Allco disappointed the market yet again yesterday, delaying announcement of its interim results until some other time. While Allco executives like David Coe and Nick Bain have a lot at stake financially, from a reputational perspective, Allco non-executive director, Sir Rod Eddington, would most likely be the most significant victim of the fiasco.
Allco’s fall from grace has been a quick one.
Many point to its generous purchase of Coe and Gordon Fell’s Rubicon Group in December last year as the straw that broke the overly leveraged camel’s back. The deal, which involved paying what seemed to be a very generous price to a company associated with the Executive Chairman was always going to be controversial. This is precisely where the independent directors, like Sir Rod, needed to prove their mettle. Sadly for Allco shareholders, their board appeared to do nothing to protect their interests as the company paid more than $17 million to its Executive Chairman for his stake in Rubicon.
As Stephen Mayne noted in Crikey on 29 January, former Allco director, Barbara Ward, can walk away with a solid reputation after she resigned from the Allco board after the Rubicon deal. Sir Rod would have been well advised to have done the same. By not resigning, Eddington was implicitly backing the deal which Independent Expert Grant Samuel claimed involved “Allco paying away a significant proportion of the strategic and synergy benefits to the vendors.” Allco ended up buying Rubicon on a PE of around 14. Given the market turmoil that was apparent at the time of the sale that price was a complete rip-off for Allco shareholders.
Until the Allco disaster, “Teflon” Rod was one of the most respected members of Australia’s business community – chairing Victoria’s Major Events organisation and heading Kevin Rudd’s Business Advisory Council. However, Teflon’s form isn’t quite as solid as you would expect. Commentators seem to blissfully ignore the fact that Eddington was the executive chairman of Ansett between 1997 and 2000. A year after Eddington’s departure, Ansett slunk into bankruptcy.
While a great deal of Ansett’s woes stemmed from the idiotic management of Sir Peter Abeles during the 1980s, Eddington was the boss during a period where the company drastically cut back on maintenance and engineering allowing it to report improved profitability, but possibly also leading to its final fall. The grounding of ten Ansett aircraft in April 2001 (over the Easter holiday) due to maintenance concerns was the beginning of the end for the airline, which stopped flying five months later.
After bailing from Ansett shortly before it went down, Eddington became CEO of British Airways. Despite the plaudits Eddington receives from his time as CEO of BA, during his tenure, BA shares actually fell from 375 pence in May 2000 to 292 pence in September 2005. A drop of more than 22 percent (compared with a decrease of 12.8 percent in the FTSE Index). While Eddington was faced with numerous calamities during his time at BA (including September 11, SARS and industrial strife), based on share performance alone, Eddington’s wasn’t a highly successful tenure.
Despite the hitches, Eddington was able to leverage off his leadership at BA into board roles at News Corp, Rio Tinto and become Chairman of JP Morgan’s Australian business. With Allco’s woes, BA’s lacklustre performance and Ansett’s collapse, Sir Rod doesn’t seem to be quite as shrewd an operator as some may have thought.
One corporate collapse under Rod’s watch may be put down bad luck, two is just careless.
Allco realeased an announcement on Rubicon purchase in October, and the board would have been aware of it months prior, if she objected she would have gone then. My interpretation is that she deserted a sinking ship whilst Sir Rod had the decency to stay.
Corporate Malfeasance seems to be like a fart in polite company. No one owns up, directors feign shock and hold their breath until the stench passes. And it always passes and no one, it seems, is ever held to account. Appalling? Absolutely.