By Frank Noakes
Probably not since Paul Newman teamed up with Robert Redford in The Sting has such a scam been attempted. But whereas Newman and Redford's target was another thief, the prey here is the 1.8 million members of a road service organisation in New South Wales and the Australian Capital Territory.
Established in 1920 as a road lobby group with 50 members, the National Roads and Motorists' Association (NRMA) soon grew to provide reliable and affordable road service and then, in 1925, low-cost motor insurance. It was purposely set up as a mutual association without share capital to prevent any member from having more influence than another — one member one vote. This also meant that there was no capital requiring dividends.
It is, therefore, unlike any company listed on the stock exchange: the membership elects the board of directors, and the association, by charter, is service- and not profit-driven.
All of that is about to change. The NRMA is to be privatised, if the majority of its directors can get away with it.
Independent federal MP Ted Mack is a strong opponent of the "demutualisation". "The proposed privatisation of the NRMA is superficially bizarre. The usual justifications for privatisation — that is, organisational inefficiency and tax subsidies — do not apply.
"Being a mutual organisation owned by its ... members, the NRMA is successful financially and in its services to members. It is even more peculiar when the proponents of the privatisation say the reason is to enable the organisation to give money to its members.
"Usually a float on the share market is to raise capital, not to give it away! Quite obviously, if the NRMA wanted to benefit its members, that is, fulfil its charter, it would improve road and other services and reduce its insurance charges", says the member for North Sydney.
In the NRMA prospectus, president Don Mackay argues: "It is time to decide: whether we continue to operate within our current structure — which has been successful but which does not permit the members to share in the wealth and financial successes of the organisation; or whether we adopt a new structure which will build on the current successes and permit members to share in the wealth and future financial successes of the organisation. In short, the proposal is to unlock the wealth of the organisation by giving members free shares."
Writing in the NRMA's journal Open Road, chief executive officer Ray Willing continues the theme, saying that to "do nothing would mean the wealth of the NRMA would remain locked up and inaccessible to members".
Who gains?
Members are being strongly urged by the board of directors to vote yes to privatisation. The inducement to vote yes is simple: depending on the length of membership, members will receive an estimated $500-$2000 worth of shares or cash.
Temptingly, Willing speculates that "People might want to pay a lot of money to get shares in such a strong company". But that will depend on how Casino Stock Market values the shares, and nobody knows that at this stage.
Somebody is sure to gain, but who? And why is privatisation being pushed now? Ted Mack again:
"You don't have to look very far. The NRMA has been run as a cosy old boys' club for years. A small group of self-perpetuating directors have pushed an extreme political and transport agenda using members' money ... This brought a reaction. In recent years new directors have been elected determined to open up the NRMA affairs to members and bring more rational transport policies. With the writing on the wall, the old guard has decided the way out is to privatise, eliminate elections and get things back under control.
"Within a few years, the organisation will be controlled by a very few large private companies with profit the sole motivation. Services to members will be cut, insurance premiums will rise and competition will be reduced. Executive salaries have risen, more than $500,000 for the chief and around $300,000 for nine assistants.
"Three years after privatisation the then chief executive will be on $1.5 million. The future Rothwells, Bonds and Skases are rubbing their hands." Mack claims those responsible have spent $30.5 million of members' money on the operation so far.
In 1988, a group of members concerned at the extreme right positions adopted by the board of directors and its profit motive contested board elections. They had instant success. With the election of former swimming great Dawn Fraser, the Motorists Action Group held four of the 16 board positions.
"Based on the 1993 election results, the old guard were finished", NRMA director and MAG activist Richard Talbot told 91×ÔÅÄÂÛ̳ Weekly. "We came up for re-election; they even ran two R. Talbot's on the ballot paper, but they still couldn't beat us."
By changing the articles of the association, the "old guard" avoided a board election this year, thereby saving their positions. "It's all aimed at executive salary increases, directors' fee increases and control of how members' money is going to be invested."
'Still out'
MAG directors have been able to get the board — grudgingly according to Talbot — to accept that there are other forms of transport besides the motor car and that a balanced transport system is needed. Talbot says the board's philosophy in the past had been to encourage as many cars as possible on the roads, which would translate into more members and greater profits.
