The curse of the celebrity CEO strikes again. The latest to have his once marvellous reputation tarnished is former QBE boss Frank O’Halloran, after the insurer announced last week a third write-down in the space of a year, this time for $600 million, largely in relation to its beleaguered United States business. It was O’Halloran who, to great acclaim, spurred between 70 and 140 acquisitions during his time heading the insurer, which caused the recent calamities.
O’Halloran was well rewarded for his efforts. Since 2002, he was paid $58 million by QBE shareholders. This appeared to be a good idea at the time, with QBE’s share price rocketing from $6 (in the aftermath of September 11) to $35. It’s not looking so smart now, as QBE’s share price languishes at $10.82 per share (and still trades at a sky-high earnings multiple). As Crikey warned back in 2012, QBE’s highly risky Australian mortgage lending business is yet to blow up, which may cause further pain for long-suffering shareholders.
Long-time QBE chairwoman (and former investment banker) Belinda Hutchinson finally fell on her sword after the latest announcement. Hutchinson had been on the QBE board during almost all of O’Halloran’s reign, becoming chair in 2010 (she oversaw almost $10 million in payments to O’Halloran in his final two years). Hutchinson didn’t do too badly herself — while overseeing the near 80% collapse in share price, the former Macquarie Bank consultant was taking home more than $700,000 a year for her part-time role.
The unfolding disaster at QBE confirms the myth of the celebrity CEO — first suggested by Crikey way back in 2006. As we noted with reference to former Telstra CEO Sol Trujillo: “Whenever a company stops being about the shareholders and employees, and starts being about a mythical non-founder CEO, shareholders should be afraid, very afraid.”
Consider the fate of some of other celebrity CEOs to grace Australia’s corporate scene. Eddie Groves, one of Australia’s more well-known celebrity CEOs, saw his listed childcare business ABC Learning become the largest corporate childcare business on earth. Groves was feted in the business press and appeared on the BRW Rich List with an estimated wealth of $260 million. ABC would later slip into administration and require a government bailout, while Groves was charged by Australian Securities and Investments Commission (the charges would later be withdrawn) and be declared bankrupt.
Then there were the financial wizards — Phil Green, Allan Moss and David Coe — who once graced the cover of The Australian Financial Review under the blaring headline “Masters of the Universe”. In the end, the trio were masters at fattening their own wallets, but not so much those of shareholders. Green’s Babcock & Brown and Coe’s Allco would both collapse among a sea of debt. Moss’s Macquarie was able to just survive the global finance crisis, with a little bit of help from former treasurer Wayne Swan and ASIC, but its share price would fall from $98 to around $16 (before recovering amid a sea of global liquidity).
Then there was Wal King, who became such a celebrity CEO that when he finally retired in 2011 he collected $50 million in remuneration and had the company bankroll a fawning biography, entitled The Wal King Years. The money spent on the epitaph and farewell dinner would have been better saved, as Leighton continued its downhill spiral after King departed. Its share price currently sits at a pitiful $15.31 per share, down more than 75% from its peak. Leighton’s woes were not helped by revelations that the company allegedly paid bribes across the Middle East to help it win contracts. It was also alleged that King was aware of the bribery.
Aside from leaving a share price in smouldering ruins, one thing celebrity CEOs appear to have in common is none are in a rush to give back any of their lucre.
*Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley in 2010