Much washing of hands with quiet last supper for Sol
It's an abrupt and rather undignified end to one of the more
explosive careers in Australian corporate history.
By Mitchell Bingemann and Jennifer Hewett
The Australian (WSJ)
Tuesday, May 19, 2009
Sol Trujillo's very quiet exit from Australia means a new and much less
aggressive image for Telstra under his successor, David Thodey.
But it also demonstrates how much work the company has to do to
repair relations with the Government without damaging its own
Telstra's former CEO enjoyed a final supper with his most
trusted senior executives last Wednesday before leaving for the US the next morning.
The manner of his departure was in stark contrast to his
dramatic arrival in 2005, when he was heralded as the company's
saviour by then chairman Donald McGauchie. But with a
much-deflated share price, the sword of regulation swinging over
the telco's head and an incomplete transformation program, most
market investors are clearly disgruntled with the results almost
four years on.
In simple share market performance, Mr Trujillo has left the
company some $15 billion poorer in shareholder value since his
On the day Mr Trujillo took the helm at Telstra on July 1, 2005,
the company's shares were trading at $5.07. They closed
yesterday at $3.18.
That can be partly blamed on the global share market slump.
But it also reflects the impact of Telstra's poor relationship
with successive governments.
That was most stark in December last year, when Telstra was
dumped from the Government's original $15 billion national
broadband project for having submitted a non-compliant bid.
This was a technical mistake by Telstra rather than a deliberate
thumbing of its nose.
But the error of judgment was to cost Mr Trujillo, former
chairman Donald McGauchie and Telstra all very dearly.
The telco's shares crashed 11.5 per cent to $3.65, the biggest
one-day percentage fall since its listing in 1997.
This confirmed the doubts on the board about the wisdom of Mr
Trujillo's approach -- doubts that eventually grew to
include his original champion, Donald McGauchie. This was
despite the board's long and strong support for the tactics of
Mr Trujillo was given his marching orders by Donald McGauchie
and the board three months ago with a June 30 quitting date.
Mr McGauchie was forced out of the chairmanship two weeks ago,
on the same day that the board decided on David Thodey to
replace Mr Trujillo.
Even before Mr Trujillo's exit and Mr McGauchie's ousting, the
telco had begun to adopt a more conciliatory tone with the
Government. How this is handled will be crucial for the
Government's plans for its new $43 billion national broadband
network as well as for Telstra's share price. Most
industry observers think Telstra under Mr Trujillo was
unnecessarily combative and foolishly arrogant to think it could
defeat Canberra in open combat.
"The Sol Trujillo era at Telstra will be characterised by $15
billion of shareholder value destruction, uncertainty around the
outcome of his much-heralded transformation program and customer
satisfaction at an all-time low," one analyst said.
Unfortunately for Mr Trujillo's reputation, this judgment has
obscured some of his dramatic successes at Telstra, particularly
in his early years. Some four months after joining
Telstra, Mr Trujillo unveiled his master plan -- a five-year
transformation that led to the launch of "world-class" $1.2
billion high-speed wireless broadband network, Next G, and the
$1.5 billion upgrade of its core network known as Next IP.
Mr Trujillo also led a major internal cultural change and
demonstrated his commitment to diversifying management through
his promotion of women and indigenous Australians. But
despite these advances, the antagonistic relationship with
government failed to deliver for Telstra.
"Sol provided some important contributions, particularly at the
start of his tenure where others would have failed," White Funds
Management investment manager Angus Gluskie said. "I think
his early years will be viewed positively but I think in terms
of developing the relationship with the government he took a
strategic wrong turn."
Although Mr Gluskie said he sympathised with the aggressive
stance taken by Telstra under Mr Trujillo's reign, he said an
approach stressing compromise would have better positioned the
telco for the Government's looming regulatory reforms.
During his tenure, Mr Trujillo waged war against declining fixed
line revenues by targeting any rulings made by the Australian
Competition and Consumer Commission that affected its ability to
charge what it wanted for access to its copper network.
For 11 years, Telstra has been the subject of eight competition
notices from the ACCC and it has been involved in 115 access
disputes, a rate that accelerated under Mr Trujillo's tenure.
It also regularly took the government to court, usually losing.
Mr Trujillo was particularly adamant about the need to keep an
integrated Telstra operating both its retail and wholesale arms.
Mr Thodey now faces seeing Telstra carved up by a Government
intent on dismantling the telco's market dominance in a bid to
pave a level playing field for its new broadband project.
"The challenge for the new CEO is far greater than it ever was
for the outgoing CEO," Numerico Advisory telecommunications
analyst Tim Smeallie said. "The investment community has
moved on from the Sol Trujillo era and are now looking for more
certainty on the regulatory front and delivery of tangible
benefits." Mr Trujillo's predecessor, Ziggy Switkowski,
himself forced out by the board, remarked in a TV interview that
Mr Trujillo's combative strategy had "detonated". But Mr
Thodey wrote to staff yesterday and praised Mr Trujillo's "hard
work" on the strategy for Telstra, saying it made the company
"one of the best-performing telecommunications companies in the
Mr Thodey called for unity and urged colleagues to see to
completion the five-year transformation project Mr Trujillo set
in motion: "We must also finish this year strongly as we
must deliver on our financial commitments, and we must continue
to improve our focus on how we serve our customers every day.
In the end, it is our customers who are the final arbiter of how
we are performing. Our priorities, therefore, are to
finish the financial year with a strong performance
across-the-board, in every business unit, and to get on with the
job of completing the implementation of our IT transformation
strategy, so that all of our customers can derive the benefits
This reflects the increasing perception of poor customer service
at Telstra despite Mr Trujillo's commitment to improve it.
While Mr Trujillo never tired of publicly airing the success of
the company's "world-class" Next G network, he was much quieter
on the status of his much-lauded $12 billion five-year IT
transformation. This was an ambitious program aimed at
developing common business processes for Telstra's operating
support, customer care and billing systems.
This overhaul of the company's networks and information
technology platform is over-budget and over-time with little
evidence of its ultimate contribution to the company. The
customer and billing software platform at the heart of Telstra's
IT transformation has reportedly blown its budget by more than
$1 billion, while sales staff have repeatedly complained that
their jobs have been severely hampered by software crashes.
Some of Mr Trujillo's fiercest critics, including Singtel Optus
and the competition watchdog the ACCC, reserved their public
verdict on the outgoing CEO.
"It's not for me to judge Sol Trujillo -- but we aren't looking
to the past," ACCC chairman Graeme Samuel said. "We are
looking to the new relationship we can have with Telstra.
"A departing Telstra CEO is not a new experience for me and at
the end of the day we must all remember that every organisation
is bigger than one individual."
Optus CEO Paul O'Sullivan said last week: "We wish him
well and we welcome his new successor; we intend to make
life equally interesting for him."
David Thodey will be keen to make life a little less interesting