John Durie did very well today in today’s AFR
forshadowing the firing of Telstra CEO Ziggy Switkoswki who was given
the bullet by his frustrated board this morning. Check out the ASX
Telstra shares initially rose one per
cent but are currently 4c weaker at $4.89 in a weaker market as
investors contemplate the fact that Ziggy has not been escorted out by
security but instead will leave 18 months early in July 2005.
A payout of about $2 million is not too outrageous in the circumstances
when you consider that Ziggy has one of the toughest jobs in the
country but is paid far less than most other CEOs of top 20 companies.
We’ve put Ziggy at number 26 on our golden parachutes list and the entry reads as follows:
Ziggy Switkowski: the chief executive
of Telstra Corp will receive a payout of A$2.09 million plus an extra
payment if he leaves before July 1, 2005. His resignation will end a
five-year tenure where he presided over a 42 percent slide in the share
What is it about big Melbourne-based companies which always seem to hang on to their CEOs for far too long?
Ziggy only had his contract renewed
last year. The parallels with former NAB CEO Frank Cicutto are strong.
Both are battling Melbourne-based behemoths with struggling CEOs who
got contract extensions that shouldn’t have been offered and then juicy
payouts when those contracts were breached.
The other examples of Melbourne-based companies that gave their CEOs way too much time are as follows:
- BHP: only fired John Prescott in 1998 after seven years of poor performance and misguided expansions.
- Pacific Dunlop: hung on to Rod Chadwick for five years until 2001 when three was more than enough.
- WMC: Hung on to the
lamentable Hugh Morgan for 17 years when he should have been fired in
the early 1990s after the crazy Canadian frolic.
- Orica: After the death
of Warren Haynes in 1997, Phil Weichardt was allowed to run the place
down for four years before he was finally fired in 2001.
- Newcrest: allowed John Quinn to run the show for almost seven years when he was always a bit of a plodder.
CRIKEY: Is this just a Melbourne
thing? Let’s list the CEOs in other cities who have been cut too much
slack by their boards. Sydney is a more ruthless city and we reckon
this is a major difference between the two business communties. Send
you entries and feedback to [email protected].
Telstra shares might have fallen
2c to $4.91 today but don’t let anyone tell you the market hasn’t
celebrated the demise of another rocket scientist-turned CEO. (Sacked
BHP-Billiton CEO Brian Gilbertson was also a nuclear physicist but he
was fired with about $30 million.)
The rumors of Ziggy’s departure first
swept through the market on November 22 and since then the share price
had soared 19c or 3.87 per cent. After today’s one per cent fall in the
All Ords, over the same period the overall market is only marginally
Ziggy’s axing is not quite as popular
as the day BHP fired John Prescott, but the market is definitely
pleased because firing Ziggy has added about $2.4 billion to the value
of the company.
Once the government secured control of
the Senate, the pressure was immediately on to find a world class CEO
who could get the share price up to the government’s minimum sale price
Ziggy just didn’t cut it with
institutions and analysts and you need market confidence in the CEO
when trying to sell $30 billion worth of shares to the public.
The $3 billion in write-offs,
propensity to overpay on acquisitions such as Trading Post and Kaz and
woolly takeover schemes involving Fairfax and PBL over the years have
all spooked the investment community.
The Howard Government must take much
of the blame for the failed strategies of Ziggy and his former chairman
mate Bob Mansfield. Afterall, John Howard personally foisted his mate
Bob on the existing Telstra board five years ago and former
Communications Minister Richard Alston personally selected his
Melbourne neighbour Ziggy over other candidates being touted by the
Ironically, it was the unilateral
approach to government by Bob and Ziggy over the proposed Fairfax
takeover/merger which finally led the board to take action and reassert
The sacking of Ziggy continues the
trend we’ve pointed out before where troubled companies tend to lose
their chairman and CEO in quick succession. Check out the full list
If also makes the decision to extend
Ziggy’s contract by another three years and nine months in August last
year look rather silly. That was former chairman Bob Mansfield looking
after his mate. The parallels with NAB’s decision to extend Frank
Cicutto’s contract late last year are strong.
