Highly influential, low profile: Why Eddington prefers movers like the Murdochs

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This was published 5 years ago

Highly influential, low profile: Why Eddington prefers movers like the Murdochs

By Stephen Bartholomeusz

One of the curious conundrums of Sir Rod Eddington is that he remains prominent in the affairs of some of the world’s larger and more interesting companies but maintains a profile in this country that is quite out of proportion to his achievements during his public life. He remains highly influential but the profile is low.

Eddington ran Cathay Pacific and Ansett Airlines and is credited with both rescuing British Airways and leading it through the torrid aftermath of September 11.

He’s also the man the Blair government commissioned to create a blueprint for the future of public transport in the UK and was the inaugural chairman of Infrastructure Australia, having already helmed a landmark study for the Victorian government on how to redesign inner-Melbourne traffic.

In Australia he chairs Kirin’s Lion group and recently joined the board of the Pratt family’s companies. He’s also chairman of JP Morgan’s Asia Pacific advisory board.

Those roles are similar to those he holds offshore. He’s been on the boards of Rupert Murdoch’s 21st Century Fox and News Corp for a long time, having first been appointed to the News board in 1999. He’s a director of the Swire Group, the sprawling Asia-focused conglomerate as well as the Hong Kong-listed, Kadoorie family-controlled CLP Holdings, which owns Energy Australia here.

All of the companies he’s involved in as a non-executive director are owned or controlled by a key shareholder. They aren’t conventional listed entities with open registers although he's been there having sat on the board of Rio Tinto and almost became chair of ANZ Bank before being caught up in the collapse of the Allco Finance group. That experience may have coloured his subsequent non-executive choices.

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In rare interview Eddington tells The Sydney Morning Herald and The Age that his predilection for listed or private companies with strong core shareholders is because they often take a long-term view.

"It doesn’t mean to say that there aren’t plenty of conventional companies that are well-run and do take a long-term view. I just think it’s easier if you have a large core shareholder,’’ he says.

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"These are publicly-listed companies that have a strong core shareholder who never forgets that the company is publicly-listed but is able to, I think, take a longer-term view more naturally and more easily.

"It doesn’t mean to say that there aren’t plenty of conventional companies that are well-run and do take a long term view. I just think it’s easier if you have a large core shareholder."

Media Mogul Rupert Murdoch poses for a photograph with his sons Lachlan and James. Eddington says the opportunity for the Murdochs to buy Time-Warner passed because the price was too high.

Media Mogul Rupert Murdoch poses for a photograph with his sons Lachlan and James. Eddington says the opportunity for the Murdochs to buy Time-Warner passed because the price was too high.Credit: Reuters/Peter Nicholls

It is difficult for listed companies with open registers to take a similarly long-term strategic view and sacrifice near-term earnings for long-term goals due to the pressure from institutions and analysts for short-term performance as well as the threat of takeover.

If Rupert Murdoch and his family didn’t control News Corp could that group have contemplated the scale of investment and risk it accepted when it decided to challenge the US networks by creating the Fox business? Could it have invested billions, and lost vast amounts, in building its Sky pay television business in the UK? Probably not.

Murdoch moves

The Fox entertainment assets have been sold to Disney for $US71 billion and BSkyB is being acquired by Comcast for $US39 billion. The Murdochs will retain the Fox News, Fox Sport and Fox Business channels and its broadcast television network as well as their control of News Corp. But that deal only came about because Murdoch's pursuit of Time-Warner eventually came to nought.

"I think you have to separate in your mind your passion for the business and if you think about the business ...that's a business that Rupert Murdoch, more than anybody, and of course more recently Lachlan and James have been key participants in that, and the rest of the management team have built that business from, effectively, over 60 years, from a single newspaper in Adelaide to a global media business. If you invest so much of your effort and your passion and your energy in doing that, there's a natural attachment to those assets.

"But, at the end of the day, the opportunity to buy Time-Warner passed because, to be frank, the price was too high.

"I think there are a lot of people who thought that Rupert Murdoch would wish to acquire that business whatever the price. He's much more disciplined than that, as the rest of his team was. Then, when the Disney opportunity came along, I think that's a terrific deal for 21st Century Fox and its shareholders large and small. I think it's a terrific deal for Disney, because they are a terrific company and, in my view, will make great use of those assets and the people who come with it."

