A public job application
So Ziggy Switkowski is out as CEO of Telstra with a golden handshake of only $2.1 million. This seems a little unfair – executives with far worse records have got much more – but executive compensation remains a mystery to me. Perhaps the new book Pay without Performance will help me here.
Ziggy was a mate of Richard Alston (whose admiring assessment is currently enjoying top billing under my photo) but it seems that Peter Costello is less impressed. Since most of the internal candidates are implicated in Switkowski’s bad decisions, his replacement seems to be a bit of a problem.
On reflection, I’ve decided that I would be a great choice for this job. On almost every issue Switkowski and Alston got wrong, I was on the public record pointing this out and advocating something more sensible. For example:
* I said in 1996 that partial privatisation was ‘the worst of all possible worlds‘, as Costello now agrees
* I condemned Switkowski’s offshore ventures which were later closed down with huge losses
* I proposed selling off the dotcom part of the business in March 2000, just before the crash
* I attacked the idea of buying newspapers and TV stations, which ultimately sank both Switkowski and his CEO Bob Mansfield.
Based on this track record, I ought to do pretty well as CEO. But wait, there’s more! If I stuff up, I promise to leave with a token payment of $999, 999.99. That’s right! Less than a million dollars!
Please write to the shareholding ministers, Coonan and Minchin to support my candidacy.
fn1. Commenters have questioned me on this. Here’s the argument I put up in 1996
If the new private owners of an enterprise can introduce substantial efficiency improvements, the increase in the flow of profits may offset the higher rate of return demanded by private equity holders. If this is so, the public will benefit from privatisation. But in the case of a partial sale, as proposed in the Telstra (Dilution of Ownership) Bill, there is no change of management and hence no possibility of efficiency improvements beyond those that would have taken place anyway. The public suffers the loss associated with the equity premium but gets no efficiency benefit.
The best option, therefore, is either to retain the asset or sell it in one go. If it is believed that equity markets are too thin to absorb the asset in one go, the best way of selling is to commit in advance to a sale staged over several years. However, where equity markets are thin the equity premium is likely to be larger than usual, and the case for privatisation correspondingly weaker.
The position of minority shareholders in a publicly owned enterprise of the kind proposed by the government is such as to guarantee a low sale price. Should the Liberals lose the next election, the shareholders would be at the mercy of the incoming Labor government. If that government should be genuinely hostile to privatisation, the minority shareholders would be unlikely to make large returns on their investment. In these circumstances, it would be a foolish investor who offered the same price for shares in a partly privatised Telstra as they would offer in the case of a full privatisation.