July 4, 2024 • 22 mins
Some of our largest listed companies are without permanent CEOs after an executive exodus.
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Speaker 1 (00:00):
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Speaker 2 (00:16):
The information provided in this program is of a general
nature and is not intended to be personalized financial advice.
We encourage you to seek appropriate advice from a qualified
professional to suit your individual circumstances. It's pretty tough at
the top of some of our major listed companies with
an executive exodus, meaning many without permanent leaders. Where are
all the CEOs?
Speaker 3 (00:36):
It feels like there's been a bit more of a wave,
and I think if you look at the companies that
have lost CEOs, it has been the ones that have
been under a little bit of pressure and it's probably
putting it a bit lightly, isn't it. And there's been
a bit more scrutiny from shareholders, which is fair. I think,
you know, we do need to hold management to account.
Speaker 2 (01:02):
Sudden departures of chief executives have become commonplace this year.
Fletcher Building's Ross Taylor Ryman Healthcare's Richard Umbers and the
warehouse groups at Grayston all left linked to poor company
performance circumstances. Fletcher's and the Warehouse have put internal candidates
and his acting CEOs on an interim basis, while Ryman's
(01:23):
chairman Dean Hamilton has taken the executive seat while its
permanent search continues. It's interesting it has been a coincide
ince of CEO's going, isn't it. Other moves include Simon
Mander resigning from Metro Glass, David Mayre from Scaler up
to Leeds Sanford, while Sky City's new CEO starts later
this month. Research from Craig's Investment Partners shows half of
(01:45):
all companies listed on the INSIDEX Top fifty index have
had a change in CEO since twenty twenty. Those with
the longest standing leaders are Main Freight with Don Braid's
more than twenty year tenure and Circo with Darren Grafton's
fifteen years. Also Vector Tourism Holdings, property developers, Argacy and Precinct,
(02:05):
Scales Corporation, Vulcan Steel, Fisher and Pikel Healthcare, and Turner's
Automotive Group. Craig's Investment Partners analyst most Singh ran the
numbers on the leaders and says changes at the top
were clearly required. Well, my good to see you. Always
good to be in TGA.
Speaker 4 (02:22):
Yeah, welcome to the bay. We'll turn the sun on
for you. You have.
Speaker 2 (02:24):
Thank you for that. It's so good. But look, first question,
we're are all the CEOs?
Speaker 3 (02:29):
Yeah, big turnover, big turnover. And I guess this time
you know where we are in the business cycle. It's
not totally surprising. And I actually was sort of running
the numbers, and the average tenure in New Zealand.
Speaker 4 (02:40):
For the fifty years is about five or six years.
Speaker 3 (02:43):
So every year we lose sort of ten maybe five CEOs,
so it's not unusual.
Speaker 4 (02:48):
It feels like there's been a bit more of a wave.
Speaker 3 (02:50):
And I think if you look at the companies that
have lost CEOs, it has been the ones that have
been under a little bit of pressure. And it's probably
putting it a bit lightly, isn't it to say a
little bit of pressure. So it has been at that
hard end of town for earnings that we have seen
some exoduses.
Speaker 2 (03:05):
Yeah, it certainly feels like twenty twenty four is the
year of the executive exodus on our market. What has
led to that?
Speaker 3 (03:11):
I think naturally the pressure comes on when when you're
not performing, and over the last few years, you know,
look at where the economy's gone the last six quarters.
You know, other than population growth, we've had negative GDP
if you look at it on a per capita basis.
So the demands down after a wave of euphoria sort
(03:31):
of twenty twenty one, twenty twenty two. So it's been
a tough place to be a CEO, and I guess
some of those that have been around for three or
four or five years have sort of looked at that
and gone, jeez, things are getting tougher. And there's been
a bit more scrutiny from shareholders, which is fair. I think,
you know, we do need to hold management to account
and boards to account. You've seen that, you know, come
(03:52):
up in lots of media more recently.
Speaker 4 (03:54):
So I think it's partly natural, but probably.
Speaker 3 (03:58):
Been expedited by poor performance from some companies.
Speaker 2 (04:01):
If we look at the ones that were certainly linked
to poor performance, you've got the Warehouse Group and also
Rymean Healthcare. What was it about perhaps the misallocation of
capital and the decisions that were made in those companies
by those leaders that you think made their situations effectively untenable.
Speaker 4 (04:17):
Yeah, I think the.
Speaker 3 (04:18):
Hard thing has been the matching of resource to demand.
Over the last four or five years, we had this
real boom and demand, and it was hard for people
to gear up and provide for that. And then as
you started to finally provide for that, you resource up,
all of a sudden demand's fallen through the floor. So
you've had this real mismatch and I think that's where
(04:38):
a lot of companies in New Zealand have been found
out a little bit. Is the demands come off massively
and really fast. We haven't seen interest rates go up
this fast for a long time, so that's where the
trouble has been that the allocation of resource has been
slow and companies just haven't been dynamic. And then I
guess in the case of someone like Ryman, it's been
(04:59):
more than one thing. You know, debt got a little
bit high, the cost of that debt went high. You know,
people weren't able to sell their homes through that COVID
period and it was tools.
Speaker 4 (05:08):
Down so you couldn't keep building.
Speaker 3 (05:09):
You know, you had huge amounts of construction projects that
were basically ground to a halt. So it's always it's
never one thing, is it's always three four five things.
But regardless, you know, we expect our management teams to
navigate through that. That's what they paid pretty handsomely for.
And some of those have have done better than others.
And you know, in that sector, Somerset seems to have
(05:31):
done reasonably well. So you can't say it's been a
sick to wide problem. You know, for the whole part,
some of it has been down to mismanagement.
Speaker 2 (05:38):
To sum that up, then it kind of seems like
ZEP zero interest rate policy called them out.
