![AMP chief executive Craig Meller: “I’m comfortable we’re moving pretty fast. I’d expect the market to say it’s not fast ...](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/6/x/z/l/image.related.afrWideArticleLead.940x529.gw4xvz.png/1499995272111.jpg)
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When a spike in insurance claims hit AMP last year it set off a chain reaction which has shaken the business to its core. After the group announced $1.2 billion in losses and goodwill writedowns, AMP shares slid more than 15 per cent and the nation’s fourth biggest fund manager and largest financial advice group fell ignominously out of the ASX20.
In early November, new AMP chairman Catherine Brenner fronted meetings with sceptical and frustrated investors. Brenner told BOSSin an interview: “It was a good opportunity for me to talk through with our major investors why those decisions had been made, but also for me to hear firsthand from shareholders their views and thoughts.”
Why had Australia’s biggest financial adviser and wealth manager, a beneficiary of the rich flows of superannuation, a 168-year-old business with a great brand, failed to capitalise on its unique position, investors demanded. Why was it so slow in countering declining margins, the onset of automated robo-advisers, and the dismantling of its conflicted advice business models? Could it ever make money from putting customer interests first?
Brenner copped an earful, in particular from Perpetual’s head of investment, Paul Skamvougeras.
![AMP chief executive Craig Meller and chairman Catherine Brenner.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/0/m/a/k/image.imgtype.afrArticleInline.620x0.png/1499983912677.jpg)
Brenner later confirmed to The Australian Financial Review Chanticleer and BOSS Chook Roast columnist Tony Boyd that a shareholder had asked the board to replace AMP chief executive of three years Craig Meller, but Meller had the board’s full support.
“Craig understands that he is under pressure from the board, in particular, but also from the external market and that he needs to accelerate the performance and the delivery of the strategy,” she told Boyd in November.
Six months later Brenner backed that up at the annual general meeting in May, saying, “Your board and management are acutely aware that there is a long held perception that AMP has never quite fulfilled its true potential.We are determined to fix this.”
Knee-jerk response
Brenner’s comments highlight the challenges for boards in dealing with underperformance. The most important relationship in a listed company is between the chief executive and the chairman. AMP has been criticised for its glacial response to changing industry dynamics and its poor capital allocation. “It’s the last to pick up on trends,” says one critical investor.
![Former AMP chairman Simon McKeon quit suddenly last year.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/0/m/f/v/image.imgtype.afrArticleInline.620x0.png/1499983912591.jpg)
But the public criticism of the company’s implementation of strategy and its executive leadership was seen by some as a knee-jerk response by a fledgling chairman. The question is whether AMP has benefited or been harmed by Brenner’s comments.
Brenner has been on the AMP board since 2010 and served as chairman of AMP Life between 2010 to 2016, when Meller was running AMP’s financial services division. She and Meller discussed communications strategy when she took over as chairman after the sudden exit of Simon McKeon in April 2016 due to a change in personal circumstances.
“Craig and I talked about that. When the board asked me to take on the role [of chairman], we talked about what we needed to do together in leading the business. One of the things we talked about was how, when you say something externally, it often resonates internally much more than if you just say something internally.”
But it also sent a strong signal to shareholders that the board and management were focused on performance, she says.
![Former AMP chairman Peter Mason says Craig Meller is an outstanding leader.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/6/y/8/a/image.imgtype.afrArticleInline.620x0.png/1499983912319.jpg)
“I answered a direct question. But the main part of that conversation with Tony [Boyd] was that Craig is the right CEO for this business and the feedback I had was that he was supported by the broad majority of shareholders and had the broad support of the board.”
Only one shareholder had those views, she says. Nor was she putting Meller on notice.
It was a time of high anxiety, says Daniel Toohey, AMP equity analyst with Morgan Stanley. “The way that AMP traded post downgrade in October, there was a lot of fear in the market. I feel Catherine got caught up in that fear, emotion and shareholder anger; she was new to the role.”
Major investors believe that after McKeon’s unsettling resignation, Brenner wanted the market to know that she got it.
![Former AMP chief, Craig Dunn.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/1/m/x/g/1/2/image.imgtype.afrArticleInline.620x0.png/1499983912055.jpg)
“There is a clear understanding by Catherine Brenner that AMP has not been positively viewed by investors for a long time and that this needs to change,” says John Murray, managing director of Perennial Value Management.
“Whilst there has been some criticism over her handling of the role, I think inevitably such situations result in conflict.”
Feeling in the market
Former AMP chairman Peter Mason says he has a huge regard for Brenner and believes her comments must have been strategic.
