The real reason Boe Pahari still has support at AMP

There has been a missing piece in the AMP puzzle of why the board has decided to "stand by its man" Boe Pahari in the face of the increasingly damaging allegations about sexual harassing a female colleague.

Here is the answer. It seems that the departure of Pahari as the head of AMP Capital would trigger agreements between investors in some of AMP Capital’s large infrastructure funds that would allow them to withdraw their money.

Key person clauses are often built into funds management mandates, according to experts on these kinds of infrastructure funds.

Further complicating AMP’s position, is if Pahari left AMP Capital it would require a large payout of an accumulated performance bonus - an amount referred to in the industry as a "carry". These are based on the uplift in the value of the fund, according to a shareholder familiar with the situation. In Pahari’s case, this amount could be as large as tens of millions of dollars.

Boe Pahari's departure would be costly for AMP.Credit:

It certainly goes some way to explaining AMP's reluctance to call for Pahari's resignation even despite him having paid a penalty of half a million dollars after the harassment claim was settled.

But the strategy of downplaying or potentially misleading investors on the seriousness of the sexual harassment allegations in order to keep then promote Pahari has backfired.

In doing so the issue is no longer just about Pahari or his alleged victim Julia Szlakowski. It has become a referendum on the judgment of the board and the chief executive. And there are only two votes that really count- that of AMP’s two major shareholders Allan Gray Australia and UK-based Harris Associates.

They need to decide on two things once they read the findings of the report compiled by a senior British QC into the alleged sexual harassment. The first is whether his behaviour was sufficiently serious that he should not have retained his job or been promoted. If they make the call that it was, they are effectively delivering a verdict about the board’s judgment.

Thus their second decision may be whether there will be consequences for chairman David Murray, chief executive Francesco De Ferrari or other directors.

Experience of corporate debacles suggests it is not in shareholders' interests to force wholesale resignations of senior management and the board. So if shareholders force Pahari out the door, De Ferrari is probably safe.

The board commissioned the QC’s report and was therefore fully apprised of the allegations and Pahari’s admissions to what AMP describes as lower level breaches of conduct codes. But the decision to keep him has painted the board and De Ferarri into a corner.

How can AMP ask Pahari to resign now when, having had all the facts two years ago, it allowed him to remain with the company and ultimately promoted him? If the board asks him to resign now this would be a costly exercise and small shareholders, in particular, would be incensed about paying out an executive whose behaviour is allegedly questionable.

It would be a very bad look.

Thus AMP directors have tied their fate to that of Pahari.

On Wednesday AMP promised to make the eight-page report into the allegations public but only after Allan Gray had exerted persistent pressure. And given AMP can’t selectively disclose to one shareholder it has been forced to make the report’s findings public.

To date the version of events provided has been through the AMP sanitation sieve. The company’s rendition says in effect "nothing to see here".

On Sunday a frustrated Szlakowski provided the media with her version of events. Fair to say of her allegations "plenty to see here".

According to media reports over the past week, Murray told shareholders that around half of Szlakowski’s allegations were substantiated.

The bigger question is why AMP is not sufficiently enlightened to employ a zero tolerance policy on harassment of any kind. Its reasons for imposing a financial punishment on Pahari rather than calling for his resignation appear to be more financial.

When the report’s findings are ultimately released AMP directors had better be wearing their flak jackets.

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