Suncorp's talent shortage
Pressure is mounting on the board of Suncorp to find a new CEO and rectify its mismanagement of the leadership transition, at a time when the global financial crisis is intensifying.
Now that John Mulcahy is on his way out the Suncorp door with $2 million in cash and a stack of unvested shares, the board will be under pressure to make up for lost time and find a new chief executive.
In doing so, it will have to address the problem of exactly what Suncorp wants to be. Will it remain one of the last surviving bancassurance companies in the world? Or will it sell its banking operations and focus on the general insurance business?
It is now clear that Suncorp chairman John Story failed Suncorp shareholders by not managing the organisation's succession planning as he should have.
Instead of a smooth transition to either an internal or external candidate, Suncorp is now being run by chief financial officer Chris Skilton, who announced his resignation today.
One cost of that board mismanagement is the fact that Skilton's pay will have to be increased by up to $83,000 a month to bring his remuneration into line with what Mulcahy was getting.
Skilton deserves some compensation for taking on the additional role of CEO. But given the recent performance of Suncorp, both operationally and in sharemarket terms, the question will be asked as to whether the additional payments are a reward for the board's failure.
The board's mismanagement of one of the most crucial tasks under its remit will mean that the leadership of the organisation will be moribund for up to six months. This comes at a time when the global financial crisis is intensifying.
The half year results released today contained little that was new from the pre-annoucement made on February 6. But suffice to say that the myriad of issues that triggered the 32.8 per cent decline in profit to $258 million are not going away.
It is fair enough to conduct an exhaustive global search using recruitment consultants, but not after the CEO has gone and the CFO is chasing him out the door.
Story today sent an ominous message to the Suncorp management team when he said Suncorp was in need of refreshing its senior executive ranks after Mulcahy's six-year term and the eight-year term of Skilton.
One analyst rightly pointed out to Story today that the other senior managers running the banking, insurance and wealth businesses have been with Suncorp for similar time frames as Mulcahy and Skilton. Should they also be refreshed?
In a bid to head off the growing shareholder pressure on Story to get the Suncorp ship back on an even keel, he today launched a defence of the CEO search process.
He said the board had heard loud and clear the message from the market that the new CEO should have the "requisite level of general insurance experience”.
"But at this point in the process I do not believe it is in our best interests to limit the pool of likely candidates by being unduly prescriptive about their attributes and experiences,” he said.
"The fact is that the Suncorp that will be led by the new CEO will be the one that has three businesses – a bank, a wealth manager and of course a general insurer. Each business will have its own particular challenges and its own particular opportunities requiring the attention of the CEO
"The board's expectations is that new CEO will be equipped to support and review each of our business lines from an operational perspective as well as providing the necessary strategic overlay at the group level. This by definition will dictate a significant depth of experience in financial services and a broad array of competencies.”
Story said it would not be in the best interests of Suncorp shareholders if the board were to compromise its understanding of the key requirements of the CEO in order to satisfy speculation about what the business may or may not look like at some time in the future.
The market has called for insurance experience to be an important component of the new CEO's CV for two reasons. There is a perception that Suncorp's risk management has not been up to scratch. Secondly, insurance has stronger growth options in the medium to long term.
Suncorp missed the opportunity to create shareholder value by selling its bank to ANZ in October last year for $3.4 billion. Suncorp now says that the ANZ offer included terms and conditions which would have cannibalised the long-term value of the insurance business.
Whoever is chosen to lead Suncorp must be given the flexibility to review the existing mix of businesses. They have to be able to start with a clean slate.
The board should not be so prescriptive as to lock the CEO into a corporate structure that limits his ability to create value for long-suffering shareholders.
In doing so, it will have to address the problem of exactly what Suncorp wants to be. Will it remain one of the last surviving bancassurance companies in the world? Or will it sell its banking operations and focus on the general insurance business?
It is now clear that Suncorp chairman John Story failed Suncorp shareholders by not managing the organisation's succession planning as he should have.
Instead of a smooth transition to either an internal or external candidate, Suncorp is now being run by chief financial officer Chris Skilton, who announced his resignation today.
One cost of that board mismanagement is the fact that Skilton's pay will have to be increased by up to $83,000 a month to bring his remuneration into line with what Mulcahy was getting.
Skilton deserves some compensation for taking on the additional role of CEO. But given the recent performance of Suncorp, both operationally and in sharemarket terms, the question will be asked as to whether the additional payments are a reward for the board's failure.
The board's mismanagement of one of the most crucial tasks under its remit will mean that the leadership of the organisation will be moribund for up to six months. This comes at a time when the global financial crisis is intensifying.
The half year results released today contained little that was new from the pre-annoucement made on February 6. But suffice to say that the myriad of issues that triggered the 32.8 per cent decline in profit to $258 million are not going away.
It is fair enough to conduct an exhaustive global search using recruitment consultants, but not after the CEO has gone and the CFO is chasing him out the door.
Story today sent an ominous message to the Suncorp management team when he said Suncorp was in need of refreshing its senior executive ranks after Mulcahy's six-year term and the eight-year term of Skilton.
One analyst rightly pointed out to Story today that the other senior managers running the banking, insurance and wealth businesses have been with Suncorp for similar time frames as Mulcahy and Skilton. Should they also be refreshed?
In a bid to head off the growing shareholder pressure on Story to get the Suncorp ship back on an even keel, he today launched a defence of the CEO search process.
He said the board had heard loud and clear the message from the market that the new CEO should have the "requisite level of general insurance experience”.
"But at this point in the process I do not believe it is in our best interests to limit the pool of likely candidates by being unduly prescriptive about their attributes and experiences,” he said.
"The fact is that the Suncorp that will be led by the new CEO will be the one that has three businesses – a bank, a wealth manager and of course a general insurer. Each business will have its own particular challenges and its own particular opportunities requiring the attention of the CEO
"The board's expectations is that new CEO will be equipped to support and review each of our business lines from an operational perspective as well as providing the necessary strategic overlay at the group level. This by definition will dictate a significant depth of experience in financial services and a broad array of competencies.”
Story said it would not be in the best interests of Suncorp shareholders if the board were to compromise its understanding of the key requirements of the CEO in order to satisfy speculation about what the business may or may not look like at some time in the future.
The market has called for insurance experience to be an important component of the new CEO's CV for two reasons. There is a perception that Suncorp's risk management has not been up to scratch. Secondly, insurance has stronger growth options in the medium to long term.
Suncorp missed the opportunity to create shareholder value by selling its bank to ANZ in October last year for $3.4 billion. Suncorp now says that the ANZ offer included terms and conditions which would have cannibalised the long-term value of the insurance business.
Whoever is chosen to lead Suncorp must be given the flexibility to review the existing mix of businesses. They have to be able to start with a clean slate.
The board should not be so prescriptive as to lock the CEO into a corporate structure that limits his ability to create value for long-suffering shareholders.
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