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Not the Ugly CEO

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 22 November 2014.

Newspaper headlines were generated this week by a very ordinary event – someone resigned from their job. Not usually the type of event you expect to see leading the 7:00 pm news bulletin. In financial circles however it was big news, for that person was none other than Gail Kelly, the CEO of Westpac Bank. Of course bank CEOs resign all the time and it seldom makes the news, so what was so special about Mrs Kelly? A fair proportion of the media attention was likely due to the fact that the resignation of Mrs Kelly caused the number of women CEOs in the top 50 largest companies in Australian to drop by a third, meaning that there remains only two women at the top of the corporate tree, with 48 men keeping them company. Proof perhaps that the glass ceiling is still very firmly fixed in place in corporate Australia.

Fortunately the majority of the media coverage focused on Mrs Kelly’s many achievements while running Westpac Bank, now Australia’s third-largest company as measured by market capitalisation. Shareholders in Westpac should be grateful to have had Mrs Kelly’s steady hands on the helm over the past six years, for good leadership at the top is not something which should be taken for granted. For to paraphrase well-known investor Peter Lynch, you should invest in a company that any old idiot could run, because sooner or later one of them probably will. The truth is that a seven figure salary and an MBA from business school are just as likely to get you a dud CEO as a good one. Though there is a school of thought which questions the value that any CEO brings to a company. In many situations the apparent performance of a CEO is more down to luck than skill. If you happened to be running a mining business at any stage from about 2001 to 2012 you would have been hailed as a great leader and no doubt received some hefty bonuses along the way. The fact that this period overlapped with one of the greatest demand-driven commodity booms ever seen was obviously just a coincidence and in no way should have detracted from the size of your year-end bonus.

Like the classic movie, company CEOs tend to fall into one of three groups: the Good, the Bad and the Ugly. Good CEOs are hard to find but can be expected to leave the company in better shape than they found it. Bad CEOs need to be moved on as soon as possible, but it’s the Ugly CEOs you must avoid. To paraphrase another great investor in Warren Buffett, when management with a bad reputation meet a business with brilliant economics, it’s usually the reputation of the management which remains intact.