Milne will sell shares, Hackett won’t



news NBN Co’s three new non-executive directors all have potential conflicts of interest between their financial investments in prior employers or their current responsibilities and their new posts on NBN Co’s board. But a significant gulf has emerged between the way the different executives are tackling the issue.

Communications Minister Malcolm Turnbull yesterday announced that he had appointed three senior executives to be non-executive directors sitting on the board of the National Broadband Network Company. The executives are Internode founder Simon Hackett, former Telstra BigPond and OzEmail chief Justin Milne (pictured right), and the construction industry’s Patrick Flannigan, who has previously been NBN Co’s head of construction and is current chief executive of Utility Services Group.

Unfortunately, due to the nature of their previous and current employment, all three executives have potential conflicts of interest with their new roles at NBN Co.

In October it was reported that Milne still held 305,000 Telstra shares, worth around $1.5 million at the time. The shares would place Milne in a direct conflict of interest with respect to NBN Co’s negotiations with Telstra, as any fluctuation at all in Telstra’s share price would be likely to have a significant impact on Milne’s shareholding.

Similarly, Hackett still holds around around 3.75 percent of stock in iiNet stemming from the acquisition of Internode by the company in December 2011. As the company is currently worth around $1.01 billion, that would Hackett would be holding around $37.9 million in iiNet shares. Hackett previously owned about double that amount of shares, but sold around half several months ago.

The nature of Flannigan’s potential conflict of interest with NBN Co is different in nature, but still exists. Flannigan is chief executive of a company he founded, Utility Services Group, offers construction services to the utilities (for example, water and gas) and telecommunications sectors across Australia, and would potentially be in the bidding for NBN construction contracts.

Aside from Flannigan’s prior connection with NBN Co, there are also other connections with the company. NBN Co’s former head of operations, Steve Christian, who led NBN Co’s network operations in the first three years of the company’s existence, was appointed to USG’s board in January this year (PDF), and the company also appointed at that time former NBN Co general manager Trevor Hoggan as program director of its broadband (telco) operations.

The three new directors appear to have taken divergent paths when it comes to managing their potential conflict of interest situations.

Milne, who has the most obvious conflict of interest issue, is believed to be planning to sell his shares with Telstra. It probably does not hurt the executive’s finances that Telstra’s share price is currently at a five year high of $5.14. Milne departed Telstra in March 2010. Some of the executive’s shares may date back further. The last time Telstra’s shares were at their current levels was in early 2008, with their real highs coming in the several years from mid-1998 of above the $9 level.

Asked about the issue yesterday, Hackett noted that he had committed to departing the iiNet board at the end of this month, a move which will end his formal involvement in both iiNet and Internode. The executive pointed out that he had sold down half of his iiNet shareholding only a few months ago. He has no plans to change the status of his remaining iiNet shares at this time.

Flannigan declined to comment when asked about the issue by Delimiter. However, it is believed that the executive’s potential conflict of interest is not likely to become a major headache for the executive in his work with NBN Co, due to several factors. Firstly, USG’s area of specialisation lies more in the utility sector than it does in the telecommunications sector. Secondly, if the company did pick up NBN construction work, it would likely to be one level removed from the major NBN contracts NBN Co has awarded so far — USG would likely act as a subcontractor to much larger contracting firms.

With respect to Milne, with the sale of his Telstra shares, Milne will be likely to avoid most perception of conflict of interest to his NBN role. With respect to Hackett and Flannigan, both are regarded as individuals of high integrity within their respective sectors (as is Milne, to be clear). Consequently, it is believed very likely that both would recuse themselves from any direct discussions held at NBN Co specifically regarding the companies they are still financially associated with.

Do I believe there are potential conflict of interest issues here with the three appointments Malcolm Turnbull made yesterday to the board of NBN Co? Of course there are. All three executives have long histories in their respective sectors and are associated with companies NBN Co deals with. It’s impossible to hire board directors with experience in this area without these kinds of issues coming up.

However, I believe the impact of those potential conflicts of interest has been minimalised.

The biggest problem was Milne’s Telstra stake. Any movement in Telstra’s share price — any movement at all — would have financially benefited or harmed Milne. And you can be certain that any major announcements NBN Co made with respect to its future agreements with Telstra would have moved Telstra’s share price. I commend Milne, who is one of the most respected individuals in Australia’s broadband sector, for selling his Telstra shares and exiting that conflict of interest situation entirely. We’re truly seeing a commitment to public service here from Milne — congruent with the executive’s character as a man of integrity.