Speaker 3 (05:44):
Yeah, and maybe it's a harsh but harsh to say
there was a bit of complacency and laziness, but clearly
I think what caught them out was that zero interest
rate and then the firing to five and a half percent.
And we've held it here, and you know, there's lots
of calls now for that to get over the next
little while because the economy is clearly in a lot
of strife. But I think it's just been the acceleration
(06:07):
down to zero and then the acceleration up to five
and a half percent has.
Speaker 4 (06:12):
Been really, really quick.
Speaker 3 (06:13):
And with that, the dynamics of demand and pricing power
have moved quite quickly. You could put prices up as
a business to whatever you almost wanted a couple of
years ago. You try to do that today and customers
will walk out the door. We're seeing that in terms
of volume, demand come down, So I think it comes
down to people that have been dynamic and.
Speaker 4 (06:32):
Able to cope with that.
Speaker 3 (06:34):
Fisher and Pycal Healthcare I Reckon is a classic example
of that. Fantastic management, great company, our biggest, but demand
went through the roof for them through that COVID period,
and costs also went up because they were trying to
ramp up and they sort of took some of those
costs on the chin, and then demand fell quite quickly
because you had this oversupply or inventory stocking. But that
(06:57):
company has navigated those you know, Peer's quite well and
it's coming out the other side and has been a
silent performer this year, up twenty five percent. So it
can be done, even from our biggest companies. But when
it's not done, we end up at the other end
of the spectrum.
Speaker 2 (07:12):
But how about also the use of that financing. Some
of these companies were paying dividends of debt the case
of Ryman for example. You've also spoken to me previously
about other companies that haven't done that and it's paid
off for them, like Ginrac. So can you talk to
me about the kind of difference and the use of
debt that we've seen coming out of the cycle on
the companies on our exchange.
Speaker 4 (07:32):
Yeah, I mean it's a funny one.
Speaker 3 (07:34):
When things are going well, you want to take on
more debt and try and grow and make use of
that opportunity.
Speaker 4 (07:41):
So there's a real balancing it. You can't be scared
of debt.
Speaker 3 (07:44):
And you know, Don's a classic at Mainfreight who gets
grumpy with us for saying he's got a lazy balance
sheet because he's conservative.
Speaker 2 (07:50):
Rod Jergot Briscos too.
Speaker 4 (07:51):
Yah, absolutely so.
Speaker 3 (07:53):
And look for more cyclical businesses, we don't want them
to take on a lot of debt, but for those
that have got good, stable demand profiles, we do want
them to use that debt to turbocharge growth opportunities when
they're there. What we don't want to see is, like
you say, is using you know, taking on with one
hand to pay with the other. So using debt to
pay dividends is not a great, great outcome. But and
(08:15):
now you're seeing some of those companies get caught out
where they took on a lot of debt and now
the cost of that debt has doubled or tripled in
some cases quite quickly, and you haven't been able to
grow your earnings to keep.
Speaker 4 (08:26):
Up with that.
Speaker 3 (08:26):
Not just similar to mortgage right, so that pressure is
coming on. I think it's just again comes down to
being ready for a rainy day. And the good companies
are always ready for a rainy day by having a
balance sheet that's not too stretched at any point in time.
And the classic for the capital markets in New Zealand
matter is.
Speaker 4 (08:46):
Why you listed.
Speaker 3 (08:47):
You listed because you have access to free capital quite quickly,
not free, but easy access to capital.
Speaker 4 (08:53):
Auckland Airport borders shut down. They raised over a billion
dollars quite quickly in New Zealand.
Speaker 3 (08:58):
In New Zealand, many companies Ozzie was you know, all
over the show through that period and it worked well
for listed companies. So there is a place you know
to do that when you need it. But I think
it's you know, those that are prudent get rewarded with
easy access to capital, and those that haven't been prudent
and then come to market simply to pay down debt,
(09:19):
it's not rewarded that well. Infantols a classic example, more
recently raised over a billion dollars Like that quite easy
to do when you can show what you're using it
for and it's for growth, not Hey, we've gone too
hard on debt and now we need to pay it down.
Can you give us some money to do that? So
it comes down to what are you using that equity for.
Speaker 4 (09:38):
I suppose you.
Speaker 2 (09:39):
Mentioned earlier that you think it's a good thing that
shareholders have clearly increased the scrutiny of our major listed companies.
But it kind of also feels a bit to me
like board members, especially chair people, are getting a bit
more ruthless. Is that a correct assumption?
Speaker 3 (09:52):
And I think I think, you know, boards have a
little bit more onus on them these days, don't they.
They've got a bit more skin in the game, I guess,
around scrutiny and their own liability. So I'm not saying
that wasn't the case with board members before, but you
are seeing and.
Speaker 4 (10:08):
There's probably a bit more public pressure. You know, Fletcher.
Speaker 3 (10:11):
Building is top of mind at the moment around the
amount of pressure going on there.
Speaker 4 (10:15):
So I always think.
Speaker 3 (10:17):
About, you know, the particularly board chair people and the
CEO of a company kind of in the sports analogy,
that's the coach and the captain, right, So those two
have to be in sync and they kind of one
and the same or almost you know, Scott Robertson and
has kept and have to be really in sync. And
(10:37):
so I think that's translating into listed companies where if
the CEO is performing poorly, then scrutiny comes on first
the chair and then the wider board of who have
oversight over the management team.
Speaker 4 (10:49):
So I think it's probably fair. And so I think now.
Speaker 3 (10:53):
You're seeing those boards and those chair people put a
bit more acid on their management teams to say, hey,
we need to form otherwise we all feel the pinch.
And you know, who are the boards representing. They're representing shareholders.
So I think it's welcomed and great that we are
seeing a bit more of that pressure.
Speaker 2 (11:10):
In the case of Fletchers, we are yet to get
a chairman replacement announcement. In the case of Ryman and
the Warehouse, we yet to get permanent CEO replacement announcements
there too. What does that say to you about succession
planning and perhaps how poor it is the fact that
these immediate replacements have not been found or at least
announced yet.
