Brian Gaynor: I'll say it again: Deane has to go ASAP

Another week has passed and Telecom continues to dither and give confusing signals to investors.

The telco deserves some sympathy for the ill-conceived comments by Communications Minister David Cunliffe but the country's largest listed company continues to be indecisive and lacks strong leadership.

The week's developments began at the weekend when several newspapers reported that chairman Roderick Deane had told them that he was preparing to step aside.

The Australian Financial Review reported on Saturday that Deane had said he would retire within the next 12 months to allow "some refreshment" of the board.

His comments to the Sunday Star-Times were more vague. He told the paper: "I was re-elected last year by shareholders and that's the position as it stands but I certainly will not be standing for another term."

He also said: "We have a succession plan in place and we are working through that."

Why was Deane telling the media that he was retiring before informing the stock exchange? He told at least one journalist of his retirement plans before the market closed on Friday.

Deane's peculiar behaviour was in complete contrast to developments at Fletcher Building that week.

At 8.36am on Wednesday, May 10, Deane, who is also chairman of Fletcher Building, told the NZX that Ralph Waters had decided to retire as chief executive of the building materials and construction group.

The announcement revealed that Jonathan Ling would replace Waters and the new chief executive would take up his position on September 1.

A press and media conference later that morning, with Deane, Waters and Ling in attendance, reduced the market impact of Waters' resignation.

Deane adopted a professional and effective strategy to announce an important resignation at Fletcher Building but his approach at Telecom has been indecisive and vague.

On Sunday, a most unusual day for a listed company to make a media release, Telecom said Deane had confirmed he had informed the board a considerable period of time ago that he wished to retire as chairman. He said the timing of this depended on the board's ongoing implementation of its succession planning but "would be no later than within the next 12 months".

Once again, in contrast to Fletcher Building, this announcement was incredibly vague and uninformative. If Deane had told the board "a considerable period of time ago" that he wished to retire, and the board had a succession plan, why could it take up to 12 months before he stepped down?

Deane's media comments during the week highlighted his distaste for regulation and clearly demonstrated that he should resign from the Telecom board immediately (he should resign from the board as well as the chair because his replacement will not have complete authority while he remains a director).

His comments made it clear that he disapproved of the regulatory creep and this was an important reason why he was also stepping down as chairman of ANZ National Bank.

It is important that Deane resigns as soon as possible because previous experience demonstrates that poorly performing directors and management, who make a promise to step down at some unspecified date, often stay on much longer than expected.

As far as retirements and resignations are concerned there are strong similarities between the top echelons of sport and business. Top sports people can retire at the top and receive considerable accolades, as did former All Blacks' captain Tana Umaga, or keep on playing and risk media criticism when they fail to maintain their excellent standards.

Deane had a chance to retire after institutional criticism of his handling of Lindsay Pyne's board appointment in 2003 but he chose to stay on. The longer he stays at Telecom the more likely he is to erode his reputation as a clear and decisive thinker.

Wayne Boyd is by far the most popular candidate to replace Deane as chairman and Telecom's announcement on Sunday indicated that he is also the board's preferred candidate.

The statement revealed that Rob McLeod, the other internal candidate, had been appointed chairman of the powerful audit committee to replace Paul Baines and it is most unusual for the head of this committee to also chair the full board.

In addition, Boyd was appointed chairman of the nominations and governance committee to replace Deane and the board chairman often heads this committee. (Boyd is the highly successful chairman of Auckland International Airport and Freightways and he is also chairman of the nomination committees of these two companies.)

Baines' decision to step down as chairman of the audit committee may indicate that he will also retire from the board. This would be welcomed by shareholders because there is a widely held view that the board needs "considerable refreshment" rather than "some refreshment" as indicated by Deane to the Australian Financial Review.

Finally, there is the issue of chief executive Theresa Gattung's position. There are a number of reasons why the new chairman should initiate a worldwide search for a chief executive, Gattung should be asked to reapply for the position and should only be reappointed if she is the best candidate.

The reasons include:

1) Under Gattung's stewardship Telecom acquired 100 per cent of AAPT and the Australian acquisition has performed dismally. Telecom lost huge mobile market share to Vodafone and has failed to deliver a satisfactory outcome in broadband. As a result, the group's share price performance has been poor since Gattung started as chief executive in October 1999.

As the accompanying table shows, Telecom's share price has fallen 40 per cent under Gattung's stewardship. She is the only head of a big listed company appointed between 1996 and 2003 to experience a share-price decline and is clearly the worst performer of this chief executive group.

Is the Telecom board satisfied with this poor performance and, if so, why?

2) Governments only regulate when a company or industry fails to deliver an expected and desired outcome. The Government told Telecom several times that it expected the group to deliver a world-class outcome in broadband. Gattung failed to achieve this target and the Government is taking regulatory action.

3) There seems to have been a complete breakdown in the relationship between Telecom and the Government.

A Telecom spokesperson told the Business Herald on Thursday that neither Deane nor Gattung had met, nor asked to meet, Communications Minister David Cunliffe, Prime Minister Helen Clark or Finance Minister Michael Cullen since unbundling was announced.

A new chief executive would be in a much better position to restore communications with ministers.

Telecom still has the potential for an exciting future delivering positive returns to shareholders but it has to undergo a dramatic change in attitude towards its customers, the Government and other regulators to achieve this.

Deane and Gattung have begun to talk the talk as far as cultural and operational shifts are concerned but there is little indication that they are walking the walk.

If they were serious about the latter then they would have immediately requested meetings with senior Government ministers in order to flesh out the broadband goals they need to achieve in order to avoid further regulation.

Events of the past seven days demonstrate that Telecom remains in a state of paralysis.

Disclosure of interest: Brian Gaynor is a Telecom shareholder and an investment strategist and analyst at Milford Asset Management.