As long as Hackett recuses himself from any direct discussions NBN Co has regarding iiNet specifically (especially contractual discussions), I don’t see a huge conflict of interest issue with the Internode founder’s iiNet shares. iiNet is a customer to NBN Co, after all, not a supplier. iiNet’s success with the NBN will also be NBN Co’s success. And of course the relationship between retail ISPs in general and NBN Co is harshly governed by the ACCC. Hackett won’t have much room on the board to get favourable treatment for iiNet anyway due to the standardised agreements in place.

Then, too, Hackett has been appointed to NBN Co’s board precisely, among other reasons, to ensure that the interests of NBN Co’s retail ISP partners are well understood by the company and to balance out ex-Telstra executives Ziggy Switkowski and Milne. Hackett has an organic and historic interest in keeping Telstra in check and driving competitive outcomes in Australia’s broadband sector. Selling his shares or not selling his shares wouldn’t be likely to change Hackett’s opinions and approach in that regard.

I would note, however, that I would expect to see Hackett refrain from any direct involvement with iiNet or Internode as a company representative from this point on. Despite the fact that he stepped down from executive responsibilities at Internode some time ago, Hackett has still been more or less acting as an informal representative of the company he founded since. The executive needs to ensure he is careful from here on out not to explicitly represent Internode in public in a way that implies he has any direct executive control at the company.

One final point: I would also note that there is, in practice, a huge difference between Hackett selling $37.9 million worth of iiNet shares and Milne selling $1.5 million of Telstra shares. Hackett is a substantial shareholder in iiNet. Any attempt to sell his shares would need to be managed very carefully, lest it destabilise the company’s position on the ASX. Milne’s situation, in comparison, is a lot easier to manage. He was never a substantial shareholder in Telstra, and the sale of $1.5 million worth of Telstra shares is little more than a blip. In financial terms, it’s very hard to compare the two situations, as they are very different. Milne could sell his shares without thinking about the broader impact or preparing for it. Hackett cannot.

Flannigan’s position is a little more tricky. There is no doubt that his expertise in the construction sector is the reason the executive was brought back to NBN Co to sit on its board. However, there is also no doubt that NBN Co will be signing contracts with companies who will be dealing with USG or its rivals. Flannigan will need to be a bit careful in his engagement with NBN Co.

However, again I don’t see a huge problem. If you look at its customer list, Flannigan’s company, Utility Services Group, mainly has customers in the utility sector, not in telecommunications. USG also isn’t one of the giants of the construction industry (at least, not yet). And, like Milne and Hackett, the executive is a man of high integrity and likely to be quite aware when he is in a potential conflictual situation.

What we’re seeing here, apart from the gross conflict of Milne’s shares in Telstra (a direct supplier to the NBN) is a fairly usual minor potential conflict of interest situation with a board. It’s common for a ‘web of relationships’ to exist around board directors — that’s one of the reason they’ve been hired. But executives in these positions have usually had enough experience to know when they’re potentially crossing a bad line. That’s why Milne is planning to sell his shares. And Flannigan and Hackett are certainly wise heads. I doubt they’ll be doing anything at NBN Co that will get them in hot water.

Image credit: Telstra


  1. The other side of it is that if Simon dumped his 4% shareholding, it would likely materially affect the IIN share price. Milne’s holding would hardly even be noticed as far as increased volume.

  2. “However, I believe the impact of those potential conflicts of interest has been minimalised.” minimised, not minimalised. If we can’t save the NBN, can we please save the English Language.

  3. As strange as this may sound, this could be one time that having a vested interest in related parties is a good thing. The NBN as a whole will benefit both Telstra and iiNet if managed and run well, and the only real issue that could negatively impact one company over another is the number of POIs, but that is something that is already well debated. Besides that, it would be hard to give unfair treatment to one player over another due to the ACCC Access Undertaking.

    • Well if managed well it should benefit all ISP’s, I don’t really see any change from the current ACCC overseen scenario, that is the same wholesale pricing on monopoly infrastructure for all access seekers.

      The benefits of NBN Co mixed infrastructure wholesale pricing on FTTP, FTTN and HFC will also be good.