Speaker 4 (11:27):
Yeah, it's funny.
Speaker 3 (11:29):
I've sort of thought about this in the past, so
it's interesting it comes up today. Is you know, we've
had there's kind of two types of If a company
is doing well, then almost always the promotion to CEO
comes internally, and when a company is doing poorly, all
of a sudden there's a call to clear the decks
and look externally. And I think that's the difference you're
(11:49):
seeing here is Goodman Property Trust. James Spence has just
taken over. There, Scaler up. David Maher, who was CFO
for many years has taken over. There's lots of these examples.
Your Neil Barclay at Meridian was originally the CFO has
come into that role. So companies that are doing well,
you know, you want to keep that secret source. Fisher
and Pikele Healthcare, with Lewis Graydon taking here from Mike Daniel,
(12:11):
you want to continue that legacy and that secret source
for those companies that are doing well. Companies that are
doing poorly. You know, it's the market sees that we'll
hang on someone who was in the tent to begin with.
Speaker 4 (12:23):
You're promoting them and giving them a go, but where
they not part of the problem.
Speaker 3 (12:27):
So you are seeing I think that's the differential heir
the Fletchers and the Ryemans and so forth, is something's
fundamentally gone wrong here. We'd like a new fresh set
of eyes, or many fresh sets of eyes to kind
of see where things are at and clear the deck.
So that's why I think it's taking a little bit
longer at some of those more troubled businesses at the moment.
Speaker 2 (12:45):
So the big question, then, I guess, is where do
these boards get these fresh sets of eyes from?
Speaker 4 (12:51):
Yeah, well, we get the generic answer every time, don't we.
Speaker 3 (12:53):
As there's an international search going on, and I'm sure
there is, But I think the key it comes down
to who is these boards need to probably and I'm
sure they do. So you know, I'm probably being a
little bit unkind, but think about what is it that
creates that secret source for a particular company. And it's
not the same for every business, right, every sector is different.
Speaker 4 (13:14):
But that's probably the thing we've been asking.
Speaker 3 (13:17):
A lot of boards of late is what are the
things you're actually what are the attributes you think are
most important in this business? You know, for a rhyme
and healthcare, is it to have you know, a real
health background and a care background or is it a
development background?
Speaker 2 (13:31):
He said development?
Speaker 4 (13:32):
Right?
Speaker 3 (13:33):
Yeah, So that's the classic there, right, is you know
what is it that you're actually looking for that you
think the business needs over the next three, five, you know,
eight years. And that's where I don't know where you
find these people, you know, you magic them up at somewhere.
You can't find greg foruns everywhere that come back from
being you know, superstars around the world and want to
(13:54):
run a New Zealand business.
Speaker 4 (13:55):
So we are a small pool.
Speaker 3 (13:57):
Yes we can look into nationally, but you know there
are some big businesses looking for those same you know,
high profile CEOs as New Zealanders. So there are very
good CEOs in New Zealand and very good management teams.
But it's about aligning you know, what the business needs
with those same I guess attributes that a new CEO has,
(14:18):
which is hard to get right.
Speaker 2 (14:20):
Do you think maybe then it's going to have to
be a case of board members in these CEO searchers
having to be a bit more selective on certain skills,
basically agreeing that they're not going to get the jack
of all trades who can look over every part of
the business.
Speaker 3 (14:31):
Well yeah, and I don't know that they should be
a jack of all trades. They should be time and place.
What does a business need at that point in time?
And if I come back to that rugby analogy again,
it doesn't it's not just the captain that's going to
make the team. It's going to be you know, having
the best forwards, the best backs. You know, so you're
going to have a team around them. And part of
that is probably giving your chief executive and your CFO,
(14:54):
because I think those two should work as a team
and be it, you know, your captain and vice captain.
But giving them free and to gather the troops around
them that they need and.
Speaker 4 (15:03):
They think they want.
Speaker 3 (15:04):
And that's where it comes back to that clearing the decks,
and you know, is that you can't bring a CEO
and but keep the same management team right right the
way through. They've got to stamp their own mark and
have the people that they trust, and you know, so
that's probably you know, I think the jack of all
trades is probably the wrong thing to do is get
the person you want to build culture, you know, lead
(15:27):
from the front and have a strategic brain, and then
you know, empower them to bring the right people into
into the business to grow it, because you know, you
don't expect Greg fan At in New Zealand to understand
how the mechanics of planes work or the engineering or
any of that stuff. You know, he relies on somebody
to do that. So it's just a matter of getting
(15:48):
the right person at the top who can delegate and
you know, trust the people around them.
Speaker 2 (15:53):
How should shareholders in New Zealand feel about the fact
that there is such a lack of permanent leadership but
some of the biggest, most critical companies or perhaps there's
a positive spin on AMO and we're about to get
some fresh blood into these companies and it's actually an
exciting time once they're a pointed.
Speaker 4 (16:09):
Yeah, I'm going to take the glass half full approach.
Speaker 3 (16:12):
I think it's actually shareholders should be happy about that
because the last thing we want to do is be
disgruntled and then not see change. So the fact that
we are seeing those leavers pulled change come in and remember,
you know, even when you see a fresh CEO then
doesn't mean that you know, they've suddenly just come out
of university and we've thrown them in the deep and
carry at Auckland Airport, who's been there a couple of
(16:34):
years now, has come from a twenty plus year career
in New Zealand, so you know, lots of aviation experience.
Speaker 4 (16:39):
So you know, people that get promoted to.
Speaker 3 (16:41):
These roles have you know, years and decades of experience
behind them. It's just about choosing I think, the right
people for that point in time. But yeah, as a
shareholder personally and obviously you know here here at Craigs,
we see that as positive. The change is a good
thing because we see that boards are not scared to
make the hard decisions and we are seeing progress in
(17:04):
the right direction.
