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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 commercial interests.

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 arrival.

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 both men. 

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 world".

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 from it."

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 for Telstra.

http://www.theaustralian.news.com.au/business/story/0,28124,25509320-643,00.html