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Redflex In Turmoil Over Shareholder Revolt, Ethics Investigation
Redflex faces shareholder revolt over executive pay and investigation from Chicago, Illinois over ethics breach.

Australian Securities Exchange
Australian investors angry at the recent performance of Redflex Traffic Systems let management know by issuing a "first strike" Wednesday against the photo enforcement firm's compensation plan. Under recently implemented Australian Securities Exchange (ASX) rules, a company receives a strike if its remuneration report does not receive the support of 75 percent of shareholder votes.

At the Redflex annual meeting in Melbourne yesterday, the compensation report received 61.8 percent of the vote, with significant protest against the re-election of Max Findlay to the board of directors and to the compensation of Karen Finley, who is in charge of US operations. Finley's award of $142,187 in stock options was approved, but the generous payment could become a liability next year.

Under ASX rules, Redflex must now provide shareholders an action plan to address the issues raised by the first strike. If shareholders lodge a second protest against the executive pay plan at the 2013 annual meeting, the vote would "spill the board" giving shareholders the choice of setting up an election to replace the entire board of directors.

Just one day before this year's meeting, Redflex issued a statement informing investors that the Chicago, Illinois Inspector General was conducting an investigation into allegations of corruption related to the city's red light camera contract with Redflex -- the largest automated ticketing contract in the world. Last month, Chicago announced it excluding Redflex from bidding on the forthcoming speed camera contract after learning about a breach of the city's ethics rules.

"The Inspector General's Office may recommend that sanctions be imposed," the Redflex statement explained. "Prior to the finalization of any recommendations it is premature to speculate on the outcome of the investigation, or the nature and extent of any impact on the Redflex business."

The most likely sanction would be for Chicago to choose another vendor when the red light camera contract expires on January 31. This would cost Redflex 13 percent of its revenue -- enough to eliminate the firm's profit.

The investigations began after the Chicago Tribune newspaper uncovered evidence that Redflex paid for luxury accommodations for John Bills, the Chicago official in charge of the red light camera contract, in violation of city ethics rules. Though Redflex is on the hot seat for providing perks to city employees, this remains a common industry practice. In 2010, the Australian firm also put the police chief of Oak Ridge, Tennessee up at the Ritz-Carlton Hotel in return for his favorable testimony at a court trial two years ago. Affiliated Computer Services (ACS, now a part of Xerox) was caught giving hockey tickets and other services to police officers in Edmonton, Canada, although criminal charges were ultimately dropped. American Traffic Solutions (ATS) regularly entertains public officials involved in red light camera business, but the airfare, lodging and wages during the event is paid for by taxpayers, not ATS.

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