The Fairfax board has effectively given Gina Rinehart the finger -- in an oh, so polite way, of course.
"Fairfax Media Limited today advised that it has been unable to extend an invitation to Mrs Gina Rinehart to join the board,'' the company said in a statement yesterday.
It's the phrase "extend an invitation" that really makes you smile -- it makes it sound like chairman Roger Corbett was considering having Rinehart for afternoon tea, not making the most important board decision of his career.
Corbett said he "regretted" not being able to reach an agreement with Rinehart, and even said he hoped he would be able to do so in the future.
But the board has made its stand. If Gina won't sign the board's charter of editorial independence, then she can get stuffed.
Of course, this wasn't just Corbett's decision.
"In coming to this view the board has gauged the opinion of other shareholders and noted some of their recent public comments on these matters, noting in particular they share the company's view on maintaining editorial independence and their desire that board members act in the interests of all shareholders.
"The company has received tens of thousands of emails and other correspondence from shareholders, our readers and others making it clear that they support Fairfax's long-standing position on editorial independence."
Many will admire the board's stand and as a journalist I can understand it. Independence is a crucial part of what we believe in here at SmartCompany.
But from a business standpoint, the board is now in a very difficult position and has raised some really big questions:
1. What does Rinehart have to do to get a board seat?
She clearly has the shareholding to get one, but is the editorial charter the only stumbling block? If Rinehart creeps up the share register to 23% and then 26%, will her appointment become irresistible? Or does the charter still rule?
2. Is refusal to sign the charter a good enough reason to block Rinehart?
Rinehart made a very interesting point in her statement late yesterday after the Fairfax rejection. She said she was "prepared to acknowledge the Fairfax Media board governance principles (FMBGP) exist subject as they must be, to the overriding fiduciary duties of directors".
Under the Corporations Act, Rinehart has two key duties as a director:
What she appears to be saying is that those principles are what must guide the directors first and foremost. Any specific board principles such as the charter must come second. It's a really interesting point.
3. Could the charter be renegotiated?
This appears to be a Rinehart tactic, judging by her statement. She said: "We are certainly in support of journalist integrity and accuracy, these are important principles in journalism, and are keen to support an effective charter to endorse this in the interests of Fairfax Media, assuming one can be agreed."
Presumably any new charter would give Rinehart a much bigger say than the current one.
4. If another white knight was to emerge, what stake would they need to get a board seat?
Is it 20%? Is it less? Or is it entirely dependent on the editorial charter? Is this a Rinehart rule or a general rule?
5. If Rinehart sells, will Fairfax still be able to orchestrate its restructure?
That would depend on the size of the fall in the company's share price as Rinehart dumps her stock. That fall would probably be large. Perhaps management could take heart from the irony that Rinehart's idea of fixing Fairfax is not a million miles from that of the board. Rinehart said yesterday: "Active consideration of content or a change in content is required to attract readers and advertising revenue in the interests of shareholders, together with other options to increase revenue and hence share value."
6. What happens now?
This, of course, is the $64 question. The Fairfax board is caught between the proverbial rock and a hard place. If Rinehart won't sign the editorial charter, the board has left her with two choices: Sell or buy the entire company.
Both options are calamitous for Fairfax and the board knows it.
If Rinehart sells, the share price plummets and the future of the company is in doubt.
If Rinehart decides she will take control of the entire company, readers will depart in droves and Fairfax's revenue will fall even faster.
Perhaps Corbett would have been smarter to get Rinehart inside the tent, rather than let her keep lobbing hand grenades. Perhaps through compromise everyone could have got a bit of breathing space.