Reynolds bows to the inevitable

TIM HUNTER
Last updated 12:32 31/08/2011

Surprise surprise, Paul Reynolds will not be staying on to lead Telecom after its demerger of Chorus.

No-one seriously expected Reynolds to want the much smaller job of running Telecom retail after handling the complexities of the last few years.

But after four years as CEO - he started work in September 2007 - the inevitable question about Reynolds is whether he was good for business.

Without a doubt he's had a tough gig. The company has experienced constant regulatory pressure over Reynolds' tenure which has probably done more to affect the company's value than anything else.

When he joined, Telecom's share price was well above $4. It's now around $2.50 having clawed its way back from the depths below $2.

When Reynolds leaves next year, however, Telecom should have achieved a level of stability it has not enjoyed for many years. The retail market in both fixed line and mobile will be more competitive, implying less regulatory risk, and the big capital investment issues will be dealt with.

For shareholders the future looks better than it has for some time.

But in my view, Reynolds' role in that process has not been the shining example of strategic positioning you would want from such an expensive executive.

There is strong evidence he was instrumental in persuading the board to ditch its plans for structural separation back in 2007, the move it is now being forced to pursue.

Once National came to power the choice for Telecom became clear - it had to structurally separate or compete with the Government's fibre roll out, yet Reynolds maintained an unnecessary shroud of uncertainty over Telecom's plans that eroded its share price the longer it went on. 

He also accelerated investment in infrastructure to prolong the useful life of Telecom's copper local loop - in itself a practical thing to do but a potentially wasteful option given National's clear intention to promote fibre to the home.

It's open to debate how much Reynolds was to blame for the debacle of Telecom's XT mobile network deployment, but as CEO he obviously had to bear some responsibility for it. On the plus side, his personal handling of the problem was skilful and probably helped mitigate the damage.

For all his personal skills however, Reynolds had an enormous public relations handicap to overcome - his huge pay package.

Put all those issues together and I'm not convinced the board made the right decision in appointing an outsider as CEO, even one as able as Reynolds.

Some interesting research on this issue was carried out by Jim Collins, American author of business bestseller "Good to Great: Why some companies make the leap . . . and others don't."

In a follow-up book "How the Mighty Fall" he looked at why some faltering companies keep falling to oblivion while others recover.

He wrote: "Our research across multiple studies . . . shows a distinct negative correlation between building great companies and going outside for a CEO. Eight of the 11 fallen companies in this analysis went for an outside CEO during their era of decline, where only one of the success contrasts went outside during the eras of comparison."

Looking back at his previous research, he said, "over 90 per cent of the CEOs that led companies from good to great came from the inside; meanwhile, over two-thirds of the comparison companies in that study hired a CEO from the outside yet failed to make a comparable leap".

Of course, so much of what drives corporate decision making and performance can only be guessed at from the outside, so our judgments have to be circumspect. But I think Reynolds probably made a big strategic mistake right at the outset and was thereafter destined to underachieve.

What do you think?

- BusinessDay.co.nz

7 comments
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bobberesford.com   #1   02:05 pm Aug 31 2011

Reynolds going ?.....fine. Now they can hire an NZ used car salesman to run it instead, while saving a few million a year . Or better still , we could buy it back. Big foreign drain from it now - thank Douglas and Prebble, Basset, Moore and co who sold it , under their almost religious belief that free markets and greed would solve everything.

Reynolds is a salesman and negotiater but doesn't have the teleco technical expertise and ethic of someone who'd come through the ranks ( as Tim implies ). It's obvious even in the inadequate and predatory way Telecom now handles its customers .

And in the way Reynolds subcontracts things out - eg XT to Alcatel, Call centre to Philippines, Chorus work to the mobile technicians themselves.......then he can make more profit and blame the faults on someone else . Classic, ruthless sales thinking. If there was any moral core to the operation - questionable after Roderick Deans and Gattung finished with it - it's gone now.

