40 AFR

ISSN 0404-2918

ChanticleerFor crowing there was not his equal in all the land... 9 770404 201044

●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●● www.afr.com | Thursday 20 May 2021 Lessons from forced CEO exits

t looks as though Australian boards of directors need to redouble their efforts to understand the culture, governance and environmental issues bubbling away inside their companies. IThat is one conclusion to be drawn from a study of 300 chief executive departures from ASX-listed companies over the past 10 years by global management consulting firm Kearney. The study, shared exclusively with Chanticleer, compares CEO exits over two five-year periods – from April 2011 until March 2016, and from April 2016 to March 2021. The total number of exits remained flat over the two periods, but the number of exits was relatively high compared to global trends. About three-quarters of CEOs John Wylie farewelled at transition in a five-year period. State Library of Victoria The study found the number of involuntary exits increased by 27 per cent ’s great and good gathered at the over the two periods, and the share of State Library on Tuesday evening to involuntary exits of all exits is now 34 per farewell outgoing chairman (and Tanarra cent. tenure at an organisation,’’ he says. This The inclusion of a new fund in the index in Capital founder) John Wylie, who is moving The forced exits were put into two preparedness, including mature succession 2019 resulted in a 19.94 per cent increase in on after nine years. buckets – financial performance and non- planning, involves having the right mix of the overall net asset value of the index. Addressing the crowd, Wylie compared financial (environmental, social and people sitting around the board table so that A change in the composition of the index chairing the august institution with his governance) reasons. Over the two periods, its diversity reflects Australian society. was triggered in May 2020 after seven funds former role heading the Melbourne Cricket the number of involuntary exits for non- ‘‘‘The Friedman Doctrine to maximise that had not provided data to MSCI were Ground trust. financial/ESG reasons rose almost fourfold. shareholder value no longer holds when excluded from it. This resulted in a 69 per Both public venues offered a sense of Non-financial reasons now account for 37 shareholders want financial returns cent fall in the overall NTA of the index. belonging to all people, but ‘‘it’s a bit like the per cent of all involuntary exits. delivered under a set of ESG conditions,’’ One significant anomaly in the MSCI difference between a Big Mac and slow- Analysis of the share price impact of CEO Schenkel says. index highlighted by the EDHEC Risk cooked lamb’’. The MCG obviously offered exits found that most CEO exits seem to Institute is the lagged inclusion of the ‘‘instant gratification’’, while the Library, to refresh investor confidence and boost the Backlash against new performance of funds that make up the repurpose Paul Keating, would ‘‘do you share price. But when it came to involuntary super performance index index. On several occasions over the past slowly’’. exits caused by non-financial/ESG reasons, A global provider of indices measuring the three years, the performance of the MSCI Not that cricket was far from the freshly the share price underperformed the performance of a range of superannuation index has been updated later because restored Queens Hall. Wylie’s favourite broader index by about 5 percentage points assets has highlighted weird anomalies in information was not available. innings during his tenure as SLV captain one year after the transition. the federal government’s choice of index for Draft regulations published by the was clearly scoring a loan of The findings are pertinent given that tracking unlisted infrastructure returns. government would allow MSCI to include from the Marylebone Cricket Club in several commentators in the past month EDHEC Risk Institute has pinpointed the ‘‘assumed index for Australian Listed for a have labelled ESG as the work of the devil. It several performance measurement issues Infrastructure’’ when unlisted data is not three-month is allegedly taken seriously only by lily- relating to the MSCI Quarterly available. This injects another level of exhibition. Our livered directors who have lost sight of the Private Infrastructure Index, including its uncertainty into the process and could lead spies lost count primacy of shareholder interests. bias towards transport assets, its volatility to returns being reported that do not reflect of how many Gerd Schenkel, who co-authored the and the lengthy lag involved in the inclusion the performance of unlisted assets. mentions that study with fellow Kearney senior partner of its component parts. Another issue raised by EDHEC Risk particular coup Alasdair Johnston, says forced CEO Analysis of the performance of the Institute is around the performance of the scored. transitions due to ESG reasons tend to benchmark over the past eight years shows index, which would be used to measure the Another reflect deeper structural issues within the outsized returns that most super funds performance of super funds over a rolling triumph: Wylie’s organisation. would struggle to beat. This means there is eight-year cycle. shepherding of He says social media is becoming an the potential for funds to take significantly The index showed an annual return over the $83 million