So concerned is the board at the weakness of its "Yes" case that it has refused to fund or even to permit a "No" case to be put to members through any official channels of the NRMA.
"Members have a right to exercise their vote in the fullest possible knowledge of what the changes may mean for them, for the future of the organisation and the insurance industry ... to say nothing of the long term future of their road service organisation", wrote media personality, MAG activist and NRMA director Jane Singleton. The majority of board members disagreed.
"This is really a referendum on the future of the NRMA, the most important decision since it was formed, and one would think a balanced debate would be required by law. It's particularly disappointing that the federal minister for consumer affairs, Jeanette McHugh, is silent on the issue, even though many, many people have written to her — including her own advisers, the Australian Consumer Council — asking her to intervene and hold a public inquiry", objects Talbot.
As an indication of the NRMA's sensitivity, when this reporter contacted its media liaison department to ask why the "No" case was not put before the membership, I was passed around until Helen Conway was settled upon. She was out of the office. On the last of several unsuccessful attempts to contact Conway, an audible voice behind the muffled receiver implored: "Tell him I'm still out of the office".
Industry support
A number of unions have made space available in their journals for the "No" case. One doubts, however, that the Textile, Clothing and Footwear Union has extended this offer. Its joint national secretary and ACTU vice president, Anna Booth, is an advocate of the privatisation; she is also one of the conservative directors of the NRMA.
Booth is in interesting company. The NRMA's rivals in the insurance industry also support the association's privatisation. In the September 15 Financial Review, Bill Jocelyn, the managing director of GIO Australia Holdings Ltd and a member of NRMA, says, "If that [share market listing] goes ahead there will be a big injection of free capital into the industry. That's got to lead to rationalisation. And also it's got to lead to rational pricing by the NRMA to produce profits to service its capital."
The chief executive of FAI, another member of NRMA intending to vote yes, Rodney Adler, says it "will be good for the industry. It will bring common sense back to pricing. In the end it will make a level playing field. It's always been very hard for shareholder companies to compete with mutual companies."
The message is clear: the privatisation of the NRMA will lead to higher insurance costs for all motorists and greater profits to the big institutions.
"The senior officers in the NRMA are out there busily promoting it [privatisation] as hard as they can when it's illegal to do that when they're not declaring their interest, because they stand to make an awful lot of money", Mack told me. He says senior officers will receive special share issues.
Securities Commission
Federal parliament will hear questions from Mack about the role of the Australian Securities Commission. He and others are particularly concerned about the role of Lynn Ralph, deputy chair of the ASC and vice president of the NRMA.
ASC spokesperson Janet O'Connor told 91×ÔÅÄÂÛ̳ Weekly that there is no conflict of interest because Ralph is "quarantined from all ASC decisions that have any relation at all to the NRMA. We have looked into complaints. We are not conducting an investigation because we don't believe there are grounds for one."
It is not only proponents of the "No" case who recognise that the NRMA will not be the same after privatisation. Annette Sampson, reporting in the money pages of the Sydney Morning Herald on September 14, said: "Once stock in the company becomes publicly available, NRMA members will be outvoted by professional investors who may have different goals and objectives. Institutional investors, for example, are unlikely to countenance dissident groups such as the Motorists Action Group as directors on NRMA's board."
As for claims by the board that the road service would remain untouched, Jane Singleton has this to say: "Richard Talbot, Dawn Fraser, Geoff Lawson and I had to make the most impassioned and forceful pleas — to say nothing of threats to go public — to stop the NRMA levying automatic fee-for-service charges on members who used the service more than others. Given that the reassurance offered in the prospectus ... is a mealy-mouthed 'members' services will continue', one has to wonder about its future."
What little NRMA members will gain in the short term can be quickly lost through an erosion of services, especially road services — which do not return a profit — and increased insurance charges.
"There is only one NRMA", says Talbot. "It is already owned by its members ... It is not necessary to have the NRMA listed on the stock exchange to be able to return profits to members. Instead, free road service could be offered to policy holders, a real rebate cheque that would be tax free sent back to policy holders, or the cost of insurance premiums could be lowered. The NRMA's strength is in its mutual association of members.
"If the profiteers have their way, the ramifications for car owners and policy holders in NSW and the ACT will be severe. Members should think again and not allow the NRMA to be hijacked by big investors."