Many market watchers have recently started to question the value of a CEO to a public company, especially given the extreme costs which seem to come with their presence. In many cases, especially in larger companies, a CEO is little more than a glorified politician, spending much of their time making speeches, cajoling institutional shareholders and attending the odd board meeting. In his final year at GE, Jack Welch (who was dubbed “CEO of the Century” by Fortune), allegedly spent 166 days (out of 252 working days) at speaking engagements, leaving barely a day and a half each week that hadn’t already been spoken for.
One exception to this rule appears to be former BHP numbers man, Chris Lynch, who, since replacing Kim Edwards as CEO in April 2008, has completed a remarkable transformation at toll road operator, Transurban. In June, Lynch halved the company’s distribution, shrewdly raised $659 million from the Canadian Pension Plan and drastically reduced the entity’s gearing levels. The strategy was a complete repudiation of the Macquarie Model (Macquarie was an original backer of Transurban, with Macquarie executive, Laurie Cox, serving as Transurban’s former Chairman).
Lynch’s decision to de-risk Transurban’s balance sheet proved prescient. The global financial crisis deepened in the following months, restricting the ability of many companies from refinancing debt obligations. Since Lynch’s de-gearing, Transurban’s share price has fallen by around 20%; rival Macquarie Infrastructure Group has seen its units slump by more than 50%.
Lynch has not only acted to correct the Ponzi-type model of paying distributions out of debt, but he has also drastically reduced the level of corporate waste at the toll road operator. This morning, Fairfax papers reported that Transurban had:
Slashed $9.6 million in corporate costs for the first half and is on track to achieve $21.4 million in annualised cost reduction for the financial year. Gone is the apartment in New York. Gone the luxury offices in the Rialto and Gateway towers in Melbourne and Sydney respectively. Slightly more modest CBD digs will save it $1.9 million a year in rent.
While Lynch’s spendthrift changes have garnered praise, in one sense he has simply acted to correct the indulgences of his predecessor, former CEO, Kim Edwards. Presumably, the costs of a New York apartment, or expensive Rialto rents were not a large concern for Kim. In further proof that pay and performance rarely meet, Edwards was paid $16.64 million in 2008, including a $9.2 million cash bonus. The prior year, Edwards collected $3.8 million.
If you’re wondering who agreed to pay Edwards so much for what now appears to be poor management of Transurban, according to the entity’s 2008 Annual Report, the only member of its Remuneration Committee was chairman David Ryan. David Ryan was also the last Chairman of ABC Learning Centres and served as the chairman of ABC’s audit committee over the past four years, during which time, ABC’s books resembled works of great fiction.