![Paul Skamvougeras, Perpetual's head of investment, asked the board to replace chief executive Craig Meller.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/1/3/3/q/l/p/image.imgtype.afrArticleInline.620x0.png/1499983912224.jpg)
“It’s highly unlikely it wasn’t done with careful thought and discussion internally.
“She no doubt noticed the feeling in the market, that there is unrealised potential, and thought, ‘We’d better stand up to the market and make sure they know we think that too. We heard what some of you had to say and we will take action if we think it’s appropriate.’”
Meller restructured his executive team and signed reinsurance deals to slash insurance exposure. A quarter of senior management left.
It was the second time in three years he’d put the broom through the insurance division.
Brenner says she and the board are delighted with Meller’s new team. “They are really a complementary talented team and the lines of accountability are much clearer now and they are really getting on with business.”
One investor is more brutal. “Craig went and shot a couple of people,” he says. “He seems to have survived that. It’s bought him six to 12 months and [his survival] is going to be in his execution [of the strategy].”
Personal challenge
Craig Meller was told he was a contender for the role of CEO of AMP in early 2013. It was clear that AMP would be likely to choose an internal candidate when low profile CEO Craig Dunn retired. The company was still struggling to extract the promised synergies and cut costs from its 2011 acquisition of AXA, which was to create Australia’s fifth financial services pillar.
![Hearing author Jim Collins speak was part of Craig Meller's preparation for the CEO role.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/6/z/6/5/image.imgtype.afrArticleInline.620x0.png/1499983911957.jpg)
Meller knew he had a personal challenge to overcome. Described by colleagues as very astute, Meller had joined London-based AMP joint venture Virgin Direct in 1998 after an earlier career in banking. He is a self-described introvert, preferring to keep his own counsel in the lift, rather than chat with staff.
“If you’re someone who’s more naturally introverted, you wouldn’t naturally try to have a conversation with someone,” Meller reveals in an interview in a glass-walled meeting room on the top-floor, open-plan offices of AMP’s iconic 1960s office at Circular Quay.
“When I was a junior executive and younger in my career, did that matter? Not really. But now, if I don’t strike up a conversation with someone, they don’t think, ‘Oh that’s Craig, our introverted CEO.’ They think, ‘He’s aloof.’
“You have to change your style because the expectation that comes with the role for people is very different.” Now he is more than comfortable interacting with staff.
Since the clownish regime of George Trumbull, Paul Batchelor’s disastrous UK foray with Pearl and the takeover of GIO, AMP has shied away from CEOs with big personalities. In recent years, AMP has kept a very low profile, surprising for a business that’s been trying to get customer focused. Dunn repeatedly declined requests for interviews that were not tied to financial results.
To prepare for being CEO, Meller, who was managing director of AMP Financial Services from 2007-2013 and a director of AMP Life from 2007, attended a program for aspiring CEOs called Next Generation, run by high-level US consultancy the G100 Network. One of the speakers was Jim Collins, the famous author of Good to Great.
“One of the things [Collins] reminded the group about was his research around Level 5 Leadership [a combination of fierce resolve and humility]. So you could almost say introversion has become a stereotype of great leadership rather than the conventional view that only extroverts make great leaders.”
Mason says Meller is an outstanding leader. “He is the sort of person who doesn’t speak unless he has something worth saying. He is just not a grandstander.”
![John Murray, managing director, Perennial Value: "AMP has not been positively viewed by investors for a long time."](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/t/1/r/y/2/image.imgtype.afrArticleInline.620x0.png/1499983912137.jpg)
Meller’s professional challenges are immense. Thanks to the AXA purchase, AMP doubled down on exposure to insurance and other industries facing severe competition. It’s North platform is one bright spot, and is seeing positive inflows. But funds management is under severe margin pressure as investors rush to low cost index funds. Tougher regulation has undermined the business model for wealth management as financial planners now have to act in clients’ best interests.
Industry under fire
Integrating AXA’s financial planning and insurance businesses into AMP absorbed a huge amount of management effort and investors now say the company could have been using that time to position for competitive and technological change.
AMP was inspired to buy AXA after the global financial crisis. Peter Mason, who was chairman from 2005 to 2014, says, “It was intimidating for AMP, Australia’s largest non-bank financial intermediary, when the banks were guaranteed by the federal government.
“People who were buying AMP products were naturally questioning whether they were in as strong a position as bank [funds management] products, and all assets in the financial system went back dramatically in value.
“That left AMP in a challenging position for a couple of years. But it was well-handled and that gave AMP the confidence and the opportunity to buy AXA.”
“I know there were a lot of questions about whether it was the right strategy. It gave AMP the opportunity and scale to be the outstanding provider in the advice market and in the strategic sense I still think that.”