Cicutto should not have been renewed
but he was and then was fired shortly after when the firestorm over
foreign exchange losses exploded.
The toughest CEO job in the country is now officially up for grabs but the big question is who would want it?
Appointing a hard nut like Dr Peter
Troughton, the tough cockney who ran Telecom NZ and oversaw the break
up and privatisation of Victorian’s $30 billion energy sector for the
Kennett Government in the 1990s, would put a rocket under the Telstra
share price. However, he is unlikely to be available.
Here is the start of a Crikey list of most likely candidates:
Paul O’Sullivan: The
Optus CEO is regarded as the best performing telco executive in the
country at the moment but the Singapore Government seems to have
stitched up the Irish lad on a long-term contract so the chances of
another Optus refugee getting the nod don’t look great.
Chris Anderson: The
recently retired Optus CEO did a good job turning the business around
and at 57 is not too old for the gig. John Howard is close to the
Packers and with Anderson officially now in the Packer camp, don’t be
surprised if Australia’s richest man gives Ando a push.
David Moffatt: The
highly ambitious former boss of GE in Australia is the lead internal
contender and did a good job as Telstra’s finance director before
broadening out to run Telstra consumer and marketing. A relatively
Paul Rizzo: The
former Telstra finance director was overlooked for the top job six
years ago and could potentially be lured out of the Melbourne Business
School for another crack at it.
David Thodey: Telstra’s former mobiles boss who now runs Telstra Enterprises. Was previously CEO of IBM in Australia.
CRIKEY: The global search means that
Telstra will look at every top telecoms executive in the world so let’s
try and list who should be approached. Send your entries to
Ziggy hasn’t imperilled his company,
profits are good, but not brilliant, revenues are sort of rising, but
not surging, capital management is returning money to shareholders
(albeit sort of unfairly given the recent furore over the buyback), but
more importantly he hasn’t tried to avoid responsibility, he hasn’t
taken the company offshore to avoid its responsibilities, and he isn’t
Peter Macdonald, the $8.3 million man at James Hardie.
There is a common link, a sort of
single degree of separation and that is the blind man called Donald
McGauchie, the new Telstra chairman. He gets his second big scalp with
Ziggy at Telstra (having knifed Bob Mansfield, or rather made Bob
Mansfield see the error of his ways in April).
At James Hardie, yes James Hardie
where he’s still a board member, Don signed off on the disgraceful
payment to Macdonald, and the continuing ‘consultant’s fee for the
former CEO that will help keep his interests and those of the company
‘aligned’ during the course of the ASIC investigation.
Ziggy only received $2 million as a
golden goodbye. I know it’s ‘only’ $2 million, but that’s a paltry
amount compared to the obscene amount paid to Macdonald by a spineless
board. McGauchie is one of a three person committee at Hardie charged
with sorting out the problems of the asbestos liabilities.
His chairman has already signed off on
an attempt to avoid those by the restructure and then the flight to The
Netherlands back in 2001. Ziggy was only paid $2.7 million or
thereabouts for managing a $62 billion company that is now Australia’s
second largest listed group.
Bob Every at OneSteel (just to pluck
an example) runs a much smaller company and was paid $3.19 million last
year. Wal King at Leighton surprised with some dud contracts, earnings
were down, but he still was paid well over $8 million.
And I know people will say Ziggy was
‘only’ paid less than $3 million, but in a company as politically
‘corrupted’ as Telstra has been over years by Labor, Liberal, national
party, the unions from time to time and a long list of ‘consultants’,
‘advisers’ and other coat tuggers and fee merchants, being CEO was
always going to be a very difficult job.
But to the best of my knowledge, Ziggy
hasn’t sold a product that damaged people’s health, or killed them, nor
has he tried to avoid responsibility for his company’s actions,
although the huge team of spin doctors and lobbyists hasn’t helped the
company’s image of a highly secretive organisation.
Of course in the end he had to go, but
compared to the other situation chairman McGauchie finds himself in at
James Hardie, the manner of Ziggy’s knifing and departure isn’t
honourable or very tasteful. Compared to Hardie it was small minded,
self-seeking and downright grubby, straight to the leaking of it to The Australian Financial Review.
