In the early weeks of George Trumbull’s reign as AMP chief executive in 1998 the brash American set out on a cultural fishing expedition – a fireside chat over lunch with his top 10 male executives.
He asked them to nominate the then 145-year-old mutual’s biggest problems. The answers were telling. “It’s funny you should say that because I had a group of women executives in recently and they said one of the biggest problems at AMP is sexual harassment and sexual discrimination,” Trumbull said in a media interview at the time. “And five of the biggest offenders they named are sitting at this table.”
More than 20 years on, AMP is in the midst of yet another reputational crisis and current chief executive Francesco De Ferrari has, once again, made “culture” his number one priority.
AMP has a long history of hiring CEOs during times of crisis. The newly appointed man will often start his tenure acknowledging a problem. Whether it’s AMP’s strategy, value or culture – there are promises to make things better.
De Ferrari is the latest to occupy that high pressure role. But the Italian’s strategy to revive the firm is built around top executive Boe Pahari – a rainmaker embroiled in a sexual harassment case that just won’t go away.
The 171-year-old company is now in a stand-off with Pahari’s accuser’s lawyers to release a report that may contain details of Pahari’s misconduct and could trigger the company’s fourth board purge this century.
“AMP is a company that kills careers… It’s become a reputational graveyard,” says one former senior executive.
So how did it get to this?
AMP is one of the oldest financial institutions in the country, opening its doors in 1849 to sell life insurance. Its art deco building overlooking Circular Quay’s glistening harbour is a defining feature of the city’s skyline. It was opened by then-prime minister Robert Menzies in 1962, and for many years was the nation’s tallest building.
The company’s name was emblazoned across another cultural icon, Sydney’s Centrepoint Tower, that came to be colloquially known as the AMP tower.
In 1990, then-prime minister Paul Keating’s six pillar policy recognised AMP as one of the largest and most powerful companies in the country. The big four banks and two insurers (AMP and National Mutual) were prohibited from merging to protect competition and customers.
Former AMP chairman Ian Burgess once said the best job you could get as a businessman in Australia was the chairman of AMP or BHP. AMP chairman was an elite, sought-after position that would set you up for life – in cash and prestige.
AMP is a company that kills careers… It’s become a reputational graveyard.
Former AMP senior executive
“Being chairman of AMP was like being Australia’s corporate king,” said another former board member, who declined to be named.
However, a high-profile position with AMP could be turning into a curse. Over the past two decades, AMP has had seven chief executives and six chairmen (one woman). The words “disastrous”, “outrageous” and “downhill like an electric train” have been used to describe the company’s endeavours.
AMP’s headaches set in when the group was demutualised and listed on the ASX in 1998. The company went from being an inward-looking mutual that existed for its customers, staff and planners, to a profit-hungry beast focused on expanding globally.
At that time, AMP’s chief executive was George Trumbull. The American businessman was photographed in the press for his new job wearing traditional native American headdress. In February 1999, he infamously got on the bad side of then-prime minister John Howard and treasurer Peter Costello at a dinner party for threatening to take the company offshore if the government changed tax laws to hurt multinationals.
“If Trumbull had been trying to act out an aggressive stereotype, he couldn’t have done better,” the Australian Financial Review reported at the time.
Trumbull started the acquisition that would come to haunt AMP shareholders and executives for several years and wipe billions off the company’s value – GIO. AMP bought the insurer on the prediction of a $250 million profit, but massive reinsurance costs turned that reality into a $750 million loss.
Trumbull used the money raised by AMP’s demutualisation to massively expand its UK operations, buying funds manager Henderson for $1 billion and National Provident Institution for $3.6 billion the same year. By 2002, AMP had twice as much capital invested in the UK as it did in Australia and the market was headed for a meltdown.
The end of the early 2000’s bull market and the implosion of UK equity prices punched holes in AMP’s capital position and exposed the poor profitability of the acquired businesses.
GIO continued to bleed money and Trumbull was ultimately forced out the door.
However, his $13 million farewell package triggered an investor revolt that mounted into one of the biggest boardroom shake-outs in Australian corporate history. By April 2000, “king of corporate boardrooms” Ian Burgess had resigned as chairman, along with four of his directors.
AMP’s bad run was only just beginning. The real pearler was the handling of the British insurance company AMP bought in 1989, Pearl Assurance. Newly appointed chief Paul Batchelor lost his job in 2002 after it became apparent he failed to inform the market the company was insufficiently capitalised to meet UK regulatory requirements.
AMP shares halved between 2001 and 2002 as investors punished the company for chronic underperformance, boardroom brawls and capital mismanagement.
Andrew Mohl took over as chief executive in 2002, promising to turn a new leaf. Mohl, a former RBA economist, immediately set to work, cutting back the group’s Australian and UK operations, slashing costs, people and portfolios.
His plan would dismantle Trumbull and Batchelor’s global aspirations for AMP, splitting the company in two – a UK company and an Australian company. The remaining AMP was a smaller, less capital intensive organisation focused on wealth management and life insurance.
Mohl tied AMP’s past failings to its corporate culture during a speech in 2007.
“Business acumen and the capacity to drive strong commercial outcomes were not well-developed skills in the organisation,” Mohl said. “This was not surprising in the sense that as a mutual society, driving shareholder value had never been a relevant consideration.”