Speaker 4 (17:05):
When things have gone off track.
Speaker 2 (17:07):
Maybe the solution could be throwing some young bucks in
the race. I mean, look at Zespriy Jason to break.
The new CEO as of this month is thirty six,
which is young by CEO standards.
Speaker 3 (17:16):
Absolutely, he would definitely be at the younger end of town.
Speaker 4 (17:20):
And that's not a problem at all.
Speaker 3 (17:21):
Right, But I think you know, It comes back to
your earlier point of you know, that internal promotion. That's
what I think we should really see because the best
companies in New Zealand that have endured all seem to
have that internal promotion.
Speaker 4 (17:34):
And it is the CFO or the.
Speaker 3 (17:37):
Chief operating officer or someone like that who has moved
into the chief executive role. You know, they've learnt from
someone who's very good and keept that secret source. That's
what I think could work really well porta towering heres
we sat classic example, Mark Ken's was a star, you know,
and now he's on a number of directorships.
Speaker 2 (17:54):
But maybe the next year of Fletcher's perhaps.
Speaker 3 (17:57):
Well, yeah, I think he has thrown or he has
at least shown interest. I don't know where that's gone.
But you know, that's a classic example here of someone
doing a great job for a very long time and
then someone stepping in, you know, internally and moving into
that role. So I think we should see more of
that internal promotion going on in New Zealand.
Speaker 2 (18:18):
You mentioned the likes of Don Braid at Main Freight,
and he is, according to your research, the longest standing
managing director or CEO on the market currently. Circo also
with the CEO there, Darren Grafton sitting in that seat
for more than fifteen years. Does tenure matter in these
instances or is there perhaps also a danger to it
that kind of looks like perhaps there's not enough succession
(18:38):
planning going on.
Speaker 3 (18:39):
Yeah, I think it can work good and bad and
if i'm I'm going to get crossed off a few
Christmas lists. But you know, think about sky TV before
Sophie Maloney turned up. Yeah, were a long tenure with
John Fletpp and possibly too long towards the end of that.
So there are risks. But I think, you know, most
investors would like Don to be CEO for managing director forever.
Speaker 2 (19:01):
I would like that too.
Speaker 4 (19:02):
Yeah, I'd probably like to live forever.
Speaker 3 (19:05):
You know, from an investor perspective, we would because he's
done a great job.
Speaker 4 (19:07):
So is their risk?
Speaker 3 (19:09):
I think, you know, the things it's not just about tenure,
it's it's sort of having some experience in the right
industry and a big one that we sort of forget his.
Speaker 4 (19:18):
Skin in the game.
Speaker 3 (19:19):
You know, has someone coming as a hot shot CEO
from the other side of the world who doesn't know
the industry, doesn't really know the key with psyche all
of that stuff, or have they grown up with the business?
Do they own shares themselves?
Speaker 4 (19:31):
Are there? Is their remuneration somehow linked.
Speaker 3 (19:34):
To what is best for shareholders you know, total shareholder
return through better performance, all those sorts of things. That's
where I think boards can do more. As you know,
and we are doing more. We're seeing a lot of
that is the right type of remuneration packages for executives
to get them more aligned to what is best for
all shareholders and all stakeholders. So that's where I think
(19:57):
we can see a little bit more nuanced. But that
longevity is great. It's it's good to have, you know,
some of that that longevity because we've got plenty at
the other end of town where they've just turned up
as CEOs. So a bit of balance and I'm too
scared to say that don's been there too long.
Speaker 2 (20:13):
In the case of remuneration, though, that's a really interesting point,
and perhaps let's finish there, because these CEOs are in
such hot demand, you know, numerous companies need them. Hence,
while we're having this chat in the first place, are
they going to be able to demand a much higher price?
Speaker 3 (20:26):
I think that I mean you know, it's again comes
down to specific examples, but they're reasonably well remunerated.
Speaker 4 (20:33):
I think. In New Zealand.
Speaker 3 (20:35):
My point really is have an attractive base salary and
then have you know targets that you can hit.
Speaker 4 (20:41):
That will pay you well if you hit those targets.
Speaker 3 (20:44):
Because the business does well, you know, we grow employment,
we grow you know, the tax base for New Zealand,
all of those great things that New Zealand Inc.
Speaker 4 (20:53):
Needs as well.
Speaker 3 (20:53):
If we can get our leaders to come along for
the ride for that, then yeah, absolutely reward them and
incentivize them to do that. The other thing we probably
don't see enough in New Zealand is target setting by
companies and Turners is a great example. I mean, that's
a business that shouldn't be doing well in the tough economy,
but is doing really well. Todd Hunter there has and
(21:13):
Aaron his CFO. They've done a great job of setting
targets for profitability two three, four years out into the
future to give a line in the sand and a
bit of something to aim for, and they've managed to
hit those targets for the most part. And we're seeing
less and less of that in the listed space, where
companies are coming out and I'm not sure. Maybe that's
because our s analysts are being difficult to them and
(21:36):
holding them to.
Speaker 4 (21:37):
Account too hard.
Speaker 3 (21:38):
But more target setting and more sort of aspirational numbers
out therefore, everyone to sort of get behind and know
where the target is I think would go a long
way to be Maybe.
Speaker 2 (21:47):
We might start to see in New Zealand some Elon
Musk told Usha hold a return pay packets.
Speaker 4 (21:53):
Yeah, I'm not sure.
Speaker 3 (21:54):
I think his paypacket is probably bigger than most of
our market combined, so I'm not sure we'll get to that.
But always interesting to know what's going on in Elon's life.
I don't know how you spend that kind of money,
to be.
Speaker 4 (22:04):
Honest, it'd be nice, it wouldn't hurt.
Speaker 2 (22:07):
Thank you so much for your time and for the insight.
It's been awesome. I appreciate it.
