When Membership Became a Threat

In Cowan’s view some of the most damaging – or potentially damaging – decisions made by a Panthers Board have been rationalised by claims that the Club was in danger of a reverse takeover – a loss of control to directors voted in from amalgamated clubs. The direct costs of these decisions were far in excess of a million dollars. The indirect costs – in reduced market share, lost opportunities and image battering – would have been much greater.

It could have been much worse. There were some close calls. On a couple of occasions, members of the Footy Five were forced to withdraw motions that would have been disastrous. One of these would have eventually cost Panthers far in excess of a hundred million dollars, perhaps double that amount.

The word ‘takeover’ had long been erased from Panthers’ management dictionary – and from its psyche, but in the minds of some of those directors, it was what was really going on in 2000-2002. This became blatantly evident during their testimony at the inquiry. And given that their understanding was that these clubs were being ‘taken over’, then their members should always remain secondary to the members of what some of them called the ‘mother club’, Penrith. It was a view that was diametrically opposed to that of Cowan, the Club’s management, the other members of the Board, and the Licensing Court.

It is difficult to reconcile that view of amalgamation with the memoranda of understanding approved by the Board for each amalgamation. Each clearly spelled out the rights of members.Each one clearly spelled out the rights of members. The very first such memorandum approved by the board was for the Hawkesbury Sporting Club on 11 June, 1999.The memorandum was part of the evidence supporting the application to the Licensing Court.

The fifth clause is unambiguous:

e) Members
– members of Hawkesbury Sporting Club [HSC] have full membership rights at Penrith Rugby League Club [PRLC]
– all entitlements and rights of members of HSC (such as 3yr, 5yr, 10yr, permanent) be preserved in their membership of PRLC

During the inquiry, all of the Five claimed they were justified in aborting an election because they were protecting the Penrith members from a reverse takeover by interests that would not support rugby league. Some said they had been misled by management as to the rights of members of the amalgamating clubs. The criticisms became a significant part of Ian Temby’s Instrument of Appointment for the inquiry.

While the amalgamating clubs were small, with few members, the Board seemed to have no problems with the process.

Roger Cowan and his management team had authorisation from the Board to take the program out into the world and sell it. Hawkesbury Sporting Club was a good example of management thinking. That club had about 2,000 members and Panthers, at that time had about 50,000 members. After amalgamation, Panthers would have 52,000 members and they could all choose between two locations. To management it was one club, one membership and two sites. As members of a club amalgamating with Panthers, the 2000 would have equal rights with all Panthers members – and there were no qualifications with that. They could vote in elections and stand for the Board. For Cowan, his management team – and some members of the board – that thinking never changed.

Port Macquarie RSL and Club Nova in Newcastle had large memberships, and each consisted of two clubs. To make matters worse in the eyes of some people, the Newcastle
clubs were strongly affiliated with the union movement.

Club Nova had a book value in excess of $40 million, and a debt that could be paid out with about $14 million.  It had 30,000 members and the city had a first-grade rugby league team with a very strong supporter base. These factors, combined with the potential for significant improvement for both clubs, meant it fitted Panthers’ criteria perfectly.

The Panthers/Club Nova deed of amalgamation was signed in October 2001, but the transfer of members was delayed by the Board, fearing that such a large membership was a threat. As soon as the amalgamation was approved by the licensing court, the Newcastle members would be entitled to vote, and nominate for the Board.

The first ever group board election was to be held early in 2002, and some of the Five had expressed discomfort about elections being influenced by the larger clubs.

Around the same time, Roger Cowan presented a paper advocating that a group board would work better if it were made up of directors from a number of clubs. He envisaged that each local club would have its own internal board (or committee) and the group board would make the major decisions relating to the entire enterprise. Penrith would hold no more than three seats on that board, and other clubs could hold a maximum of two.

Cowan felt that such a board would provide valuable input on matters affecting all clubs in the group.

His model was rejected by the majority of the Board, which resolved to instruct the club’s Group General Counsel to put the Club Nova amalgamation on hold. Evidently Cowan’s vision for a diverse board was not going to materialise.