Mohl detailed the “tsunami of issues” faced by AMP in its early days as a listed company. “A regulatory solvency crisis, a collapse in investor [confidence] and a barrage of negative media.
“At issue was simply this. When AMP became a public company in 1998, it was not well prepared to deal with the richness of capital it had.”
Mohl was replaced by Craig Dunn, who led what appeared to be among the most stable of AMP’s recent years. However, bubbling beneath the surface was one of the greatest financial scandals of our times. AMP started charging dead customers in 2008, in a policy that would later earn the company a gold star for worst performer at the banking royal commission.
In 2011, AMP’s strategy had another hiccup when Dunn doubled down on its life insurance strategy, buying AXA. This was meant to be a game-changer for the company but in the first quarter it made $18 million in claims losses that was followed by several years of concerted remedial effects.
Dunn might have thought he’d escaped AMP unscathed. However, in October last year, proxy firms launched a proposal recommending he be dumped from Telstra’s board for overseeing the fees for no service scandal. For that blunder, AMP would change its chairman three times in one week as the company failed to assign blame.
Chair Catherine Brenner resigned and group general counsel Brian Salter was sacked for his role in modifying an “independent” report sent to the regulator. More than $1 billion in market value was stripped from AMP shares in one week.
It’s in this context that De Ferrari was brought in to steer the ship.
The former Credit Suisse banker was dubbed the “change agent” by chairman David Murray at the time. De Ferrari remembers reading newspaper headlines declaring his appointment as one of the most challenging in Australia’s corporate history, but he felt up to the job.
He began on the new strategy – simplifying superannuation products, professionalising the advice network, selling AMP Life.
But any progress AMP made has now been brought to a grinding halt. As Mohl himself puts it: “It did not need to be like this,” he tells The Age and Sydney Morning Herald. “It should have been a lot better than this.”
Investors and politicians have issued a “please explain” after former AMP employee Julia Szlakowski released details of her complaint against Pahari – including allegations he changed her London hotel booking and said it was akin to giving him a “limp dick” if she refused his offer to buy her clothes, to name a few.
The moral compass of the board is on the line after standing by Pahari and stressing they had reviewed the case in detail.
To complicate matters, another personal hire of De Ferrari’s, Alex Wade, resigned from his executive position in the first week of August with no explanation amid rumours he sent photos of his genitals to staff.
On AMP’s website, the company’s glossy 10-page code of conduct promises its staff act with honesty and integrity.
“We respect value differences and create a safe working environment.
“We identify and manage any conflicts of interest responsibly.”
But De Ferrari refuses to comment on whether the company has a problem with sexual harassment and continues to stand by Pahari despite acknowledging some of the allegations levelled against him were substantiated by a British QC.
During the media briefing at the company’s full-year results last week, De Ferrari told reporters he would not take questions on Wade’s departure and said Pahari’s “employment incident” was not related.
Despite Ferrari’s plea, seven out of the 11 questions asked were about the company’s culture that appears completely at odds with the lessons from the global #MeToo movement.
One question caused De Ferrari’s attitude to sour. “What extent does this reflect badly on your own judgment?”
“I would love for this to get some questions on results and how the business is going and what we’re doing for our clients,” he said. “I’d be happy to take another question.”
The problem is – corporate value is increasingly being informed by its consideration of non-financial risks. Major AMP stakeholders are demanding accountability and transparency.
Environment, social and governance investment director at Aberdeen Standards Investments Danielle Welsh-Rose says poor corporate culture has a material impact on companies.
“At the most crude level, a lack of gender diversity in leadership teams can lead to falling market value,” she says. “And research has shown that.”
AMP has two women on its board of eight. Welsh-Rose says companies need at least 30 per cent female representation to avoid reputational crises that can cause profits to slide, talent to leave or shareholders to sell stock.
“A lack of diversity can lead to a lack of diverse thinking which can keep the blinkers on when it comes to thinking about how a particular issue might play out,” she says. “In this situation, you’ve got a leadership group and a board that is potentially blinkered to the issue.”
Welsh-Rose says there needs to be a zero tolerance approach to sexual harassment. If just one claim is substantiated, the perpetrator should be shown the door.
“If we are serious as an investment industry or as an entire culture in Australia, about stamping this out we need to have a zero tolerance.”
Paul Tynan is a consultant who spent more than 20 years at AMP in management and is disappointed by what the company has become.
“A group of us still get together, ex-AMP people, and have a Christmas lunch every year in Melbourne. There are people inside of AMP that I still talk to. Because AMP did have a culture. We were the largest mutual in the country and known as the go-to for life insurance. We were the peoples’ friends.”
Tynan says AMP has lost track of who it serves. “The new CEO doesn’t get it. AMP is built on the back of mum and dad Australia. It’s not high net worth individuals.”
A culture of arrogance has taken over, Tynan says, and AMP should spin off AMP Capital and return to its roots – advisers servicing everyday Australians.
But this part of the business is also in upheaval as AMP faces a class action brought by former advisers claiming changes to a longstanding policy have thrown them into debt. The way AMP has treated its advisers has been described as “unconscionable” by politicians on both sides of the aisle.
“AMP is a corporate bully,” says John, one former adviser. “The sexual harassment stuff is just the beginning.”
Charlotte is a reporter for The Age.
Elizabeth Knight comments on companies, markets and the economy.