Speaker 4 (22:10):
Thanks a lot,
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Speaker 2 (00:16):
The information provided in this program is of a general
nature and is not intended to be personalized financial advice.
We encourage you to seek appropriate advice from a qualified
professional to suit your individual circumstances. It's pretty tough at
the top of some of our major listed companies with
an executive exodus, meaning many without permanent leaders. Where are
all the CEOs?
Speaker 3 (00:36):
It feels like there's been a bit more of a wave,
and I think if you look at the companies that
have lost CEOs, it has been the ones that have
been under a little bit of pressure and it's probably
putting it a bit lightly, isn't it. And there's been
a bit more scrutiny from shareholders, which is fair. I think,
you know, we do need to hold management to account.
Speaker 2 (01:02):
Sudden departures of chief executives have become commonplace this year.
Fletcher Building's Ross Taylor Ryman Healthcare's Richard Umbers and the
warehouse groups at Grayston all left linked to poor company
performance circumstances. Fletcher's and the Warehouse have put internal candidates
and his acting CEOs on an interim basis, while Ryman's
(01:23):
chairman Dean Hamilton has taken the executive seat while its
permanent search continues. It's interesting it has been a coincide
ince of CEO's going, isn't it. Other moves include Simon
Mander resigning from Metro Glass, David Mayre from Scaler up
to Leeds Sanford, while Sky City's new CEO starts later
this month. Research from Craig's Investment Partners shows half of
(01:45):
all companies listed on the INSIDEX Top fifty index have
had a change in CEO since twenty twenty. Those with
the longest standing leaders are Main Freight with Don Braid's
more than twenty year tenure and Circo with Darren Grafton's
fifteen years. Also Vector Tourism Holdings, property developers, Argacy and Precinct,
(02:05):
Scales Corporation, Vulcan Steel, Fisher and Pikel Healthcare, and Turner's
Automotive Group. Craig's Investment Partners analyst most Singh ran the
numbers on the leaders and says changes at the top
were clearly required. Well, my good to see you. Always
good to be in TGA.
Speaker 4 (02:22):
Yeah, welcome to the bay. We'll turn the sun on
for you. You have.
Speaker 2 (02:24):
Thank you for that. It's so good. But look, first question,
we're are all the CEOs?
Speaker 3 (02:29):
Yeah, big turnover, big turnover. And I guess this time
you know where we are in the business cycle. It's
not totally surprising. And I actually was sort of running
the numbers, and the average tenure in New Zealand.
Speaker 4 (02:40):
For the fifty years is about five or six years.
Speaker 3 (02:43):
So every year we lose sort of ten maybe five CEOs,
so it's not unusual.
Speaker 4 (02:48):
It feels like there's been a bit more of a wave.
Speaker 3 (02:50):
And I think if you look at the companies that
have lost CEOs, it has been the ones that have
been under a little bit of pressure. And it's probably
putting it a bit lightly, isn't it to say a
little bit of pressure. So it has been at that
hard end of town for earnings that we have seen
some exoduses.
Speaker 2 (03:05):
Yeah, it certainly feels like twenty twenty four is the
year of the executive exodus on our market. What has
led to that?
Speaker 3 (03:11):
I think naturally the pressure comes on when when you're
not performing, and over the last few years, you know,
look at where the economy's gone the last six quarters.
You know, other than population growth, we've had negative GDP
if you look at it on a per capita basis.
So the demands down after a wave of euphoria sort
(03:31):
of twenty twenty one, twenty twenty two. So it's been
a tough place to be a CEO, and I guess
some of those that have been around for three or
four or five years have sort of looked at that
and gone, jeez, things are getting tougher. And there's been
a bit more scrutiny from shareholders, which is fair. I think,
you know, we do need to hold management to account
and boards to account. You've seen that, you know, come
(03:52):
up in lots of media more recently.
Speaker 4 (03:54):
So I think it's partly natural, but probably.
Speaker 3 (03:58):
Been expedited by poor performance from some companies.
Speaker 2 (04:01):
If we look at the ones that were certainly linked
to poor performance, you've got the Warehouse Group and also
Rymean Healthcare. What was it about perhaps the misallocation of
capital and the decisions that were made in those companies
by those leaders that you think made their situations effectively untenable.
Speaker 4 (04:17):
Yeah, I think the.
Speaker 3 (04:18):
Hard thing has been the matching of resource to demand.
Over the last four or five years, we had this
real boom and demand, and it was hard for people
to gear up and provide for that. And then as
you started to finally provide for that, you resource up,
all of a sudden demand's fallen through the floor. So
you've had this real mismatch and I think that's where
(04:38):
a lot of companies in New Zealand have been found
out a little bit. Is the demands come off massively
and really fast. We haven't seen interest rates go up
this fast for a long time, so that's where the
trouble has been that the allocation of resource has been
slow and companies just haven't been dynamic. And then I
guess in the case of someone like Ryman, it's been
(04:59):
more than one thing. You know, debt got a little
bit high, the cost of that debt went high. You know,
people weren't able to sell their homes through that COVID
period and it was tools.
Speaker 4 (05:08):
Down so you couldn't keep building.
Speaker 3 (05:09):
You know, you had huge amounts of construction projects that
were basically ground to a halt. So it's always it's
never one thing, is it's always three four five things.
But regardless, you know, we expect our management teams to
navigate through that. That's what they paid pretty handsomely for.
And some of those have have done better than others.
And you know, in that sector, Somerset seems to have
(05:31):
done reasonably well. So you can't say it's been a
sick to wide problem. You know, for the whole part,
some of it has been down to mismanagement.
Speaker 2 (05:38):
To sum that up, then it kind of seems like
ZEP zero interest rate policy called them out.
Speaker 3 (05:44):
Yeah, and maybe it's a harsh but harsh to say
there was a bit of complacency and laziness, but clearly
I think what caught them out was that zero interest
rate and then the firing to five and a half percent.
