Investors of SkyCity Entertainment should start asking more questions about whether it’s time for a change at the top of their company.
The share market reacted positively to news that long-time chief executive Evan Davies was to embark on a corporate slash-and-burn-exercise to cut costs.
Davies had been under pressure since SkyCity’s extremely poor half-year profit result back in February, when the casino company posted a 23 per cent fall to NZD 45 million and cut dividends by 25 per cent to nine cents a share.
The market might have borne it if Davies had also fronted up (then) with future forecasts under-pinned by a strategic focus that gave investors confidence he was on the right track.
Around the traps there have been plenty of suggestions it is time for Davies to move on. Too comfortable and too long in the job are among the kinder statements.
But the forecast that annual profit would be about NZD 100 million, down NZD 20 million on 2006, was a substantial profit downgrade in anyone’s books.
The chief executive’s usual ebullience had been missing for some time. Last year he came under attack from the Service and Food Workers Union over his gilt-edged pay packet, alleged to be NZD 4.6 million in salary and shares, while local casino workers scored just NZD 12 a hour.
Rubbing salt in the wound was that Davies‘ wife Heather Shotter was also (then) a long-serving member of the executive team on a very well-heeled pay packet. The unions claimed the pair stood to bundle up some NZD 6 million between them if they delivered on the company’s promise.
But don’t think this arrangement was similar to the recent controversy that forced the resignation of World Bank president Paul Wolfowitz after he arranged a sweet deal for his girlfriend in another Washington job.
The SkyCity board had acquiesced to both Evans and Shotter continuing to hold top management roles after they formalised their relationship by marriage. Shotter’s remuneration was approved by the board’s remuneration committee, of which Evans was not a member.
Despite grumblings about the relationship from the Shareholders Association, the board gained a waiver from the NZX to enable Shotter to participate in the company’s new performance pay incentive plan without seeking the approval of shareholders.
Shotter’s incentive was based on the same criteria as other executives and not influenced by her relationship with Davies.
But in many companies when the CEO gets involved with an executive, one party usually moves on.
When companies get slack it’s usually because it is just a tad too comfortable in the executive suite – and I suspect this is just one aspect among many that have caused the top team to become too comfortable.
It must have been exceptionally difficult for other SkyCity executives to challenge the chief executive in circumstances where his spouse also held a powerful position.
Did this contribute to Davies taking his eye off the ball? It’s a question the board may well ponder. But instead of dealing with poor profits and bringing in a new CEO, surely no disgrace after a 10-year period that has seen Davies embark on many new acquisitions, the knife is taking to lower-paid jobs. There’s nothing difficult in that strategy.
But the question has to be why has it taken SkyCity so long to identify the NZD 33 million in cost savings. Inevitably questions will be asked about why Davies did not look at the cost component earlier.
But it’s not just at CEO level that attention is warranted.
With Rob McLeod’s resignation from the SkyCity board there is an opportunity to get new blood in. McLeod has resigned his high-profile board roles to take on the job of NZ country manager for accounting firm Ernst & Young.
Other long-serving directors include Patsy Reddy, who was appointed in 1994 and dates back to Brierley Investments‘ involvement. Elmar Toime, who left New Zealand in 2003 to base himself in London, has been a director since 1996.
Reddy and McLeod previously served together along with SkyCity chairman Rod McGeoch on the Telecom board.
Shareholders should question whether Toime, at least, should make room for a fresher face after more than 10 years at the board table. It’s hard to see what real benefit he would have brought to SkyCity since he left these shores.
Others such as Bill Trotter (First NZ Capital’s executive chairman) and Sir Dryden Spring are more recent appointments and still have plenty left to contribute.
But the key question has to be why Davies is staying on to supervise the next chapter in the company’s history instead of embarking on a new challenge.