Telstra CEO, Sol Trujillo’s great skill as a CEO is not his foresight or confidence, or even his slick presentation, but rather, his ability to convince analysts and media commentators of his immense managerial abilities. Since his arrival in Australia less than five years ago, Trujillo has cemented his presence as Australia’s only real celebrity CEO. Many media telecommunications commentators can barely mention Sol’s name without gushing about the success of Telstra’s “world leading” 3G network, which Trujillo famously set up in record time.
What is conveniently forgotten is that Trujillo stepped into the CEO role at one of the world’s most stable and defensive telecommunications companies, a company that currently generates billions of dollars in free-cash flow (last year, $3.9 billion), largely courtesy of its monopoly ownership of Australia’s wholesale infrastructure. The infrastructure was paid for by Australian tax payers.
One could be forgiven for thinking that Telstra’s vaunted 3G network was developed by Sol himself, with the Wyoming-born executive donning blue overalls and spending his nights and weekends constructing transmission towers. The reality is that while the network was a reasonable investment decision, it was made upon the advice provided by expensive consultants and completed using outside contractors (some of whom were long-time associates of Trujillo). All Sol and his executive team did was issue the logical instruction to go ahead. Hardly the equivalent of inventing the automobile.
When Trujillo was appointed CEO of Telstra in July 2005 by a Telstra board led by Donald McGauchie, Telstra’s share price was $5.20. Today, Telstra shares languish at approximately $3.25 — a capital loss of 38 percent (during which time Trujillo was paid $40 million). In the past six months, investors have lost faith in Telstra after its mismanagement of the bid for the country’s National Broadband Network. Michael Sainsbury explained Trujillo’s management technique in The Australian on Monday, noting:
Trujillo spent and spent and spent. And as his attack dogs snarled, abused and bit — in his blind and wilful ignorance of Australia and its politics — the preening American laid the foundations of Telstra’s demise. All the time, McGauchie joined in with often embarrassing gusto — and the Telstra board, independent directors all of them, stood by. John Stocker, Catherine Livingstone, Charles “Mr Corporate Governance” Macek. And the two that slipped out quietly, John Fletcher and Belinda Hutchison.
Trujillo (along with hand-picked cohorts, Greg Wynn and Phil Burgess) is reminiscent of slick hustler trying to hoodwink local widowers out of their inheritance. All the while, Australia’s so-called corporate elite sit on the Telstra board, enjoying salaries of more than $200,000, apparently oblivious to the destruction being wreaked by a short-term, imported executive team. Instead of working with the Federal Government, Telstra’s US-born executives maintained their confrontational stance. A tactic which worked successfully in the United States, but was not successful in Australia, culminating in the NBN exclusion and the decision by the Rudd Government to call Telstra’s bluff and develop its own “fibre to the premises” (FTTP) network.
The Telstra board, led by a former chief of the farmer’s union, McGauchie, looked on from afar, marvelled by the organisational abilities of their expensive import. The utter hopeless of the board was perfectly outlined by Sainsbury:
In December 2004, McGauchie, only six months into what may be his only chairmanship, made his first stumble, sacking Switkowski. A beginner’s blunder: to sack a CEO without any idea of who should succeed him, the chairman’s most important job.
He’s done it again, of course. Telstra is now a rudderless company facing the biggest choice of its corporate life. Embarrassingly, its board completely misread clear signs from Kevin Rudd’s Government. Shareholders should be furious.
The dogs are now barking loudly. The belated howling of institutional shareholders, the guardians of the billions in ordinary Australians’ superannuation — who also swallowed the snake oil peddled by Trujillo and McGauchie.
Given Telstra’s recent performance, some commentators claim that McGauchie has now joined Transurban’s David Ryan as one of the nation’s most “sackable” chairmen. Similarly, the boardroom future of Charles Macek, the man who allegedly “wrote the book” on corporate governance and who headed Telstra’s imbecilic remuneration committee is believed to be in some doubt.
The job of an executive, especially at a large, established company like Telstra is effectively a binominal one — making “yes” or “no” decisions based on information presented by (expensive) hired help, as well as fulfilling a politician-style investor relations function. It seems like the highly paid Trujillo was not particularly successful in either regard.