And we've held it here, and you know, there's lots
of calls now for that to get over the next
little while because the economy is clearly in a lot
of strife. But I think it's just been the acceleration
(06:07):
down to zero and then the acceleration up to five
and a half percent has.
Speaker 4 (06:12):
Been really, really quick.
Speaker 3 (06:13):
And with that, the dynamics of demand and pricing power
have moved quite quickly. You could put prices up as
a business to whatever you almost wanted a couple of
years ago. You try to do that today and customers
will walk out the door. We're seeing that in terms
of volume, demand come down, So I think it comes
down to people that have been dynamic and.
Speaker 4 (06:32):
Able to cope with that.
Speaker 3 (06:34):
Fisher and Pycal Healthcare I Reckon is a classic example
of that. Fantastic management, great company, our biggest, but demand
went through the roof for them through that COVID period,
and costs also went up because they were trying to
ramp up and they sort of took some of those
costs on the chin, and then demand fell quite quickly
because you had this oversupply or inventory stocking. But that
(06:57):
company has navigated those you know, Peer's quite well and
it's coming out the other side and has been a
silent performer this year, up twenty five percent. So it
can be done, even from our biggest companies. But when
it's not done, we end up at the other end
of the spectrum.
Speaker 2 (07:12):
But how about also the use of that financing. Some
of these companies were paying dividends of debt the case
of Ryman for example. You've also spoken to me previously
about other companies that haven't done that and it's paid
off for them, like Ginrac. So can you talk to
me about the kind of difference and the use of
debt that we've seen coming out of the cycle on
the companies on our exchange.
Speaker 4 (07:32):
Yeah, I mean it's a funny one.
Speaker 3 (07:34):
When things are going well, you want to take on
more debt and try and grow and make use of
that opportunity.
Speaker 4 (07:41):
So there's a real balancing it. You can't be scared
of debt.
Speaker 3 (07:44):
And you know, Don's a classic at Mainfreight who gets
grumpy with us for saying he's got a lazy balance
sheet because he's conservative.
Speaker 2 (07:50):
Rod Jergot Briscos too.
Speaker 4 (07:51):
Yah, absolutely so.
Speaker 3 (07:53):
And look for more cyclical businesses, we don't want them
to take on a lot of debt, but for those
that have got good, stable demand profiles, we do want
them to use that debt to turbocharge growth opportunities when
they're there. What we don't want to see is, like
you say, is using you know, taking on with one
hand to pay with the other. So using debt to
pay dividends is not a great, great outcome. But and
(08:15):
now you're seeing some of those companies get caught out
where they took on a lot of debt and now
the cost of that debt has doubled or tripled in
some cases quite quickly, and you haven't been able to
grow your earnings to keep.
Speaker 4 (08:26):
Up with that.
Speaker 3 (08:26):
Not just similar to mortgage right, so that pressure is
coming on. I think it's just again comes down to
being ready for a rainy day. And the good companies
are always ready for a rainy day by having a
balance sheet that's not too stretched at any point in time.
And the classic for the capital markets in New Zealand
matter is.
Speaker 4 (08:46):
Why you listed.
Speaker 3 (08:47):
You listed because you have access to free capital quite quickly,
not free, but easy access to capital.
Speaker 4 (08:53):
Auckland Airport borders shut down. They raised over a billion
dollars quite quickly in New Zealand.
Speaker 3 (08:58):
In New Zealand, many companies Ozzie was you know, all
over the show through that period and it worked well
for listed companies. So there is a place you know
to do that when you need it. But I think
it's you know, those that are prudent get rewarded with
easy access to capital, and those that haven't been prudent
and then come to market simply to pay down debt,
(09:19):
it's not rewarded that well. Infantols a classic example, more
recently raised over a billion dollars Like that quite easy
to do when you can show what you're using it
for and it's for growth, not Hey, we've gone too
hard on debt and now we need to pay it down.
Can you give us some money to do that? So
it comes down to what are you using that equity for.
Speaker 4 (09:38):
I suppose you.
Speaker 2 (09:39):
Mentioned earlier that you think it's a good thing that
shareholders have clearly increased the scrutiny of our major listed companies.
But it kind of also feels a bit to me
like board members, especially chair people, are getting a bit
more ruthless. Is that a correct assumption?
Speaker 3 (09:52):
And I think I think, you know, boards have a
little bit more onus on them these days, don't they.
They've got a bit more skin in the game, I guess,
around scrutiny and their own liability. So I'm not saying
that wasn't the case with board members before, but you
are seeing and.
Speaker 4 (10:08):
There's probably a bit more public pressure. You know, Fletcher.
Speaker 3 (10:11):
Building is top of mind at the moment around the
amount of pressure going on there.
Speaker 4 (10:15):
So I always think.
Speaker 3 (10:17):
About, you know, the particularly board chair people and the
CEO of a company kind of in the sports analogy,
that's the coach and the captain, right, So those two
have to be in sync and they kind of one
and the same or almost you know, Scott Robertson and
has kept and have to be really in sync. And
(10:37):
so I think that's translating into listed companies where if
the CEO is performing poorly, then scrutiny comes on first
the chair and then the wider board of who have
oversight over the management team.
Speaker 4 (10:49):
So I think it's probably fair. And so I think now.
Speaker 3 (10:53):
You're seeing those boards and those chair people put a
bit more acid on their management teams to say, hey,
we need to form otherwise we all feel the pinch.
And you know, who are the boards representing. They're representing shareholders.
So I think it's welcomed and great that we are
seeing a bit more of that pressure.
Speaker 2 (11:10):
In the case of Fletchers, we are yet to get
a chairman replacement announcement. In the case of Ryman and
the Warehouse, we yet to get permanent CEO replacement announcements
there too. What does that say to you about succession
planning and perhaps how poor it is the fact that
these immediate replacements have not been found or at least
announced yet.
