Why Elmer Funke Kupper had to quit as chief executive of the ASX

Continuing as CEO of the stock exchange would become unworkable while bribery allegations were hanging over Funke Kupper’s time at Tabcorp

Elmer Funke Kupper has resigned from the ASX to direct his focus into an investigation surrounding allegations of bribery at Tabcorp. Picture: Renee Nowytarger

There’s an interesting question as to why Elmer Funke Kupper resigned as chief executive of the ASX because of a Federal Police investigation into allegations of bribery while he was CEO of Tabcorp — yet only sought a leave of absence rather than resigning as a non-executive director of Tabcorp.

ASX said today that its CEO of four-and-a-half years had resigned, effective immediately, to “direct his full focus to the investigations which may be made into the Tabcorp matter and not have them interfere with the important role of leading the ASX.’’

Tabcorp said Funke Kupper, who was its CEO until the demerger of the wagering and casino businesses in mid-2011 that saw Echo Entertainment spun out, had requested a leave of absence from the board until the AFP investigation “in relation to a business opportunity in Cambodia in 2009-10’’ had been completed.

That investigation appears to have been prompted by recent Fairfax Media allegations that Tabcorp paid $200,000, channelled through the US, to a consulting company associated with the family of Cambodia’s Prime Minister, Hun Sen, during a period when it was investigating a potential online gaming licence in the country.

Tabcorp has confirmed that it did look at the Cambodian sports betting sector but chose not to pursue any involvement. Funke Kupper himself has said he couldn’t recall any payment and said only last week that he intended to remain a Tabcorp director.

ASX chairman Rick Holliday-Smith — who has abruptly become an executive chairman after the surprise announcement that Funke Kupper had resigned — also said last week that he wasn’t aware of any reason why Funke Kupper shouldn’t continue in his role as ASX’s CEO.

At some point in the last few days, it would appear reasonable to surmise, Funke Kupper decided that the investigation was far more serious and threatening than he may originally have believed and therefore it wasn’t tenable for him to remain as chief executive of one of the most important positions within the Australian financial system.

It isn’t completely clear why he didn’t seek a leave of absence from the ASX, as he has from the Tabcorp board, but his resignation and his board’s acceptance of it does tend to underscore how seriously he and they are now taking the investigation and the distraction and damage his involvement in it might cause the ASX.

Presumably he felt continuing as CEO of such an important and sensitive institution with a cloud over his reputation would become unworkable and damaging and that an extended and inevitably indefinite leave of absence, while perhaps manageable for a non-executive role, wasn’t a workable option for a CEO, let alone the CEO of ASX.

ASX is one of the world’s leading securities market and dominates equities and futures trading, settlement and clearing in this market.

It also has a role in regulating those markets and neither it nor its own regulator, the Australian Securities and Investments Commission, would be comfortable with even the slightest shadow over the integrity of the markets or the people charged with overseeing them.

Funke Kupper himself was no doubt acutely conscious of the damage the allegations would do to him and the ASX, given that it does have to routinely deal with regulators, governments and regulated institutions, not only within Australia, but around the world.

It would appear that in the last couple of days he processed the implications of the investigation and concluded he had no alternative but to resign, distance ASX from the investigation and focus on responding to it.

It should be noted that Tabcorp has made no admission in relation to the allegations, saying only that it takes its obligations under anti-bribery and corruption laws very seriously — as it has to, given the nature of its licences and the onerous responsibilities associated with them.

It also ought to be said that Funke Kupper is one of the last Australian executives one would expect to be caught up in allegations of foreign bribery. He’s quite a straight-laced character.

He’s been an excellent and highly-respected CEO of ASX, growing its revenue base from less than $620 million to more than $700 million and its earnings from about $350 million to more than $400 million during a period of market turbulence, continuing structural change in the regulatory context within which ASX operates and the entry of a competitor, Chi-X.

He’s been continually upgrading ASX’s systems and reducing its costs and fees to maintain its competitiveness and relevance and has been prepared to consider radical but innovative changes — like ASX’s recent exploration in distributed ledge technologies — even if it meant sacrificing revenues to maintain ASX’s dominant position and its reputation as one of the more sophisticated of the major securities markets.

His resignation will therefore be a shock to ASX shareholders and the market-at-large.

With ASX in the process of upgrading or replacing all of its core trading and risk-management systems and already considering the future of its post-trade services, including its clearing and settlement services it now provides via its CHESS platform, it also comes at quite an awkward time.

The biggest decision facing ASX, and one Funke Kupper was very well equipped to make, is whether to build a next-generation version of CHESS or opt for the radical solution and massive potential benefits of the distributed ledger, or blockchain, technology that was originally developed for the trading of Bitcoins.

Now ASX will have to search for a new CEO equally as capable of working their way through the implications of the options and the potentially far-reaching consequences they could have for both ASX and its markets.