Lets just buy it back - forcibly - and improve the service. It's a strategic asset that should never have been sold.

Ben   #2   04:38 pm Aug 31 2011

"Lets just buy it back - forcibly - and improve the service."

You mean improve the service to the way it was in the 1980's. Bob you are stuck in an ideological timewarp.

bobberesford.com   #3   11:00 am Sep 01 2011

While it's better to ignore ""Ben of New Zealand"" and his persistent ego......I can't see where ""ideological timewarps"" come in........unless he means I haven't embraced NeoLiberalism, rampant share markets, privatised everything and asset sales in all their glory. And virtually no Government. And the Chinese owning most of our farms, while we happily tax them. The kind of economy Mr Wilko believes in.

Yes , I can recall the inefficiency of Telecom in the 70's-80's but that can easily be fixed with a restructure and an SOE constitution of sorts. And the Gov can - and should - set up an agency which crosschecks performance in Gov departments. That can keep them pretty efficient.

There is certainly no need to sell them ( incl ACC ) overseas - and suffer the huge current foreign drain on Telecom etc - just to get efficiency. That is insane....yet it was used as an excuse at the time of sale. And still is. You could likewise sell your house and family to the Chinese or Russians , so they can run it more efficiently for you ?

The primary Telephone co is a strategic asset that should never be sold. There are such things as National identity, authority and control. Unfortunately we've largely lost the critical one....the money supply...which only exists in the first place by national agreemnet /authority. Without that control of money, the economy ( obviously ) is dangerously out of our hands. And in the wrong hands....which probably includes this Gov, since it represents these 'wrong hands' so often.

Alan Wilkinson   #4   11:30 am Sep 01 2011

Reynolds had to drain a swamp full of alligators. Previous CEO's had destroyed customer loyalty by ruthlessly exploiting them. Technology was destroying its vast monopoly over the NZ business and residential sectors. The Government was poised to obsolete its legacy network with a huge new taxpayer-funded "investment". His politically-motivated opponents easily stirred up tall poppy hatred over his remuneration.

It seems Telecom is poised to retain the major role in NZ communication services. In the circumstances that is a pretty major achievement. I doubt many are in a position at this stage to judge whether he could have done better.

Patrick S.   #5   04:54 pm Sep 01 2011

Basically, due to the inevitable restructure, Reynolds was always in a position where self-interest was at odds with the company's best interests.

The probability that he tried to maintain the status quo for as long as possible is a case in point.

bobberesford.com   #6   04:15 pm Sep 03 2011

Reynolds has simply followed predatory biz /marketing practices to boost Telecom and its profits as a private corporate entity while taking its customers for maximum gain.......but smiling and being genial all the while. He benefits hugely from Telecom's original market dictatorship.....slowly changing. He delegates and sub contracts out responsibility and difficulty . Any moderately intelligent salesman could do all that...for much less than 4- 7 million p.a. A real technician , with integrity , eg who'd come through the SOE, would do it differently and for much less. With some national loyalty .

Got a very large problem ?- well that's Alcatels fault...we subcontracted much of XT network to them . Got a small techy problem ?....that's handled from India . Got a bigger one....you'll get bounced around various low-wage smiling voices who don't know much....or anything. Real problem solvers cost more , so they're hard to get hold of. Wanna save money on mobile tech men- Chorus ? Okay , we'll just make them all buy back their stuff and subcontract to us. Saves us heaps.

People have commented on the bad - or predatory - service and I've got a real interesting story on that. The greed and cynicism was remarkable.

cb   #7   07:39 am Sep 11 2011

So Haiu (sp) wanted to buy some properties off this guy, and have big profits guaranteed. Wouldn't that be lovely! We should all be so lucky to have that sort of guarantee. Isn't everyone including cooper, allowed to make a profit? That is business. If you are stupid enough to give your money away, its your fault. He got greedy and paid the price. Is there anyone out there who will guarantee me huge profit too?

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