Speaker 4 (11:27):
Yeah, it's funny.
Speaker 3 (11:29):
I've sort of thought about this in the past, so
it's interesting it comes up today. Is you know, we've
had there's kind of two types of If a company
is doing well, then almost always the promotion to CEO
comes internally, and when a company is doing poorly, all
of a sudden there's a call to clear the decks
and look externally. And I think that's the difference you're
(11:49):
seeing here is Goodman Property Trust. James Spence has just
taken over. There, Scaler up. David Maher, who was CFO
for many years has taken over. There's lots of these examples.
Your Neil Barclay at Meridian was originally the CFO has
come into that role. So companies that are doing well,
you know, you want to keep that secret source. Fisher
and Pikele Healthcare, with Lewis Graydon taking here from Mike Daniel,
(12:11):
you want to continue that legacy and that secret source
for those companies that are doing well. Companies that are
doing poorly. You know, it's the market sees that we'll
hang on someone who was in the tent to begin with.
Speaker 4 (12:23):
You're promoting them and giving them a go, but where
they not part of the problem.
Speaker 3 (12:27):
So you are seeing I think that's the differential heir
the Fletchers and the Ryemans and so forth, is something's
fundamentally gone wrong here. We'd like a new fresh set
of eyes, or many fresh sets of eyes to kind
of see where things are at and clear the deck.
So that's why I think it's taking a little bit
longer at some of those more troubled businesses at the moment.
Speaker 2 (12:45):
So the big question, then, I guess, is where do
these boards get these fresh sets of eyes from?
Speaker 4 (12:51):
Yeah, well, we get the generic answer every time, don't we.
Speaker 3 (12:53):
As there's an international search going on, and I'm sure
there is, But I think the key it comes down
to who is these boards need to probably and I'm
sure they do. So you know, I'm probably being a
little bit unkind, but think about what is it that
creates that secret source for a particular company. And it's
not the same for every business, right, every sector is different.
Speaker 4 (13:14):
But that's probably the thing we've been asking.
Speaker 3 (13:17):
A lot of boards of late is what are the
things you're actually what are the attributes you think are
most important in this business? You know, for a rhyme
and healthcare, is it to have you know, a real
health background and a care background or is it a
development background?
Speaker 2 (13:31):
He said development?
Speaker 4 (13:32):
Right?
Speaker 3 (13:33):
Yeah, So that's the classic there, right, is you know
what is it that you're actually looking for that you
think the business needs over the next three, five, you know,
eight years. And that's where I don't know where you
find these people, you know, you magic them up at somewhere.
You can't find greg foruns everywhere that come back from
being you know, superstars around the world and want to
(13:54):
run a New Zealand business.
Speaker 4 (13:55):
So we are a small pool.
Speaker 3 (13:57):
Yes we can look into nationally, but you know there
are some big businesses looking for those same you know,
high profile CEOs as New Zealanders. So there are very
good CEOs in New Zealand and very good management teams.
But it's about aligning you know, what the business needs
with those same I guess attributes that a new CEO has,
(14:18):
which is hard to get right.
Speaker 2 (14:20):
Do you think maybe then it's going to have to
be a case of board members in these CEO searchers
having to be a bit more selective on certain skills,
basically agreeing that they're not going to get the jack
of all trades who can look over every part of
the business.
Speaker 3 (14:31):
Well yeah, and I don't know that they should be
a jack of all trades. They should be time and place.
What does a business need at that point in time?
And if I come back to that rugby analogy again,
it doesn't it's not just the captain that's going to
make the team. It's going to be you know, having
the best forwards, the best backs. You know, so you're
going to have a team around them. And part of
that is probably giving your chief executive and your CFO,
(14:54):
because I think those two should work as a team
and be it, you know, your captain and vice captain.
But giving them free and to gather the troops around
them that they need and.
Speaker 4 (15:03):
They think they want.
Speaker 3 (15:04):
And that's where it comes back to that clearing the decks,
and you know, is that you can't bring a CEO
and but keep the same management team right right the
way through. They've got to stamp their own mark and
have the people that they trust, and you know, so
that's probably you know, I think the jack of all
trades is probably the wrong thing to do is get
the person you want to build culture, you know, lead
(15:27):
from the front and have a strategic brain, and then
you know, empower them to bring the right people into
into the business to grow it, because you know, you
don't expect Greg fan At in New Zealand to understand
how the mechanics of planes work or the engineering or
any of that stuff. You know, he relies on somebody
to do that. So it's just a matter of getting
(15:48):
the right person at the top who can delegate and
you know, trust the people around them.
Speaker 2 (15:53):
How should shareholders in New Zealand feel about the fact
that there is such a lack of permanent leadership but
some of the biggest, most critical companies or perhaps there's
a positive spin on AMO and we're about to get
some fresh blood into these companies and it's actually an
exciting time once they're a pointed.
Speaker 4 (16:09):
Yeah, I'm going to take the glass half full approach.
Speaker 3 (16:12):
I think it's actually shareholders should be happy about that
because the last thing we want to do is be
disgruntled and then not see change. So the fact that
we are seeing those leavers pulled change come in and remember,
you know, even when you see a fresh CEO then
doesn't mean that you know, they've suddenly just come out
of university and we've thrown them in the deep and
carry at Auckland Airport, who's been there a couple of
(16:34):
years now, has come from a twenty plus year career
in New Zealand, so you know, lots of aviation experience.
Speaker 4 (16:39):
So you know, people that get promoted to.
Speaker 3 (16:41):
These roles have you know, years and decades of experience
behind them. It's just about choosing I think, the right
people for that point in time. But yeah, as a
shareholder personally and obviously you know here here at Craigs,
we see that as positive. The change is a good
thing because we see that boards are not scared to
make the hard decisions and we are seeing progress in
(17:04):
the right direction.
