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The justification for Munk’s influence at Barrick wanes

Barrick Gold chairman Peter Munk speaks at the company's annual general meeting in Toronto on May 2, 2012.

CHRIS YOUNG/THE CANADIAN PRESS

Barrick Gold Corp. shareholders have a chance to get answers next week to some of the most pressing questions about the ouster of Aaron Regent as chief executive officer, but one key question about the future of the world's largest gold producer will almost certainly remain.

Barrick releases earnings July 26, and senior management will address its investors for the first time in any depth since the surprise June 6 CEO change that installed Jamie Sokalsky, a long-time company man.

Investors can expect to hear what the company's new direction is going to be under Mr. Sokalsky, the subtext being that whatever he outlines will be what the Barrick board wanted from Mr. Regent and wasn't getting. Barrick has started by reviewing all of its projects to maximize returns.

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Of course, when you say "the Barrick board," what most people hear is "Peter Munk," the charismatic and iconic founder of the company. Mr. Munk casts a huge shadow over the Toronto-based mining company, and wields a lot of power as Barrick's co-chairman. Mr. Regent would still be there if Mr. Munk was happy with him. But he was growing impatient with a lagging share price, so Mr. Regent had to go.

The question that lingers, and grows more pressing with each passing year for Barrick, is how much Munk influence is appropriate at Barrick. Yes, Peter Munk founded the company. He was there on top as Barrick grew from a startup producer to the largest anywhere. He is a repository of knowledge and history. But over the years, as Barrick issued more and more shares, his ownership has been diluted.

Mr. Munk now owns a scant 0.17 per cent of the company, or about 1.7 million of Barrick's roughly 1 billion shares outstanding. He also has another 600,000 options and almost 80,000 restricted share units, which are not enough to move the needle.

Mr. Munk's son Anthony owns 5,000 common shares and 21,400 deferred share units, according to the company's most recent information circular. That's so little it's not worth calculating the percentage, and yet Anthony Munk sits on the Barrick board, giving the family two of 14 seats.

With a family ownership of less than 0.2 per cent, does it make sense for two Munks to be on the board at Barrick? When the elder Munk leaves the board one day, should any remaining family ties remain? The fact is, it's not a Munk family company, and it never will be given the widely held ownership structure and market capitalization of more than $35-billion.

Barrick, to its credit, is working to present an impression of greater openness and reduced Munk-centricity. With the departure of Mr. Regent, Barrick also named a new co-chairman, John Thornton. Mr. Thornton, a veteran of boards such as Goldman Sachs Group Inc. and HSBC PLC, ought to dilute Mr. Munk's influence if he has the ability to stand up to the founder. What's more, newer directors nominated in recent years have fewer Munk ties.

Barrick, it almost must be said, never resorted to that much-derided tactic of other Canadian titans – the multiple voting share. Those kept some of Mr. Munk's peers in power with minority stakes in their companies, men such as Ted Rogers, Frank Stronach and JR Shaw at Rogers Communications, Magna International and Shaw Communications, respectively.

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But the fact remains that the Munk family influence is all out of proportion to its ownership.

A Barrick spokesperson declined to comment on the issue, citing the fact that the company is in its "quiet period" before the earnings release.

The company has consistently denied persistent speculation that there was a falling out between Mr. Regent and the elder Munk over Mr. Munk's desire to do big deals. Yet the view among many deal makers watching Barrick remains that Mr. Munk's quest for legacy may well have prompted the move.

At 84, there's not so many years for the Barrick founder to prove he has built not only the biggest gold miner but the one that produces the best returns for shareholders. That has created a can't-wait attitude at the company, a dynamic that may not have meshed with the time frame of a CEO almost half Mr. Munk's age.

If the plan was to boost the stock by making the switch from Mr. Regent to a more fast-moving CEO, it's not working, as has been well noted. Barrick shares are down 18 per cent since Mr. Regent was tossed overboard, a much worse performance than peers such as Newmont Mining and Anglogold Ashanti. They are off about 12 per cent apiece in the same time period.

Mr. Sokalsky will be under heavy pressure to prove he has a plan to turn that around. But the pressure shouldn't come because of any concern about the legacy of Peter Munk, which is more than secure and places him among the greatest Canadian businessmen of all time. It's about the shareholders who own the other 99.8 per cent of Barrick.

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