Long-term focus

It isn’t just the luxury of the time horizons that characterises the boards Eddington has chosen. While he says good governance is about conformance as well as performance there's no doubt non-executives with little or no "skin" in the game are very conscious of their liabilities in an environment that has become a maze of legislation and regulation, and market-imposed conventions.

In the post-royal commission environment, regulators are also far more likely to initiate actions against boards while class action lawyers and financiers have become increasingly active and aggressive.

I just think companies with a strong family shareholding have that capacity to look over the horizon.

Rod Eddington

From what Eddington says, it isn’t that the boards he sits on aren’t interested in conformance but rather that they devote more time and attention to their longer-term performance-related issues.

There’s a different emphasis when the family fortune is at stake.

"If you talk to directors in Australia today, many of them will tell you that the conformance burden has grown and grown substantially over the last two decades and that sometimes means that board aren’t spending enough time focusing on the performance of the business," he says.

"I think that is a challenge for publicly-listed companies of all descriptions, whether they have a core shareholder or not because, if you have a large core shareholder, that shareholder, like all shareholders, has to think about its obligations in a conformance as well as a performance sense.

"I just think companies with a strong family shareholding have that capacity to look over the horizon on a regular basis and there’s no doubt in my mind that that helps them to be successful in the long term."

Banking royal commissioner Kenneth Hayne asked a relevant and powerful question in his interim report when he asked whether the corporate law regime was too complex and suggested that, rather than adding new laws and layers of complexity, the existing laws needed simplifying.

There’d be a lot of business people who’d applaud those comments. Eddington, like many, says a key takeout from the the royal commission is that there were mistakes that were "quietly pushed aside rather than addressed" but he's optimistic business leaders will work their work through the current environment of distrust.

Environment of distrust

"You've got to constantly demonstrate to your customers, to your staff, to governments that you do the right thing," he says, adding that businesses had to demonstrate that to shareholders as well.

"You've got to be welcomed by the communities you serve and you've got to constantly work at that and most businesses I think do work pretty hard at that. I actually think there are a lot of good men and women in corporate Australia, at all levels, from the front line through to the corporate offices. I'm an optimist though, I think we'll work our way out of this."

The short-termism of the public markets would be an even more difficult challenge to overcome. There aren’t too many chairmen or CEOs with the ability, or willingness, of a Murdoch to simply ignore the critics and naysayers – and the near term share price – to invest heavily in a risky long-term vision.

Eddington has seen that up close in his role at Infrastructure Australia and drives his belief that selecting the correct projects is key.

Conformance burden has grown and grown, says Rod Eddington.

Conformance burden has grown and grown, says Rod Eddington.Credit: Justin McManus

"The worst thing you can do is build bridges over puddles and roads to nowhere in marginal electorates. There's always that question to be asked. But the next question is, if you're going to spend $5 billion, $10 billion or more on this project, is that the best place to spend that money?," he says.

"These things are always disruptive but the benefits are enormous and will be with us for a century or more. I think we just need to be getting on with it, yes, and that's really what the government is doing here in Victoria and in New South Wales, too."

Asia links

Eddington spent the larger part of his executive career in Asia and maintains links to the region today. He is concerned by the coincidence of the tariff war with the US and a brittle Chinese economy.

''What we have to work on is our relationship with China. They're too big and too important to us for us not to have a good working relationship with them, but that would be much easier if America and China were able to find a modus operandi that works for both.

''China really matters to us. They matter to us as a customer and are also increasingly important as an investor. You only need to walk around the streets of Melbourne and look at the Chinese tourists who are so important to the economy here to realise how important they are in other ways, as well,'' he says.

''The thing about a tariff war, if you can call it that, is that it is an impost on the economy. What often happens is that economies that are struggling under a burden or two of a particular nature are suddenly destabilised by something that comes completely out of left field.

''The thing that would worry me about China at the moment is, they've got some internal challenges that they're looking to address on the economic side and it's clear that they're moving to address them. Having to also deal with a tariff war with the United States of America can only reduce their resilience.

''Having said that, it's been a long time since anyone made money betting against China. I'm not going to be one of them.'

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