important factor in the forced CEO higher risks in order to match, or beat, the the eight years to March 2021 of 12 per cent. renovation of the transitions, which are happening due to a index. This is probably because of survivorship Tanarra Capital founder 165-year-old broad spectrum of ESG reasons. ‘‘Social The institute has also expressed concern bias, which refers to the exclusion of poor John Wylie. library, that media echo chambers are playing a key role that combining the unlisted data in the performing funds that shut down or are no triumphantly in amplifying stakeholder indignation in an index with listed data, as proposed by the longer included. The institute says it would stayed open throughout the four-year unpredictable way and making it harder to federal Treasury, could be unsound and be extremely hard for a fund manager to construction job only to be cruelly forced to anticipate where the hazards lie,’’ he says. potentially misleading. beat this performance without increasing close four months later for the pandemic. Schenkel says boards are facing an The MSCI Infrastructure Index has been leverage or investing in riskier assets. The renovation drew $28 million in increasingly complex landscape which chosen as the benchmark for tracking the One obvious anomaly in the index is the 8 donations from Melbourne’s wealthy, and requires increased sophistication in the performance of infrastructure assets in the per cent return achieved in the year ended many of those donors were present on tracking of ESG risks and the way in which government’s Your Future, Your Super March 31, a period covering the COVID-19 Tuesday, including Maria and Allan Myers companies respond. reforms. The inclusion of the MSCI index disruption to a range of infrastructure QC, businesswoman and library board ‘‘ESG is likely to undergo a journey similar was initially greeted as a victory for common assets, including toll roads and airports. member Christine Christian,Rupert and to workplace safety – change will only come sense because it measured the performance EDHEC Risk Institute is proposing the Annabel Myer, and investment banker Jane from strong leadership, better processes of unlisted assets and not just listed government use its own Infra300 Index that Hansen and ex-Toll chief Paul Little. Liberal and a fundamental shift in culture from the infrastructure assets as originally proposed covers 300 investments in 22 countries. It grandee Charles Goode, present with wife boardroom to the front line,’’ he says. by Superannuation Minister Jane Hume. uses a bottom-up data collection strategy to Cornelia, represented the Ian Potter ‘‘All the issues so far fall broadly under the But there is now widespread concern capture a sample of unlisted infrastructure Foundation, which kicked in $10 million. social and governance aspects of ESG. We about the use of the MSCI index, according and include data on the latest transactions Premier Daniel Andrews is still predict that environment will be next.’’ to a survey of industry participants available in the secondary market. convalescing, but former premiers John As community expectations change, conducted by EDHEC Risk Institute. The Infra300 Index returned less than 10 Brumby and Ted Baillieu made up the boards are going to have to reflect that in The survey, which targeted the chief per cent post-fees over the past eight years deficit. mingling with the city’s bookish and their deliberations and the way they hold investment officers of leading industry super and was negative in the year to March 31 artistic types, including Miles Franklin CEOs accountable. ‘‘There has been a funds, found 95 per cent of participants because of COVID-19’s impact on critical winner Alexis Wright, Melbourne sharpening of CEO accountability around thought the index was not sufficiently infrastructure assets. University vice-chancellor Duncan Maskell, issues that occur a long way from their granular and representative of unlisted The EDHEC index is offered free to super La Trobe counterpart John Dewar, book- office; they are on the hook for the culture of infrastructure assets held by super funds. fund clients, whereas MSCI charges for the loving former judge Graham Anderson and the organisation they lead,’’ he says. Also, about 90 per cent of participants use of its indices. wife Anita, Melbourne Recital Centre Schenkel predicts boards will need to thought it was not acceptable for an index in MSCI was not immediately available for chairwoman Andrea Hull, NGV chair Janet include a much broader set of risks in their a time-based performance test to change comment. Whiting, National Portrait Gallery director risk management frameworks in order to retrospectively because of the inclusion of The federal government is going through Karen Quinlan, businessman and former avoid high-profile events that can lead to new data. a consultation process before adopting the AFL chairman Mike Fitzpatrick and wife CEO departures. The institute’s analysis of the MSCI index. Helen, and philanthropist Krystyna ‘‘Boards need to be prepared for a forced performance of the MSCI index found the TONY BOYD Campbell-Pretty.

CEO exit, as it is likely that this occurs at composition of the index had changed many ●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●● The evening gave little clue as to how least once during a non-executive director’s times and this had affected reported returns. [email protected] Continued p37 AFRGA1 A040