Three recent developments offer interesting insights into the decision making process of listed companies and the impact these can have on investor returns. These are:

* The appointment of New Zealander Ian Narev to replace Ralph Norris as chief executive of the Commonwealth Bank of Australia (CBA), Australia’s second largest listed company.

* The reduction in reserves at the Tui Area Oil Fields, which is 12.5 per cent owned by New Zealand Oil & Gas.

* Shareholder discontent at PrimeAg Australia, which is 16.9 per cent owned by Guinness Peat Group.

Sir Ralph Norris, one of New Zealand’s most successful company executives, started his working career with Mobil Oil New Zealand in 1967. He joined the Auckland Savings Bank (ASB Bank) in 1969 and was the bank’s chief executive from 1991 until September 2001.

In February 2002, he was appointed chief executive of Air New Zealand having spent three years on the airline’s board. Norris left Air New Zealand in September 2005 and started as chief executive of CBA at the end of the month.

Norris has had an extremely successful tenure at Australia’s largest bank with the group’s total sharemarket value surging from A$49 billion to A$82 billion ($61 billion to $103 billion) since September 2005. Over the same period CBA has had a gross sharemarket performance (share price plus dividends) of 68 per cent compared with 28 per cent for the ASX’s benchmark gross index.

CBA has also clearly outperformed ANZ Bank, National Australia Bank and Westpac in terms of sharemarket performance since Norris joined nearly six years ago. He puts this success down to three main factors; increased customer satisfaction, a change in the bank’s culture and a huge emphasis on information technology.

There has been a great deal of speculation in Australia about the successor to Norris with the competition narrowing down to two New Zealanders, Ian Narev and Ross McEwan. McEwan was the clear favourite because he had more banking experience and Narev, who is 44, is 10 years younger with less management experience. However, Australian commentators failed to realise that Norris has had a bias towards younger candidates as he showed when he handpicked Rob Fyfe, who was also 44, to succeed him at Air New Zealand.

Fyfe was an inspired choice and Narev could be the same at CBA. Narev has a strategic background as Norris recruited him from consultants McKinsey & Co in May 2007. Narev’s strategic expertise will be important in the years ahead as the bank faces slower credit growth and will have to look to non-traditional areas for its profit growth.

The four main Australian banks have been incredibly successful in recent years, mainly because of excellent corporate governance.

One of the most important roles of a board of directors is to appoint the chief executive even though he may be nominated by the outgoing CEO. The Australian banks have usually chosen an internal candidate and this has worked well for them. This is in stark contrast to Telstra’s experience when it appointed Sol Trujillo, the outspoken American businessman, as chief executive in July 2005.

As the accompanying table shows, New Zealand’s 10 largest companies have a mixture of internally and externally sourced chief executives. As a general rule the fastest growth companies, notably SkyTV, Ryman Healthcare and Mainfreight, typically have internally appointed chief executives.

An internally sourced chief executive is usually a less-risky choice and demonstrates that the board of directors has put in place an effective succession plan.

Unfortunately many listed New Zealand companies, including those in the NZX50 Index, are lacking management depth and it is not obvious who will replace the current chief executive if he suddenly resigns.

New Zealand Oil & Gas is an excellent example of this.

David Salisbury was appointed chief executive of the oil exploration and production company in April 2007. He had just returned from Vienna where he had been vice-president business development of OMV Exploration & Production.

Salisbury was quoted as saying “I relish the opportunity of working with business partners, shareholders and staff to capitalise on NZOG’s current major projects and to position the company for further growth opportunities”.

“Tui with its strong initial oil flows, Kupe as a solidly-based long-life asset, and the diversity brought to the portfolio by Pike River Coal together creates a very sound financial platform for an exciting growth path for NZOG”.

Unfortunately these growth opportunities have not been realised and on June 30 Salisbury gave six months’ notice of his resignation and will finish on December 29. Chairman Tony Radford said the company “will commence shortly to recruit a replacement chief executive”.

When Australian Worldwide Exploration, the operator and 42.5 per cent owner of the Tui field, announced this week that Tui’s reserves had been downgraded from 50.5 million barrels to 40 to 42 million barrels, NZOG seemed to be rudderless. The company made a short factual comment to the NZX with no quotes and no executive contact details. This was in stark contrast to earlier Tui reserves upgrade announcements which contained contact details for Salisbury and another company executive.

One of NZOG’s problems is that Radford is based in Australia and he is not a great communicator. He was appointed to the NZOG board in June 1981 and has been chairman for most of this 30 year period.

NZOG’s corporate governance leaves a lot to be desired and shareholders are now paying a big price for the company’s inability to secure a long-term chief executive, as well as for its inadequate succession plans and its poor communications, particularly in adverse situations.

PrimeAg Australia, which is almost 17 per cent owned by Guinness Peat Group, listed on the ASX in December 2007 after issuing shares to the public at A$2 each. The main objective of the company was to invest in Australian rural properties to take advantage of the increasing demand for soft commodities, mainly wheat, chickpeas, sorghum, cotton and livestock products.

PrimeAg immediately traded below its issue price and GPG began accumulating shares at A95c in July 2009. In April 2010 it revealed that its shareholding in PrimeAg had reached 16.9 per cent.

Last week, PrimeAg announced that it was establishing an agriculture fund, targeting A$600 million in assets under management, to invest in Australian cropping properties and water entitlements. PrimeAg would contribute A$125 million to the fund and would raise this money through a fully underwritten accelerated non-renounceable issue to shareholders at A$1.08 a share on a 10 new shares for every 13 existing shares basis. This compares with PrimeAg’s NTA of A$1.86 a share at the end of 2010.

A number of PrimeAg shareholders are furious with the deal and Australian Food & Fibre, which owns 11 per cent of the company, has requisitioned a meeting of shareholders to remove the five directors.

The problem for GPG is that it is now in liquidation mode and is reluctant to participate in these issues. As a result it can suffer major dilutions through the issue of shares to other investors at large discounts to NTA.

GPG has been an active investor with a number of large shareholdings that will be difficult to realise and the company is now forced to look at different strategies to raise cash.

For example this week it announced that its Turners & Growers’ shareholding has fallen from 65.1 per cent to 63.5 per cent because it didn’t participate in the company’s reinvestment scheme for the latest dividend.

Unfortunately it will take a long, long time for GPG to completely dispose of its Turners & Growers’ shareholding through this process.

Top Ten CEOs – Internal appointments are more common


Market value ($m)




Fletcher Building


Jonathan Ling





Paul Reynolds



Contact Energy


Dennis Barnes



Auckland Airport


Simon Moutter





Simon Mackenzie





John Fellet





Nigel Morrison



F&P Healthcare


Michael Daniell



Ryman Healthcare


Simon Challies



Air New Zealand


Rob Fyfe