Pat Regan’s exit from QBE shows message should be getting through

Pat Regan endorsed a code of conduct and broke it. End of story, especially after what QBE’s previous CEO did.

Pat Regan has lost his job as CEO of QBE for a breach of conduct and “poor judgment”. Picture: Britta Campion

The value of QBE’s shares fell $991m, or 5.8 per cent, on Tuesday after the board flagged the exit of its highly regarded chief executive Pat Regan with zero meaningful explanation.

The surprise move came after an external investigation into “workplace communications” that the board said found a breach of the company’s code of conduct and ethics.

The conduct was reported to be in an exchange of emails with a mid-level US staff member who has since left the company.

Slowly but surely the message reaching the top of corporate Australia is that community standards and expectations have changed and those setting the standards must adopt them if the company has any chance of operating ethically.

Regan was on Tuesday negotiating the terms of his departure and, while on the surface the board had no choice but to show him the door, it failed shareholders by not explaining why.

Financial services companies in particular operate on the basis of trust and, as the recent royal commission showed, this is more often abused than upheld.

Allan Gray’s Simon Mawhinney described the move “as another example of poor corporate transparency”.

“The board has kept shareholders in the dark about the reasons and as shareholders we are therefore unable to assess the appropriateness of this significant decision,” Mawhinney said.

John Neal, Pat Regan’s predecessor at QBE. Picture: Hollie Adams

“Corporate Australia can ill-­afford for board decisions to be anything but measured and ­appropriate. Reputation-saving decisions which are not fair are as unacceptable as inaction when warranted.”

Mawhinney, it will be remembered, was the person who triggered the departure of AMP chair David Murray among other changes at AMP last month.

Ironically, the person who will act as chief executive until a replacement is found is new chair Mike Wilkins, who served as executive chair at AMP two years ago to fill the gaps left by Craig Mellor and Catherine Brenner before Murray became chair later in 2018.

The reasons for the QBE board’s reaction has more to do with the departure of Regan’s predecessor John Neal in 2017 after earlier having his pay docked $500,000 for breach of the company’s code of conduct for not disclosing the fact he was having an affair with his and the board’s ­secretary.

Neale is now married to the person in question and a senior executive at Lloyd’s in London, but the point was he was required to disclose the affair, as she sat in on board discussions and thus made his conduct inappropriate.

He was fined $500,000 but ­arguably should have also been shown the door immediately.

Having made the mistake once, the board has rectified one issue but has failed the next by its lack of disclosure.

McCormack’s new gig

As chief executive of APA, Mick McCormack had a long-running spat with former Central Petroleum boss Richard Cottee while at the same time cautioning the $5bn transcontinental gas pipeline was uncommercial without government backing.

Lo and behold, his first post-­retirement board seat is at the very same Northern Territory-based gas producer, where he is singing Cottee’s praises as the man who helped turn the company from an explorer to a producer and also urging the government to back the cross-country pipeline.

Digital divide

The federal government is due to unveil its legislation next month, creating a code of conduct ­detailing how the digital platform behemoths will compensate media companies for the content they use.

Submissions closed on Friday and, timed for US release, Facebook came out swinging on Tuesday, threatening to stop using news services in Australia, mirroring the earlier threats from ­Google.

Josh Frydenberg said: “We don’t respond to coercion or heavy-handed threats wherever they come from.”

ACCC boss Rod Sims described the threats as “ill-timed and misconceived”.

In essence, the behemoths are testing the will of the federal government by saying they will take their bat and ball home if they don’t get their way.

The behemoths have two key concerns with the code: the requirement to give 28 days’ notice for algorithm changes and the fact the arbitration process makes no allowance for the fact Google and Facebook provide some value to news companies by sending traffic back their way.

Facebook claims this value is $200m a year.

The ACCC is considering the submissions before handing is recommendations to the Treasurer and, while it will not be swayed by the heavy-handed threats, it may well make changes to give ground to Google and Facebook.

This may include allowing the arbitration process to consider the two-way traffic.

On this point, the behemoths are effectively shooting themselves in the foot.

If they don’t use local or international news services, they will devalue their services and in the process make their advertising less compelling.

The two control 60 per cent-plus of global digital advertising, which is based on collecting personal data from consumers — often without their knowledge — to sell to advertisers.

Less data means less service and less value to advertising clients, and in the process opens the door to rivals to step in.

The Australian code of conduct is being hotly debated because when it comes into effect it could serve as the basis for similar models offshore, which is why the behemoths are protesting.

The market value of all listed companies on the ASX is $2 trillion, Australian GDP is $2 trillion (year by year change), Google’s market value is $1.5 trillion and Facebook’s $1.2 trillion.

The issue here is who is more powerful, the federal government or Google and Facebook?

ACCC’s cartel case win

The ACCC has scored a victory in its cartel case against BlueScope, with former executive Jason Ellis entering a guilty plea in the ­criminal case against him to one charge of “inciting the obstruction of commonwealth public officials in the performance of their ­functions”.

In a statement, the ACCC said: “Mr Ellis has pleaded guilty to inciting two fellow BlueScope ­employees to give false information and evidence to the ACCC regarding discussions he and those BlueScope employees had in meetings with certain steel companies”.

By pleading guilty in the lower court, Ellis has limited the potential jail time, which may be imposed to 12 months compared with two years if the matter went to a higher court.

This matter will go to a sentencing hearing on December 8.