Wednesday, November 08, 2023

Optus - The science of the successful succession: Meeting the high ethical standards expected of important chief executive roles

A lifetime of building an empire can fall in a day because of the wrong successor to the empire.
~ STRONG by Kailin Gow

A dynasty is nothing but the successful orchestration of treachery. 
~ Stewart Stafford


Optus CEO Kelly Bayer Rosmarin resigns 

 The science of the successful succession 

 Few things are certain, but the ephemerality of chief executives is one of them

Unlocking the secrets of two 55 St George dramas
Succession is serious business. One does not need to look to the sorry fiction of Waystar Royco to see that all too often, the crowning of a new chief means bitter infighting and the runners-up leaving for pastures greener with blood in their mouths. 
Unseemly bust-ups do not just damage egos. A Harvard Business Review analysis from 2021 estimated that bad chief executive and C-suite successions wiped out $1tn in market value from the S&P 1500 a year. Chief executives and boards have as much duty to plan for the future as to grow companies in the present. 

For starters, the issue of succession is not something that requires chief executives to be well bedded-in. James Gorman, Morgan Stanley’s outgoing chief executive, reportedly presented the board with a succession plan three weeks into what would be a nearly 14-year tenure. Ideally chief executives’ terms can be measured in years, but this cannot be taken for granted: HSBC’s John Flint made it 18 months before being ousted by the board. 
The recent trend of chief executives imploding is another factor. NatWest’s former chief executive Alison Rose, who received her damehood at the start of the year, was gone before August after inaccurately briefing a BBC journalist on why Nigel Farage’s accounts were closed. Bernard Looney’s 32-year career at BP dried up in a matter of days after the board received details of new allegations about relationships with staff that he failed to disclose. 
Keeping other candidates from departing is another vital part of the equation. The power struggle between Goldman Sachs’s David Solomon and Harvey Schwartz saw the one-time DJ win and his rival retire. Morgan Stanley had its own fair share of drama in the 2000s when John Mack left after a power struggle with Philip Purcell, only to return four years later to replace him. The bank appears to have learnt from that less than glorious history when it chose Ted Pick as chief executive: both of the other candidates, Andy Saperstein and Dan Simkowitz, have been remunerated with increased roles and millions in restricted stock.
The dangers of the rock star chief executive have been laid bare by Disney’s succession struggles. Bob Iger’s first 15 years at the House of Mouse involved five contract extensions, which some investors worry led to the departure of frustrated would-be successors. Iger returned to the driving seat to replace his handpicked candidate Bob Chapek in November 2022. With Iger’s contract extended until 2026 in July, finding the right suitor looks more important and more difficult than ever. Boards have to hold chief executives to account on succession planning if they want a happily ever after.
Even well-managed successions have lessons for improvement. Running an internal process can maintain continuity, but this is not necessarily beneficial in an era of uncertainty. Outsiders can provide much-needed perspective: Sergio Marchionne, who helped drive Fiat away from potential bankruptcy, was qualified as an accountant and lawyer; his external status allowed him to take the hard steps needed to turn the automaker around.
New technology might, one day, make all of these discussions redundant. Back in 2017, Alibaba co-founder Jack Ma predicted that in 30 years, an AI chief executive could grace the cover of Time. Unaffected by petty rivalries or physical decay, the robo-executive might only need upgrades rather than replacement. Some companies are already trying to make that happen: last August, Hong Kong-listed NetDragon Websoft made an “an AI-powered virtual humanoid robot” the chief executive of a subsidiary. 
 But these are the exception, not the rule. Boards would be better off considering how to manage flesh and blood successors rather than hoping digital overlords are being dreamt up in computer labs.

Some companies go through life never having to dust off their manual on crisis management. Optus is embroiled in its second disaster in little more than a year.
This company is either highly accident-prone or – statistically improbable as it might be – extremely unlucky …

There is always Czechoslovak connections somewhere as Rosmarin was parachuted onto the Football Australia board after serving as then-chairman Sir Frank Lowy's personal banker, and soared through the ranks of the CBA.

Optus chief executive Kelly Bayer Rosmarin made it through the cyberhacking incident.

Optus chief executive Kelly Bayer Rosmarin made it through the cyberhacking incident. 

History shows that the chief executive presiding over a crisis rarely survives one let alone two. Regardless of whether they are directly culpable, they are considered accountable.

Optus boss Kelly Bayer Rosmarin made it through the cyberhacking affair in part because she had the backing of Optus offshore owner SingTel, rather than a bunch of Australian institutional shareholders.

It remains to be seen whether the Singaporean owners will view this as an incident outside Bayer Rosmarin’s control and close their ears to the social media lynching mob that is baying for a scalp. Bayer Rosmarin, who became a household name during the cyberattack, is an ambitious, tenacious and self-confident executive who is no stranger to networking in the Australian business community. In September, she joined fellow directors on the REA Group board in Europe for some offsite fact-finding (and attended a Rugby World Cup game), and the previous month she joined iron ore billionaire Andrew Forrest’s wild party in the Pilbara to celebrate Fortescue’s 20th birthday. She was also front and centre during the Matilda’s quest for the FIFA World Cup, to which Optus held the broadcasting rights. History shows that the chief executive presiding over a crisis rarely survives one let alone two.

During interviews on Wednesday, Bayer Rosmarin didn’t respond to questions on her own corporate future. But it’s worth noting that when Telstra experienced a similar major outage in 2016, its then-chief executive Andy Penn weathered that storm and retained his position.

If there is only one (albeit) small silver lining to Wednesday’s Australia-wide outage, it is that Bayer Rosmarin should have been able to learn from the mistakes made last year during the cyberattack.

The key to her response is communication – something that logic suggests should have come naturally to a communications company chief executive. During the cyberattack, a lack of regular disclosure to customers and the public created an information void – which politicians were eager to fill. The government was ready with a sledgehammer – feeding off information from cyber experts who were convinced that Optus should shoulder some blame for its substandard fortification from attack, which made it vulnerable to cyber thieves.

Even now, we don’t really know whether Optus was culpable – it says it wasn’t. But the investigation report from Deloitte that would provide those answers was kept under wraps.

Optus has relied on legal professional privilege as a defence for not revealing the details, adding that it might also leave it vulnerable to future cyberattacks.

It should have thought of this when it indicated earlier that it would make the report public and when its chairman told shareholders that it would be transparent.

'Too early' to know what compensation available to Optus customers Communications Minister Michele Rowland says it's too early to know what compensation will be available to Optus customers impacted by the massive outage. The absence of any even edited version of the Deloitte findings only serves to suggest that Optus didn’t like what was in the report.

What this week’s outage has demonstrated is that Optus was again tardy with timely information.

These crises are fluid so constant updates are important. Retail and commercial customers are at best disadvantaged every minute they are deprived of digital breath – at worst they are commercially crippled. As Telstra chief in 2016, Andy Penn kept his position after a widespread outage.

As a community, many more than just customers were impacted as trains drew to a halt and some hospitals lost vital communications.

But in the early hours of the disaster, Bayer Rosmarin was hard to find, social media posts were brief and many of the customers couldn’t access them because they had no phone or internet connection. In Optus’ defence, it wasn’t sure what had caused the problem or how long it would take to fix.

By the time Bayer Rosmarin took to commercial radio around lunchtime, she could proclaim the good news that services had begun being restored. The question that now needs answering is whether this was a problem of Optus’ own making or just one of the perils faced in running a huge complex network. Has it invested sufficiently in its IT infrastructure?

PS:8 Nov 2023 @StephenKing 

Donald Trump: Professional Victim.