Image for The far-reaching implications of Gunns boardroom drama

John Gay, the chairman of Australia’s largest woodchipping company, has launched a desperate public rearguard campaign against demands by institutional investors that the three long-term Tasmanian directors of the company resign.

The outcome of his bid to fend off concerns over corporate governance issues by attempting to rally parochial political support for the Tasmanian directors is likely to be a pivotal development in Tasmanian environmental politics.

Gunns business strategy is in tatters: it’s much touted proposal for a pulp mill can’t attract joint venture partners or funders, Japanese woodchip customers are insisting that wood supplied to them be certified by the Forest Stewardship Council, the company’s woodchip mills have been subject to rolling shutdowns over recent months and the company has a reputation that is so toxic it makes tobacco companies look saintly in comparison.

Compounding this are the long-standing concerns about corporate governance. Last year Gay relinquished his dual role as CEO and company chairman and was left with management responsibility for the development of the pulp mill proposal. Since then, the pulp mill proposal has gone nowhere other than frequent announcements that finance and partners will be finalised soon.

In early December 2009, Gay sold off 3.4 million Gunns shares for an average price of just over 90 cents. Then in late February, Gay reported that the company’s profit for the six months to December 31 was down 98%, triggering a share sell off by stunned investors. Where Gunns shares sold for just under $1 in mid-February, they are now trading around 57 cents. Not surprisingly, institutional investors are getting antsy.

Even if Gay and his fellow Tasmanian directors pull off a Houdini-style escape and survive in the short term, the writing is on the wall for Gay, former Tasmanian Premier Robin Gray and fellow Tasmanian director, Richard Millar.

The political fall-out

The internal Gunns struggle has far-reaching implications for Tasmanian politics.

In the middle stages of the Tasmanian election campaign, both the Labor and the Liberal parties locked themselves into supporting The New Forest Industry Plan, a logging industry policy wishlist featuring support for the pulp mill, wood-fired power stations and relaxed planning restrictions relating to forestry. The plan, which was put together by the Forests and Forest Industries Council, a government funded advisory group featuring major timber industry companies and lobby groups, claims that over 2,000 jobs can be created if only the industry’s preferred policy prescriptions are followed.

All that could be made redundant by a newly constituted Gunns board which excluded the old environmental warriors of Gay and Gray. It is conceivable that a new board could retreat from support for sourcing its timber from high-conservation forests or even native forests entirely and abandon the proposed pulp mill and associated wood-fired power station. It would also be under pressure to change its most controversial management practices such as aerial spraying and the poisoning of native wildlife.

It would also be more likely to drop the ’ Triabunna 13’ legal case against those involved in a December 2008 protest at the company’s Triabunna woodchip mill. After having retreated from the humiliating debacle of its Gunns 20 legal action, it is likely that a revitalised board would decide that the last thing the company needs now is another expensive legal distraction from the numerous problems facing the company.

A new board is also likely to dramatically reshape Gunns position in Tasmanian political landscape.

As an initial step to improving its reputation Gunns could well retreat from making donations to major political parties and opt for a more neutral position.

It could also cut off funds for, or insist on major policy changes to, the lobby groups it is involved with. The Forest Industries Association of Tasmania (FIAT), of which Gunns is the dominant member, would be the first cab off the rank.

It could also withdraw its support for Timber Communities Australia, a logging industry supported group which has the role of mobilising grassroots industry employees and supporters.

The combination of these steps, would leave Forestry Tasmania (FT), the government own logging agency with most to lose from a less confrontational approach over native forests logging, far more isolated in the political landscape. FT would suddenly see a dramatic slump in demand for timber from its native forests logging operations at the very time that either a minority Labor or Liberal government would be under pressure to increase the financial returns from the poorly performing government business enterprise.

The last dominoes to fall would be Labor and Liberal parties, which could find themselves in the position of having advocated support for a set of logging industry policies that less than a month later were no longer the priorities of the largest player in the industry.

By going public in the last days of the election campaign in a bid to save himself, John Gay may just have shifted the focus back on to the very topics that the Labor and Liberal parties least want to talk about: John Gay, Gunns, the pulp mill and the future of native forest logging.