high salary and generous share schemes.
But it is the board of directors, rather than the recipient, that should be criticised for this.
Weldon is not flawless – he had a high staff turnover and his communications with stakeholders deteriorated in recent years.
But he inherited a hopelessly governed and managed exchange and has left it in a far stronger position than when he started.
How many recently departed chief executives of listed companies can seriously claim that they have left the business in a stronger position than when they began?
Weldon has left the NZX in a great position for the new chief executive, Tim Bennett, to take it to a higher level.
Weldon’s relationship with Diligent Board Member Services goes back to his days in New York when he swam with Alex Sodi, the Diligent chief executive and a former water polo player.
At one stage the NZX was contemplating a direct shareholding in Diligent but this did not proceed for several reasons, including the large size of the potential investment in relation to the NZX’s balance sheet.
Weldon convinced Diligent to list on the NZX at the end of 2007 even though it is based in New York City.
The links with New Zealand were Diligent’s research & development operations in Christchurch, chief executive Brian Henry and the Weldon/Sodi connection.
Diligent’s share price was hammered shortly after it listed following the revelation that Henry had been associated with Energycorp Investments, one of the worst boom and bust NZX listed companies of the 1980s.
Sodi replaced Henry a few days after Diligent listed, and the company was then hit by the full blast of the global financial crisis.
Diligent survived but it has had a terrible experience with its New Zealand directors, beginning with Henry.
Former chairman and current director Rick Bettle faces charges in relation to the failed Dominion Finance and Peter Huljich resigned after he faced charges related to his investment management company.
Weldon’s appointment to the Diligent board was announced only a few weeks after the company’s annual meeting.
Some critics said his name should have been put forward at the annual meeting and be subject to a shareholders’ vote.
But Weldon was still the NZX chief executive at the time of Diligent’s annual meeting and he would have been subject to even more criticism had he stood for the board of a listed company while still in charge of the exchange.
Weldon may be a better director than a chief executive because he has great strategic skills but sometimes lacks the communication skills that are required for a chief executive.
He has polarised opinion, as do most major game changers, but the end result is that the NZX is in a much, much better shape than it was when he started as chief executive 10 years ago.