David Gonski is widely considered the best-networked man in Australia and one of the highest-profile company directors in the country. He is a member of numerous high-profile not-for-profit boards, and his name has become synonymous with education, with the much-lauded Gonski Report. But how did he get his glittering reputation?
The Sydney Grammar and NSW University graduate was first employed by Freehills in its mergers and acquisitions department (ironically, the same firm and section where your correspondent first worked). Gonski was apprenticed to the legendary Kim Santow (who would later become a respected Supreme Court judge) before becoming a partner at only 25 (this was young even in the era before mega law firms). Perhaps even more remarkably, Gonski was appointed as a director of Frank Lowy’s Westfield Holdings in 1985, at the tender age of 31.
The next year, aged 32, Gonski (who was already living in ritzy Point Piper) founded boutique investment bank Wentworth Associates. Shortly after Gonski advised Lowy to diversify away from property and create an equity investment arm, known as Westfield Capital Corporation. WCC turned out to be an unmitigated disaster, largely due to an ill-fated investment in the former owner of Channel Ten — Westfield ended up losing more than $300 million, which has remained a black mark over Gonski’s career ever since. Frank Lowy appeared to harbour no ill will, though, with Gonski remaining a director of Westfield for another 22 years. (In a strange twist, Kim Santow would later advise the CanWest consortium, which made billions buying Ten out of receivership, shrewdly circumventing foreign media ownership laws.)
Gonski moved on quickly from WWC, advising Kerry Packer (Gonski once noted he spent around 20% of his time working for Packer) and the Tourang Consortium (which included Packer, Conrad Black and even a young Malcolm Turnbull) in its bid for Fairfax. In 1993, after Tourang was successful, Packer had Gonski appointed to the Fairfax board. Gonski would be referred to as part of the “Packer faction” on the Westfield board (along with American private equity boss Brian Powers).
In Colleen Ryan’s book Fairfax, The Rise and Fall, Gonski’s role in the Fairfax’s woes was laid bare, specifically, specifically in relation to his hiring of fellow Westfield director and former McKinsey boss Fred Hilmer as CEO. Ryan noted:
“They were a close-knit group at Westfield and Gonski had two of his colleagues, Fred Hilmer and Dean Wills, on the Fairfax board. ‘They looked after one another – Gonski, Wills and Hilmer’, says one insider. ‘The mates club was really, really strong. They looked after one another in a way I have never observed – both on the board and… [in] the outside world.’ Gonski had no role in the appointment of Wills to the board in 1994, but later, in 2002, he supported Wills’ elevation to chairman. And it was Gonski who suggested that Fred Hilmer be appointed Chief Executive of Fairfax in 1998.
“At least one insider credits Gonski with Power’s snaring of the Chairmanship as well: ‘Not only did he facilitate Powers coming in but he forced Fred Hilmer in as managing director’.”
The reign Hilmer, as CEO of Fairfax was nothing short of disastrous. Billions of dollars of shareholder value was lost, largely as a result of the shift to online classifieds, which led to the death of Fairfax’s “rivers of gold”. In 2000, Fairfax had the opportunity to purchase a stake in Realestate.com — instead, News Corp paid $2.2 million for a stake now worth more than $5 billion. Fairfax also sold its stake in Carsales far too early, with Ninemsn later turning a $560 million profit on its investment. Fairfax under Hilmer also had the option to purchase a 25% stake in Seek in 2003 for $33 million. Hilmer thought the price was too high and James Packer quickly swooped. Seek is now valued at $5.8 billion.
While Hilmer pulled the trigger on those investment disasters, in advocating his friend’s appointment, one could argue Gonski gave him the gun. (The Gonski-Packer-Hilmer relationship was a fascinating one — with the Packers famously loathing Hilmer. James Packer who, when Hilmer famously told him in 2005 he was glad he “got out [of Fairfax] at the right time”, noted: “The damage had been done by the time you got out … fuck off.”)
Gonski’s association with Dean Wills brought him onto Wills’ Coca-Cola Amatil board in 1997 (Wills had been the CEO and chairman of CCA and was on the Fairfax and Westfield boards with Gonski). While under Wills’ leadership between 1984 and 1994 CCA grew from a market value of $400 million to $8 billion, in almost 15 years since Gonski become chairman, CCA’s market value has fallen to around $7 billion. Many believed that Gonski should have moved on former CEO Terry Davis far sooner, believing that he stayed on in the role far too long. CCA’s net profits have almost halved since 2012 as the company failed to see the shift away from sugary soft drinks.
Then there was Gonski’s controversial appointment to chair the then $73 billion Future Fund. While Gonski was no doubt well-qualified for the role, some questioned why former treasurer Wayne Swan chose to bypass the existing board of governors of the fund to appoint an outsider. The appointment was even more unusual when one recalls that the person appointed to lead the search was Gonski himself.
Then there was Gonski’s chairmanship of the ASX, a blue-chip role he held between 2008 and 2012. While chairman, Gonski hired former Tabcorp CEO Elmer Funke Kupper to become the CEO of the sharemarket regulator. Earlier this year, Funke- upper was forced to resign from his role after an Australian Federal Police investigation into Cambodian bribery allegations that occurred while Funke Kupper was CEO of Tabcorp. After the resignation, Gonski told reporters that “I did appoint [Funke Kupper]. I think he was excellent as a CEO during the period that I was there. It is for others to comment on his time since.”
If those weren’t enough, Gonski’s time as chairman of ANZ Bank has also been laced with controversy. Gonski was a director of ANZ between 2002 and 2007 (before departing for the ASX role), before returning as chair in 2014. Towards the end of Gonski’s first tenure, the board appointed former HSBC executive Mike Smith as CEO. Smith was appointed with a clear brief to heavily invest in ANZ’s Asian operations (a move that Gonski has publicly supported). By any measure, Smith’s tenure and Asian investment was unsuccessful. Billions were wiped from the value of ANZ (the worst performer of the big four banks) while its share price remains back at levels last seen in 2010.
But despite Smith’s poor performance, he remained the highest paid bank executive in Australia, collecting $88 million during his eight years in the role. Gonski, whose role as chairman is essentially to represent ANZ shareholders, bizarrely told the Financial Review last week that it was difficult to determine the value of any executive and people would have to make up their own minds. “The concept of saying ‘$86 million — he wasn’t worth it’ is quite a stretch,” Gonski said. “Was he worth $85.5 million? Was he worth $2.50?”
No one could criticise Gonski for his outstanding service to the community (Gonski has also been an ardent supporter of women in executive roles). The former lawyer has been tirelessly serving on a significant number of unpaid not-for-profit and government boards for decades. However, Gonski’s record in the “for profit” sector remains clouded. From WWC to Fairfax, the ASX, CCA and ANZ, Gonski has developed a history of choosing the wrong CEOs, paying them too much, and too slowly moving them on. It might just be time for the Dean of the Australian boardroom to exit stage left.
* Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed