John Mullen’s search for new Telstra chair faces big test
With John Mullen flagging his exit, the next chair of the telco could come from outside the boardroom.
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The evolution of Telstra faces a new test with well-regarded chairman John Mullen giving a long lead time over his retirement plans and in the process has started the race for a replacement.
With the exact date still up in the air, he correctly put an upper time limit on what otherwise could have been an open-ended call to exit. He delivered a range of between this time next year or October 2024 when the time is right to leave the telco.
Best practice would be for him to retire at the bottom end of the range, and Mullen is unlikely to stick around for the full two years. Mullen has built a reputation around stability and his exit is likely to reflect this.
Still, inside the Telstra boardroom the candidates are not as deep as where the ASX top 10 company should be at this point in the chair cycle. The well-connected Melbourne director Elana Rubin who joined in 2020 is firming as a favourite given her experience around governance and technology. Rubin is a former AustralianSuper chair and was Afterpay’s chair at the time of its mega takeover.
At the same time former AMP chief executive and former Westpac director Craig Dunn will nominate but has to convince big investors about being involved in two companies that have had major regulatory issues – he had more than 4 per cent of investor vote against his re-election to the board. The lack of chair experience will also be a big factor against Dunn. Its worth remembering Mullen had not chaired an ASX company prior to taking the top role at Telstra in 2016.
An outside contender remains a very live option which underpins the long lead time. Indeed Mullen said there will be new faces in the boardroom to come with the addition of new candidates to fill vacant positions.
Known as a technology change agent on the waterfront through his role as chief executive of Asciano, Mullen has been on the Telstra board for 14 years and the chairman for the past six.
He has completed the most important job for a chairman, that is seeing through the smooth transition from long-serving chief executive Andy Penn, to experienced telco executive Vicki Brady.
For Mullen it was vitally important that the CEO and chair transition didn’t occur at the same time to prevent disruption.
Now he has two “significant obligations” ahead and this is the reason given for the retirement range. These are supporting Brady initially in the new role. The other is the bolster the with
new directors. This will give them “a strong line up of candidates from which to choose when deciding upon my successor,” Mullen said.
The moves at Telstra compare with the top level shake-up at Mirvac just as the $8bn listed property group about to face the toughest conditions since the global financial crisis.
Chief executive Susan Lloyd-Hurwitz on Tuesday flagged her retirement by mid-next year after 10 years in the role. At the same time chairman John Mulcahy will retire at the end of this year without a CEO successor named and cutting it fine.
Much now rests on incoming chair Rob Sindel to set the direction of the company through selection of Lloyd-Hurwitz’s replacement. Still Mirvac will have a new boss and board as interest rates peak and the company is trying to reinvent itself beyond residential and office developments.
Tough call
Earlier in his tenure, Telstra’s Mullen made the tough call and copped investor blows along with former boss Penn to cut Telstra’s dividend which had become increasingly unsustainable in the face of a shrinking revenue base.
The move which saw a “rebasing” of dividend policy sent Telstra’s shares plunging to a five-year low. In the face of the savage backlash Mullen held firm on the call.
It was “absolutely the right call” in the face of the massive disruption that technology was bringing to the telco sector, Mullen said in 2017. It was clear the tech upheaval and hit of the NBN was fundamentally altering the economics of the business.
Fast-forward five years and the forces eating away at Telstra’s once predictable revenue base have only intensified, with more data and traffic being delivered through the NBN while tech giants, Google, Apple and even Facebook are driving deeper into Telstra’s one-time core communication business. Even so Telstra issued a modest increase in dividend for the first time in years when it delivered its recent 2022 annual results.
Mullen has provided stability in the Telstra boardroom when the company was undergoing massive and painful structural change. As the massive NBN income stream started drying up Telstra needed to change its own business, which was still operating as a mid-2000s heavyweight telco. This brought about Penn’s high-stakes change program which involved some 8000 staff leaving the business and the promise of a long term resetting of costs.
Halfway through Penn’s tenure, slow progress on T22 saw investors circling the CEO, but Mullen held firm. Savings have run at over $2.7bn over the life of the restructuring program and another $2bn in asset sales have been made.
He also saw first hand the negative impact of management disruption. He joined the board in mid-2008 just as the then chief executive Sol Trullio’s war against Canberra was hitting its peak.
“I’d love to stay chairman of Telstra for another decade … I also firmly believe there is a cycle and a time in all organisations for senior management and board members when it’s time to give some else the keys and take the company on to the next level,” Mullen said on Tuesday. “Sadly I think that time has come when I need to do the best thing for the company”.
For now, Brady has passed the first important hurdle in any new CEO tenure. She got through the first quarter without downgrade earnings guidance. Even with the pressures washing through the economy and the prospect of global recession Telstra still expects underlying pre-tax earnings of between $7.8bn to $8bn this financial year.
This underscores the confidence in the benefits of the T22 plan, but Telstra knows it will also get an unexpected tailwind from the Optus hacking scandal. With the release of new Apple and Samsung phones this remains a major churn time for telcos and most of the traffic from angry customers is now expected to go to Telstra.
As expected, Telstra secured overwhelming support for the internal split of the Telstra retail service business and infrastructure arms. This includes a new business to house the 51 per cent stake in the mobile towers business Amplitel and a standalone business that oversees the NBN services and ownership of Telstra’s remaining copper and HFC networks.
The move provides a structure if Telstra wanted to make an ambitious play for the NBN in the event of privatisation. Where shareholders see more benefit the new structure sets the scene for a partial sale or demerger of the remaining infrastructure assets. ServeCo will generate more than two-thirds of future earnings, while infrastructure and international will account for the rest.
johnstone@theaustralian.com.au
Originally published as John Mullen’s search for new Telstra chair faces big test
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