Exposés by Fairfax Media’s Adele Ferguson and ABC’s Four Corners of the dodgy practices and conflicted business models of parts of the life insurance and financial planning industries has also forced change in both.
![Craig Meller (front) with his executive team (from left) Paul Sainsbury, Jack Regan and Sally Bruce.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/6/x/y/p/image.imgtype.afrArticleInline.620x0.png/1499983912406.jpg)
No one expected the advice market to be knocked around so egregiously by errant financial planners or the poor reaction to some clients’ concerns by the big banks, Mason says. AMP has repaid customers nearly $5 million for not providing adequate financial advice, but also moved early to require advisers to become properly qualified.
The sharemarket is not convinced the advice business, which used to be run as a break even is as potentially profitable as AMP thinks. Only one in five Australians seek financial advice, because of the cost and the perception it is a conflicted service.
AMP has to demonstrate the core wealth management business can grow instead of just tracking in line with the market. The key challenge is engaging the customer and becoming the primary relationship for all the accounts so that AMP can capture more of the superannuation flows.
AMP has 3.4 million superannuation account holders but a much smaller portion are primary account holders. Many accounts are dormant. And more account aggregation over the next five years is likely. Legacy customers with corporate super funds have rarely dealt directly with AMP. Meller accepts it will be quite a challenge to convince them to seek advice.
“It usually needs a human being to have the conversation with the client and that’s through our adviser base,” he says. “The constraint there isn’t the number of customers; it’s the capacity of the advisers to find time to see customers.”
AMP is re-engineering advice with what it calls a goals-based experience. This asks individuals to pinpoint their priority life goals, and advisers seek to build a financial strategy around that. “It’s really value-adding in a way that can radically lower the cost [of advice] but also allow us to make it available to a larger group of people,” Meller says.
The technology that will underpin AMP’s financial advice will be completed in 2018 but the company doesn’t expect to see the financial fruits until 2019, when it is scaled across the financial advisers. AMP is also buying stakes in more financial advisers. “Essentially we’re building a goals-based robo-engine and when that’s built that unlocks the capacity to scale.”
Spurred to action
![Former CEO of IAG Mike Wilkins is among the crop of new directors joining the AMP board.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/r/3/j/z/h/image.imgtype.afrArticleInline.620x0.png/1499983911784.jpg)
“We’ve been very clear to the marketplace around how we’re tilting the organisation to faster growing businesses,” says Meller. “I’m comfortable we’re moving pretty fast. I’d expect the market to say it’s not fast enough – that’s capitalism.
“Do I think we are operating with greater urgency? Yes. Should there always be pressure to deliver for the short term and the long term for any publicly quoted company? Yep.”
When asked why his chairman had made an investor’s concerns about his tenure public in November, Meller says, “I don’t know.”
A close associate says Meller was bitterly disappointed by his chairman’s remarks. Did she apologise when they spoke about it? Meller brushes it off. “No. We just said, ‘Well that didn’t go as expected’ and moved on.”
“Craig’s injected a sense of urgency into the place that probably wasn’t there, and there is a level of confidence they can get a lot more out of the existing model,” says Mason.
There is talk in the market that AMP Bank is for sale. But Meller says it’s one of the three businesses AMP is investing in. It allows advisers to attract a younger cohort of customers rather than the traditional over-40s set, with bundled loan, savings and investment products.
“We’re starting to look at what are the value-adds that we can deliver around managing your money, irrespective of whether you have high levels of wealth,” he says.
He also insists AMP’s technology offering is as strong as any in the market.
![Former Department of Foreign Affairs and Trade secretary Peter Varghese is a new face on the AMP board.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/6/z/m/t/image.imgtype.afrArticleInline.620x0.png/1499983911869.jpg)
“If you log on through MyAMP, not only can you see everything you do with AMP but we can structure it so we can pull in all the details from all of your other financial services providers.”
He says he has encouraged a much higher level of customer centricity in the organisation. “Truth be known, we didn’t pay much attention to that 20 years ago. I think we’ve made great progress in that respect. It’s not one big thing, it’s a hundred small things.”
Everything except life is OK
Meller and Brenner both insist that if it wasn’t for life insurance, investors would be happy. “If I look at our business performance over the last five years, which essentially is the post-AXA period, the performance in pretty much every line of business has been very strong except for the life insurance,” says Meller.
“With the wonderful benefit of hindsight, if five years ago, when we completed the [AXA] transaction we’d reduced our exposure to life insurance at the same time, the world would be saying, ‘What a great decision this was.’
“Because we didn’t, and it’s been a significant issue both in old AMP and old AXA; it’s clouded people’s view of the transaction.”