It is a pity that paper hasn’t shown
the same diligence in reporting what went on at James Hardie as it has
about Telstra. One was easy journalism, just phone somebody, the other
involved legwork and talking to the victims of Hardie.
The final indignity will be that to
fill Ziggy’s post with someone outside, they will have to pay top
whack, more than what Ziggy received. And that in turn will cause the
final question to be asked. If Ziggy wasn’t worth what the new bloke is
going to be paid, why was he employed in the first place?
If the phrase political interference
is heard anywhere in any real answer, then John Howard and his
Government can join the list of those Telstra shareholders should be
blaming. Along with the former chairman and much of the board, present
We’ve had plenty of
submissions on the question of who should run Telstra and were chuffed
to receive this from a London-based telco analyst with a major
The industry wide challenges facing
Telstra are intensifying. Indeed, the structural fixed line problems
(economic, regulatory & technological) such as local loop
unbundling are the same as those facing incumbent operators the world
over (eg BT in the UK, France Telecom, Deutsche Telecom in Germany,
Telefonica in Spain etc).
In the UK these threats are at a more
advanced stage and BT is fighting a rear guard action to stem the
losses in its traditional voice business while at the same time trying
to grow businesses with growth potential (eg broadband, mobile etc).
The current BT CEO (a Dutchman, Ben Verwaayen) has only been in the
role just under 3 years and he has two highly regarded lieutenants who
are both considered CEO material by the market (he had three but the
third, a flamboyant Frenchman, Pierre Danon, resigned to take up the
role as COO of Capgemini last week)
Given the state of the UK market, the fact they are unlikely to be
promoted to BT CEO any time soon and the shared Anglo-Saxon culture, it
would make sense for Telstra to at least consider these two:
1. Ian Livingston, BT’s high-flying, Glasgow-born finance director. He
was involved floating off a chunk of Freeserve for Dixons, where he was
finance director for five years. Before that stints at Arthur Andersen,
3i and Bank of America
2. Paul Reynolds, Head of BT wholesale. Dr Reynolds, who gained a PhD
from London University after graduating from Strathclyde University,
has been with BT since 1983, rising through the ranks in the customer
service department in Scotland. In the early 1990s, he was put in
charge of the chairman’s office, before spearheading BT’s entry into
UBS backs David Moffatt
This is from today’s note to clients:
Telstra CEO steps down – Moffatt to replace?
Following a week of uncertainties, the
Telstra board announced that Telstra CEO, Dr Ziggy Switkowski, has
agreed to step down as CEO on 1 July 2005 or earlier if a new CEO is
appointed before that date. We believe that David Moffatt, Telstra’s
current Managing Director, Telstra Consumer and Marketing, would be a
popular choice, particularly with the international client base.
What about Mr Microsoft?
A techie writes:
I nominate Steve Vamos. He’s a former
MD of Apple Australia, a former CEO of Ninemsn and the current MD of
Microsoft Australia. He’s fabulous with the media and a proven success
with convergence led businesses.
What about Mr Vodafone?
I’d suggest that Vodafone’s Peter
Eriksen would be in the frame. As a prominent chartered accountant
Eriksen would be a market-friendly contrast to rocket scientist Ziggy,
and his previous revenue safeguarding success at Optus / SingTel will
ensure that he gets consideration.
Paul Rizzo wants to join the Telstra board
Journalist Leo D’Angelo Fisher writes:
I’m sure you’ve
already received the odd email pointing out that Paul Rizzo is no
longer at Melbourne Business School. He retired in April and is now a
‘semi-retired’ company director. He is a director of BlueScope Steel,
which he held prior to his resignation from MBS, and NAB, to whose
board he was subsequently appointed.
I interviewed Rizzo earlier this year for a story that appeared in Company Director
magazine in August. In that story he flagged his interest in joining
the boards of NAB (wish fulfilled) and Telstra. Could he be tempted to
take that interest a little further and take on the Telstra CEO role?