The following day, Panthers’ Board called an extraordinary meeting.  It requested the club’s legal adviser on registered club issues, John Ralston, a specialist in the area, to investigate a constitutional amendment that would guarantee five Penrith board seats.

They proposed an amendment to the constitution, which would ensure that at least five out of the nine directors on the group board had to come from Penrith, with a maximum of two from any other club. It guaranteed Penrith five seats on the Board, and left it open for the Penrith club to hold all nine.

Former director Evans told the Inquiry he viewed amalgamations as Panthers being a ‘white knight saving these clubs from going under’. Yet one of the original criteria endorsed by the Board was that an amalgamation would have to be potentially profitable for Panthers.

Evans told the inquiry,

We would still provide the facilities for the people of those communities. Perhaps we could use our expertise and charge ourselves out to those clubs to make some money, which then could be channeled back into football.

For Cowan, the ‘white knight’ connotation always had to be overcome before his team even proposed an amalgamation to the Board. It had to be a properly thought-out business decision with the potential to improve Panthers’ financial position.

Club Nova was a particular problem for Evans.

I believe the football club is the primary reason for the Penrith club’s existence, the primary reason. Therefore, those people involved in football in Penrith should maintain overall control, because I don’t see what synergy there is between a member of a union-based club in Newcastle and a club wanting to promote rugby league football in the Penrith region.

Cowan remembers Evans as always appearing quite studious in his approach to Board papers. Yet comments such as these reveal a very different understanding of what amalgamation should ultimately mean for the governance of Panthers.

But while Panthers had started out as purely a rugby league club, it was now a multi-million-dollar enterprise. Members of the group board would be overseeing that business. Even if they had no interest in rugby league, they could still be capable of doing an excellent job as directors of a large, diversified business.

On another level, it was quite likely that some of the members and visitors that attended all the clubs, including Penrith, had no interest in rugby league, and had possibly never even seen a game.

Evans had voted in favour of amalgamating with the Mekong Club, which had no interest in sport. Where was the synergy in that case?

John Bateman told the inquiry he had similar misgivings about Newcastle.

It just did not sit kindly with me – it was an organisation that had a political base, and to me was more of a threat than any other club that we amalgamated with. It was a union entity. Not that I have any problem with the unions, but my personal view is that they could galvanise numbers, could galvanise power. That’s the nature of that type of organisation. I was against our amalgamation with ClubNova from the start.

Bateman continued to emphasise his opposition to the amalgamation to the point that Ian Temby asked him why he was ‘pushing this line’.

Ian Temby put a question to Evans about his preferred board.

Your ideal solution would have been, perhaps, that the football club board should become the leagues club board and if the amalgamated clubs were given some degree of autonomy, you didn’t care?

To which Evans answered, ‘yes’. He agreed with Temby’s suggestion that he would have preferred not to have people from any of the other clubs on the Board.

Despite having agreed to the amalgamation and the memorandum for it, the Five voted to delay the scheduled transfer of Newcastle members until after the proposed change to the constitution could be implemented. Newcastle members would then be ineligible to vote against the changes.

It was a delay of around six weeks, a cost in excess of $50,000 and a watering down of the promises that Cowan had made to Newcastle members. The delay brought no apparent operational advantage to the business. It did, however, mean the constitutional changes could be considered before the Newcastle members acquired voting rights.

The Panthers Board then asked the CEO and chairman of ClubNova to attend an upcoming board meeting. At the meeting the Board asked for, and was given, a written undertaking by Newcastle that they would not oppose the amendments, even though they were not in the memorandum that had been agreed by both parties a few months earlier.

The undertaking therefore placed a limitation on the Newcastle members’ position that had not appeared in the memorandum agreed by the parties only months earlier.

In this period, and in 2004 at the Inquiry, the Five justified their actions on membership, constitutional changes and elections by claiming that they were misled by management.

Yet there had been more than a year of discussions before the Board agreed to an amalgamation program. Criteria were eventually set and approved by the Board. Then, each amalgamation was subjected to enormous scrutiny before it too, went to the Board. A memorandum of understanding was approved and signed off – by the Board. Each of the Five told the Inquiry that they had read the memoranda.

So how were they misled?

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