Speaker 4 (17:05):
When things have gone off track.
Speaker 2 (17:07):
Maybe the solution could be throwing some young bucks in
the race. I mean, look at Zespriy Jason to break.
The new CEO as of this month is thirty six,
which is young by CEO standards.
Speaker 3 (17:16):
Absolutely, he would definitely be at the younger end of town.
Speaker 4 (17:20):
And that's not a problem at all.
Speaker 3 (17:21):
Right, But I think you know, It comes back to
your earlier point of you know, that internal promotion. That's
what I think we should really see because the best
companies in New Zealand that have endured all seem to
have that internal promotion.
Speaker 4 (17:34):
And it is the CFO or the.
Speaker 3 (17:37):
Chief operating officer or someone like that who has moved
into the chief executive role. You know, they've learnt from
someone who's very good and keept that secret source. That's
what I think could work really well porta towering heres
we sat classic example, Mark Ken's was a star, you know,
and now he's on a number of directorships.
Speaker 2 (17:54):
But maybe the next year of Fletcher's perhaps.
Speaker 3 (17:57):
Well, yeah, I think he has thrown or he has
at least shown interest. I don't know where that's gone.
But you know, that's a classic example here of someone
doing a great job for a very long time and
then someone stepping in, you know, internally and moving into
that role. So I think we should see more of
that internal promotion going on in New Zealand.
Speaker 2 (18:18):
You mentioned the likes of Don Braid at Main Freight,
and he is, according to your research, the longest standing
managing director or CEO on the market currently. Circo also
with the CEO there, Darren Grafton sitting in that seat
for more than fifteen years. Does tenure matter in these
instances or is there perhaps also a danger to it
that kind of looks like perhaps there's not enough succession
(18:38):
planning going on.
Speaker 3 (18:39):
Yeah, I think it can work good and bad and
if i'm I'm going to get crossed off a few
Christmas lists. But you know, think about sky TV before
Sophie Maloney turned up. Yeah, were a long tenure with
John Fletpp and possibly too long towards the end of that.
So there are risks. But I think, you know, most
investors would like Don to be CEO for managing director forever.
Speaker 2 (19:01):
I would like that too.
Speaker 4 (19:02):
Yeah, I'd probably like to live forever.
Speaker 3 (19:05):
You know, from an investor perspective, we would because he's
done a great job.
Speaker 4 (19:07):
So is their risk?
Speaker 3 (19:09):
I think, you know, the things it's not just about tenure,
it's it's sort of having some experience in the right
industry and a big one that we sort of forget his.
Speaker 4 (19:18):
Skin in the game.
Speaker 3 (19:19):
You know, has someone coming as a hot shot CEO
from the other side of the world who doesn't know
the industry, doesn't really know the key with psyche all
of that stuff, or have they grown up with the business?
Do they own shares themselves?
Speaker 4 (19:31):
Are there? Is their remuneration somehow linked.
Speaker 3 (19:34):
To what is best for shareholders you know, total shareholder
return through better performance, all those sorts of things. That's
where I think boards can do more. As you know,
and we are doing more. We're seeing a lot of
that is the right type of remuneration packages for executives
to get them more aligned to what is best for
all shareholders and all stakeholders. So that's where I think
(19:57):
we can see a little bit more nuanced. But that
longevity is great. It's it's good to have, you know,
some of that that longevity because we've got plenty at
the other end of town where they've just turned up
as CEOs. So a bit of balance and I'm too
scared to say that don's been there too long.
Speaker 2 (20:13):
In the case of remuneration, though, that's a really interesting point,
and perhaps let's finish there, because these CEOs are in
such hot demand, you know, numerous companies need them. Hence,
while we're having this chat in the first place, are
they going to be able to demand a much higher price?
Speaker 3 (20:26):
I think that I mean you know, it's again comes
down to specific examples, but they're reasonably well remunerated.
Speaker 4 (20:33):
I think. In New Zealand.
Speaker 3 (20:35):
My point really is have an attractive base salary and
then have you know targets that you can hit.
Speaker 4 (20:41):
That will pay you well if you hit those targets.
Speaker 3 (20:44):
Because the business does well, you know, we grow employment,
we grow you know, the tax base for New Zealand,
all of those great things that New Zealand Inc.
Speaker 4 (20:53):
Needs as well.
Speaker 3 (20:53):
If we can get our leaders to come along for
the ride for that, then yeah, absolutely reward them and
incentivize them to do that. The other thing we probably
don't see enough in New Zealand is target setting by
companies and Turners is a great example. I mean, that's
a business that shouldn't be doing well in the tough economy,
but is doing really well. Todd Hunter there has and
(21:13):
Aaron his CFO. They've done a great job of setting
targets for profitability two three, four years out into the
future to give a line in the sand and a
bit of something to aim for, and they've managed to
hit those targets for the most part. And we're seeing
less and less of that in the listed space, where
companies are coming out and I'm not sure. Maybe that's
because our s analysts are being difficult to them and
(21:36):
holding them to.
Speaker 4 (21:37):
Account too hard.
Speaker 3 (21:38):
But more target setting and more sort of aspirational numbers
out therefore, everyone to sort of get behind and know
where the target is I think would go a long
way to be Maybe.
Speaker 2 (21:47):
We might start to see in New Zealand some Elon
Musk told Usha hold a return pay packets.
Speaker 4 (21:53):
Yeah, I'm not sure.
Speaker 3 (21:54):
I think his paypacket is probably bigger than most of
our market combined, so I'm not sure we'll get to that.
But always interesting to know what's going on in Elon's life.
I don't know how you spend that kind of money,
to be.
Speaker 4 (22:04):
Honest, it'd be nice, it wouldn't hurt.
Speaker 2 (22:07):
Thank you so much for your time and for the insight.
It's been awesome. I appreciate it.
Speaker 4 (22:10):
Thanks a lot,
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