The telecommunications firm cites Mr. Natale’s reluctance to relocate to headquarters in Vancouver or another city in Western Canada as the reason for his departure.Gloria Nieto/The Globe and Mail
Telus Corp. doesn't often stumble, but its recent attempt at an unusual succession structure has slowed down its leadership transition plans and resulted in the loss of one of its most trusted and effective team members.
The Vancouver-based telecommunications firm said last week that president and chief executive officer Joe Natale was stepping aside immediately, making way for the return of Darren Entwistle, the former CEO who never really left, having occupied the post of executive chairman of the board since Mr. Natale's appointment in May, 2014.
Under the arrangement – which bucked the Canadian trend of keeping board and management leaders separate – the famously detail-oriented and controlling Mr. Entwistle maintained responsibility for high-level strategy and kept a hand in day-to-day operations. In a further twist, the plan was for him to work alongside Mr. Natale, his de facto co-CEO.
Except they weren't actually side by side; the company said at the time that Mr. Natale would remain based out of Telus's Toronto offices after taking the nominal top job. It now cites Mr. Natale's reluctance to relocate to the Vancouver headquarters or another city in Western Canada as the reason for his departure.
(He will remain with the company until the end of the year as a transition period.)
Mr. Natale is known to be a dedicated family man and deeply involved in Toronto's charitable and artistic communities, but many industry observers interviewed by The Globe and Mail question whether his refusal to head west was the complete reason for the transition, notwithstanding the company's insistence that it was.
"The skepticism is unfounded. This truly is about Joe making a family decision, that I highly respect, and the company needing to make a business decision as a result," Josh Blair, an executive vice-president at Telus who directed human resources at the company for eight years, said Wednesday. He added that Mr. Entwistle and Mr. Natale continue to work well together.
"The market will make its own determination on whether there is more to the change including whether the previous structure with Entwistle as 'Executive' Chair had an impact," Greg MacDonald, an analyst with Macquarie Capital Markets Canada Ltd. wrote in a research report. "If we consider the facts though, we are comfortable saying it was certainly not an operating performance issue that prompted the move. Natale has been in a senior operating role with this company since 2003 and the company has maintained the highest growth profiles for an incumbent globally with many of the best operating metrics in the industry."
The upshot is the loss of Mr. Natale – a well regarded industry veteran and one of the key players behind Telus's "customers first" strategy – who was long seen as the logical and likely successor to Mr. Entwistle. Telus said last year that his appointment reflected prudent planning and the desire to promote from within and Mr. Entwistle said it would provide motivation to up-and-coming executives.
But succession is off the table for now as the 52-year-old Mr. Entwistle has pledged to remain in the job on a long-term basis. His dedication to Telus is unquestionable – he had already been CEO for almost 14 years since joining in 2000 shortly before it acquired Clearnet Communications Inc., the wireless company that became the basis of its formidable cellular business – and he makes a habit of putting his salary towards Telus stock, accumulating shares and options worth $43.5-million as of the end of 2014.
Matt Fullbrook, manager of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management in Toronto, said succession planning is a common challenge. But while Telus is not alone in that, he said the board's decision to keep Mr. Entwistle in an executive capacity even after Mr. Natale became CEO was uncommon.
"There's a risk that any incoming CEO is going to feel overshadowed or at least bottlenecked by having the previous CEO there, especially when it's someone with as large a personality as Darren Entwistle," he said. "Clearly the board put a lot of effort and thought into it this time and it didn't work. You've got to think they learned a lot and they are, in a lot of ways, back at square one, which is not where they'd want to be. I think that the next time around, the board is likely to do a better job."
Mr. Blair said Telus still plans to look to internal candidates for the next CEO, arguing that the company's success and strong corporate culture give them no reason to look outside.
Beverly Behan, head of New York-based corporate governance consulting firm Board Advisor, said it is common practice in the United States for CEOs to transition into a board chair role and can "help smooth the transition of corporate leadership," but she noted that "typically involves a relinquishing of all management responsibilities."
Telus has described Mr. Natale, a former management consultant who joined the company in 2003, as the "architect" of its customers first strategy in his role as chief commercial officer. A source close to the company said Mr. Natale's view on the best way to deal with the reputational issues that can plague telecom players is to accept common customer complaints at face value and work to fix them whether or not the company sees the complaints as valid.
Keeping customers happy may sound obvious, but Telus has delivered on the strategy in a way that its North American peers have been unable to replicate to date. Its rate of turnover for wireless customers on contracts in the second quarter was 0.86 per cent – compared to 1.23 per cent at BCE Inc. and 1.19 per cent at Rogers Communications Inc. – meaning the company can spend less on the cost of acquiring new subscribers.
On top of the key role Mr. Natale has played operationally, he is known to be an effective people manager, has a steadfast presence and can reliably handle issues such as tricky relations with Ottawa.
"Joe truly has left an indelible mark on Telus, he was an exceptional leader for our organization. That said, we have an incredibly strong leadership team at all levels of the company," Mr. Blair said, adding that many people played important roles in the development of the customers first strategy.
The loss of Mr. Natale aside, investors welcomed the news that the fiercely intelligent and experienced Mr. Entwistle would return to the CEO's post.
"The good news is Mr. Entwistle is well known to [Bay] Street as a strong operator with a proven track record. Given Mr. Entwistle has remained very active in the company's operations as Executive Chairman; we believe it will be a smooth transition," wrote Barclays Capital analyst Phillip Huang.