At AMP’s investor strategy day in late May, the first in more than 10 years, Meller and four top executives presented the company’s promising China joint venture, the successes in AMP Capital and AMP Bank, and the new financial advice strategy, as well as plans to buy up more financial advice firms.
Brenner says she thinks the strategy day was well-received. “Yes, investors are waiting for proof on delivery that will emerge over time and we will report to the market on that.”
![Geoff Roberts, Seek CFO and former AXA CFO, is one of AMP's new directors.](http://web.archive.org./web/20170714195451/http://www.afr.com/content/dam/images/g/x/6/z/v/8/image.imgtype.afrArticleInline.620x0.png/1499983911701.jpg)
AMP’s share price is little changed since the strategy day, though the stock has recovered some of the ground it lost after the insurance losses were reported.
Some commentators say Brenner created a value trap by making public one shareholder’s lack of confidence in the CEO. This created uncertainty about the board and management’s cohesion. They worry that a new CEO could shake up strategy again and impose big restructuring charges, forcing the share price lower.
“Everyone is saying at this stage they can’t see a lot of evidence to buy the 2019 story today,” says Morgan Stanley’s Daniel Toohey.
Influential investors who attended strategy day were looking for an excuse to buy in a market where everything is expensive, he says. But they were not convinced.
“It’s too early. It still feels like a little bit of a leap of faith. All AMP has to do is show life insurance is under control, and the wealth business isn’t broken. Given its iconic brand and position, there’s a sense it’s not firing the way it should. There’s not a lot of tangible evidence that there’s traction in what they are doing. Everything is in pilot [mode].”
It could get to shareholder activism says Mason. “This is pretty common especially if performance isn’t as good as could be expected. There is this feeling that AMP should be able to do better. There’s potential in there that needs to be developed, rapidly.”
Brenner says the board is pleased with Meller’s leadership. In recent shareholder meetings before the AGM, she says, “[I] met with our major shareholders and they have had an opportunity to ask those questions. I’ve confirmed to them that Craig has, as he has throughout, the full and unequivocal support of the board. He is a great leader and we believe he is the best person to deliver on that strategy.
“We are really pleased with how that strategy has developed and is growing and the market is now waiting for us to show evidence of it being delivered on.”
Board watch
Investors are also closely watching the board to see whether with four fresh directors since last year, it is being moulded into a high-performing team.
The new directors include former Department of Foreign Affairs and Trade secretary Peter Varghese; Mike Wilkins, a former CEO of IAG; Geoff Roberts, Seek CFO and former CFO of AXA; and Andrew Harmos, lawyer and AMP Life director.
It is still unclear what led to the departure of Simon McKeon as AMP chairman. Brenner denies that there was a board split. It is known that some directors were irritated by his frugal approach to board costs.
“The chair needs to be across the subsidiaries; it’s a very complex organisation,” says Mason. “I could see [Simon] was finding the time required more than he had anticipated. Catherine is there two or three times a week, or more. There is an intensity on that chair that is beyond anything else I have experienced.”
Melbourne-based McKeon, who is also Monash University Chancellor, did not maintain a Sydney office at AMP, which may have rankled some. This more traditional approach may not have suited McKeon, a Macquarie Bank stalwart practised at hot desking and working anywhere. McKeon was higher-profile than typical AMP directors. Others say McKeon found the board lacked cohesion and, facing resistance, chose to exit.
“All boards require renewal from time to time,” says Perennial’s John Murray. “So in itself, the new board make-up should be a positive. In such situations, the ability of the old and the new to work as a cohesive unit is critical and is something we will be watching closely in AMP’s case.”
A great culture on the board can be a real competitive advantage, said a former senior employee. “You’ve got to be a team. That board has really serious talent. But I think the machine is not working, it is struggling to put this great talent to good effect.”
Australian fund managers may still be sceptical, but Perpetual topped up its stake in late May after strategy day, as did foreign investors Legg Mason, Vanguard, Charles Schwab and BlackRock. Harris Associates has increased its stake to become AMP’s biggest shareholder with 6.44 per cent of the company.
“There is much to like about AMP,” says Perennial’s Murray. “It has a great brand name and the fact it has not become embroiled in the customer controversies experienced by some of its peers speaks highly of how they treat their customers. Nonetheless, change needs to occur and we are looking to this newly formed board and senior management to decisively and prudently do so.”
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Note: An earlier version of this article, stated: Brenner told BOSS in an interview: "It was a good opportunity for me to talk through with our major investors why those decisions had been made, but also for me to hear firsthand from shareholders their fears and thoughts."
The correct version is: Brenner told BOSS in an interview: "It was a good opportunity for me to talk through with our major investors why those decisions had been made, but also for me to hear firsthand from shareholders their views and thoughts."