Rear Window

Ruslan Kogan lobbies shareholders for $90m options bonanza

Joe AstonColumnist

Nov 17, 2020 – 11.25pm

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Online retailer Kogan.com holds its annual general meeting on Friday and its founder Ruslan Kogan has been working the phones in the lead-up to the deadline for proxy votes, lobbying shareholders to support the package of 6 million options being granted to him and CFO David Shafer.

The grant is worth $90 million at Tuesday’s closing price. These are spring-loaded options, in that the $5.29 strike price was announced on May 12 but was based on the volume weighted average price of Kogan.com shares in the previous three months (to April 30), which just so happened to incorporate most of the ASX’s worst quarter in 33 years. And the only vesting requirement is Kogan’s and Shafer’s continued service until 2023.

Kogan.com co-founder and CEO Ruslan Kogan has been on the phones ahead of Friday's AGM. Josh Robenstone

The board excluding Kogan and Shafer – which leaves only chairman Greg Ridder and non-executive director Harry Debney – “believes it is in the best interests of the company and shareholders to incentivise Mr Kogan and Mr Shafer to remain in their positions for the next three years”. As if already owning 20.8 per cent of the company between them and Ruslan having his name emblazoned on the door wasn’t incentive enough.

Since the IPO four years ago, Kogan and Shafer have trousered more than $350 million selling their shares in the company. Why the hell should shareholders be diluted to hand them even more?

All three proxy houses – ISS, CGI Glass Lewis and Ownership Matters – are recommending shareholders vote against the resolution to approve the options package. Kogan and Shafer cannot vote their shares.

If on Friday shareholders disagree that the lavish options grant is in the best interests of the company and they vote it down, Ridder and Debney have already committed to paying the equivalent value in cash or using a loophole in the ASX Listing Rules to give Kogan and Shafer 6 million shares anyway, by buying them on-market.

Having disregarded in advance the verdict of their shareholders it takes a special kind of monomaniac to then seek their validation. But Kogan’s persuasive efforts, like the man himself, are irrepressible.

He starts with charm, then tries reassurance (there’s nothing new in the options bonanza – everyone else is doing it), a little gaslighting (“many other shareholders” support the grant) and then progresses to anger, haughtily invoking the inviolability of contracts (funny given his contract cannot constructively be invalidated by direction of the company’s owners). Finally, Kogan concludes his polemic with the threat of resignation. Which would save everyone $60 million.

Pity the junior analysts at major value funds now second-guessing themselves after copping such a symphony.

It is so telling that Kogan himself, not Kogan.com’s chairman, conducted this 11th hour round of investor engagement. That Rusty even deemed it necessary suggests the proxy votes have been tracking badly for him.

If the resolution is defeated, this will be a genuine test for the Australian Securities and Investments Commission. Section 211 of the Corporations Act deals with paying “reasonable remuneration” to executives without shareholder approval. Why is the statutory provision even there if a board can hand their CEO and CFO the equivalent of two years’ earnings after investors have expressly repudiated the proposal? We can only hope ASIC dusts off its rule book rather than being another study in inaction.

The original version of this article stated that if shareholders vote down the resolution to grant the options package, Kogan.com will have to purchase on-market the 6 million shares for Mr Kogan and Mr Ruslan within 10 days of the AGM. That was incorrect.

Joe Aston helmed The Australian Financial Review's Rear Window column from 2012 to 2023. Connect with Joe on Facebook and Twitter.