From red carpet to red faces
Three giant NZ firms star-struck by ‘world-class’ CEOs — all got burned
Three CEOs of NZ’s biggest companies. All foreign (although one later added a New Zealand citizenship). All paid a huge whack. All left under a cloud. Is there a pattern here that should make directors sit up and take notice next time they go to the global market for, as the cliche says, a “world-class executive” to run the company?
Certainly, shareholders should be on guard when the next international chief executive — complete with giltedged CV — sweeps in to run a top-tier firm. They could start with asking directors, is this person all they are cracked up to be? Will they fit into the New Zealand business culture, treat senior managers like cretins, or, finesse their incentive package so they are remunerated by cutting costs (usually people and/or flicking assets overboard) instead of sustainably growing the company’s top line revenue and maintaining profits. Note the emphasis on maintaining rather than growing — a demand which leads many a CEO down the easy path towards orchestrating (sorry smoothing) earnings to suit their own incentive timelines.
Call me cynical here — but the proof of this assertion is borne out by the number of times the new CEO (replacing the dud) opens the books on their predecessor and persuades boards to writedown asset values. A “burning
platform” is thus created and if a company is in the unfortunate circumstance, or, has been stupid enough to have hired another incipient dud, the cycle repeats itself.
There’s an awful symmetry about the way the New Zealand business community laid out the red carpet for the arrival of leading Australian banker David Hisco to run new Zealand’s largest bank by assets and profits — ANZ New Zealand; Dutch-born Theo Spierings to lead New Zealand’s largest company by revenue — the dairy cooperative Fonterra; and, the Scots-born private equity specialist Mark Adamson to run New Zealand’s second largest company (by revenue) Fletcher Building. These rankings are all from the Deloitte Top 200 2018 Index.
The three mens’ arrivals were celebrated by boards who talked up their credentials.
But just how real were their legacies?
Let’s start with . . . $1.76b profit. Those were September 2017 balance date figures. A year later, ANZ NZ revealed another record profit, $1.986b for the year to September 30.
The Reserve Bank noted ANZ NZ’s return on equity was 14.14 per cent for the March 2019 year.
So, Hisco left behind him a well-heeled bank.
But when ANZ’s local chair Sir John Key announced Hisco had got his marching orders (by agreement) shock reverberated around the NZ market. Despite a decade as ANZ’s NZ boss, Hisco was until last year still pocketing a goldplated annual “expat expenses” package worth close to half a million NZ dollars tax-free. That package — worth A$464,599 ($487,100) in 2018 — was plenty generous enough to swallow the tens of thousands of dollars that Hisco was claimed to have spent on Corporate Cabs which are said to have been incorrectly chalked up to ANZ as direct business charges over a nineyear period.
He was pushed out for that. But Key did not disclose the exact amount Hisco is said to have inappropriately filed as direct business charges.
Neither did ANZ publicly disclose — within the appropriate financial year — that ANZ had sold to Hisco’s wife not only the house it bought for him to use in the first place, but it was bought by Hisco’s wife for less than ANZ paid in the first place and less than valuation.
This is not good enough and the Reserve Bank and the Financial Markets Authority should have compelled the ANZ board to make full disclosure on both counts by now. As for Hisco, Key said he got in the order of $2 million through one year’s salary and accrued long service leave. However, he forfeited $6.4m of equity rights.
Fletcher Building’s Mark Adamson
Former Fletcher Building boss Mark Adamson — who also got the push — was astute enough to sell his home in Auckland’s eastern suburbs for $1.7m more than he paid for it after he left town. Those with an eye for property might ask how Adamson could sell his property — which like Hisco’s was in Auckland’s St Heliers — for a profit when the ANZ couldn’t manage this?
Fletcher
Building sported
$9.47b in revenues in the 2018
Deloitte
Index off assets of $8.5b. Under Adamson, the company went hard into construction contracts during a boom to notch up a multi-billion pipeline of projects, including the Auckland Convention Centre and Commercial Bay. It stuffed up its contracts and was caught short when the market tightened. Multimillion losses ensued.
The board might have kept Adamson on but for an inflammatory email he sent to senior staff saying one unit of Fletcher was “full of pompous
old farts”. He also harshly criticised accounting firm Deloitte in the email and called for 100 staff to be culled from the troubled building and interiors unit. Adamson was paid a $2.9m exit package when he left the company abruptly in July 2017. Details of the payment were revealed in the Fletcher Building report. Although he forfeited $8m of bonuses held in a long-term share scheme, he got $2.94m on his departure in severance and other entitlements.
Fonterra’s Theo Spierings
Fonterra is New Zealand’s largest company. On last year’s Deloitte Top 200 Index it had $20.438b revenue and $18b in assets. Those figures will be substantially changed when the board releases its full year figures next month.
Spierings brought global panache to Fonterra but he did not integrate into the New Zealand business community. He stepped up Fonterra’s global footprint with some heroic goals. He left last year ahead of his forecast departure when New Zealander Miles Hurrell was elevated to be the CEO.
As Fonterra revealed this week it will post another significant loss off the back of major writedowns.
As my colleague Duncan Bridgeman revealed yesterday, Spierings collected around $38m in remuneration, including incentives and bonus payments during his seven-year stint as CEO.
But despite being the author of a bungled strategy which saw the coop rack up huge financial losses since his departure, Spierings is in line for another payout under an historic incentive scheme.
This is an absurdity.
These three instances indicate the directors of some of NZ’s largest companies have been asleep at the wheel when it comes to monitoring their CEOs.
Are their eyes glazed by international reputations or should they start grooming New Zealanders within their own businesses to step up? In my view it's time for the latter.