      What would not be good is giving Telstra even more market dominance in any FTTN wholesale deal, I would hope the ACCC will scrutinise any NBN Co/Telstra agreement for the use of the copper very closely indeed to ensure BigPond don’t get any advantage out of it.

      • Has Turnbull signed anything to force HFC wholesale, or are you just assuming this will happen? Again.

  4. For the first time I have seen a Delimiter article on Google’s new page. Renai, you must be becoming a legit news source ;)

    • They sometimes include us, sometimes they don’t. We’re supposed to be in their index, but they can be fickle. I’ve given up caring about it, we get enough traffic in any case.

  5. So what would the outcome if Milne bought iiNet shares and Hackett bought Telstra, the permutations are endless.


  6. why is this article’s author giving false hope

    hackett is not the right choice for the nbn, like with telstra ,optus and other companies Hackett is only interested in his companies profit , not so much the customer

    People wake up this appointment of hacket will not fixed the coalition farcical alternative

    so please do not continue to mislead other readers that this appointment is good for all of us

    honestly where is the factual reporting in this country

    Areas will continue to miss out on better and more affordable internet because , they are not in the areas of profit

    • The post above is not to ment to say Simon Hackett will be a dud

      but there is no doubt he will not be the saviour from the coalition farcical nbn version

  7. Sorry, just because some perceive Hackett as some kind of white knight of the intertubes the principle remains:

    Got interests that can be perceived as conflicting with your role?

    SELL THEM or get off the boat…

    • So Turnbull should sell his shares in a French-based company, rolling out Fibre?

      Being a shareholder isn’t really a conflict of interest. If it was, Turnbull would have been expected to drop his shares. There are insider trading laws, so this isn’t a huge risk.

      Excusing yourself from board membership is sensible. I see no real issues here.

  8. Sure, compare the pile of shares worth $1.5 million vs the pile worth $37.9 million. Seems a reasonable comaprison. Put it this way, if Telstra share price dips, Milne would suffer more than Hacket if iiNet’s share price was to dip, in the sence that $30 million is still a lot of money. Hacket would still be rich from the iiNet shares alone.

    I think a reasonable conpromise in terms of “negating any conflict of interest as much as possible,” would be for Hacket to say, “you know, I’m keeping these shares but I won’t sell any regardless of changes in iiNet share price while I am a director at NBN.” This assumes any need to do so in the first palce, but there you go. Another idea.

  9. I see very little Simon Hackett could do that would benefit iiNet. The deal to buy the TransACT FTTH network is already agreed to ($9m not counting any network expansions in the meantime), the only other thing NBNco might want to buy is Internode’s small country Wireless DSL network.

    There is no preferential wholesale pricing for NBN services, everyone pays the same.

    Telstra on the other hand, billions involved in buying or leasing access to conduits, pits and copper. Hopefully sanity prevails and we don’t buy the scrap metal copper cables. Selling $200m worth of scrap copper for billions, yeah anyone involved with Telstra already has a conflict of interest, owning shares or not.

  10. Simon Hackett doesn’t need to sell his shares, there is no conflict of interest for him. His interest is insuring better broadband for the country – it was his focus as the driving force behind Internode, and it’ll be his focus as a board member of the NBN.

    His share holdings and his affiliations are irrelivent.

  11. so people are now ok for turnbull to destroy the nbn because he has hackett on the nbn co, by getting someone who will be more interested in profits for the company then customers interests

    The gullible is well and truely alive, no wonder turnbull is laughing

    • I’m puzzled by this bit about Simon not being interested in customer interests – being the bloke who built a rural wireless network no one else was interested in; increased upload on DSL base lines by offering Annex M which even today is not a common offering, let alone the whole thing about DSL2/+……

      I hardly get the impression he’s going to – having now made the NBN board – put his feet up and let everyone else get on with it? he may be a junior board member and not carry weight the seniors do but that doesn’t mean hes just there as a pretty face. i certainly dont see him resiling from working to produce a useful network – and by useful i mean delivering what customers need. if you ask me – thats squarely in customer interests land.

      as for profits, since Mal still hasn’t mentioned anything by way of rates of return and the like, it might actually not be a bad idea having someone with that in mind around too…..if the network doesn’t deliver what customers need, you don’t make money and therefore profit. (the exception is if you are Telstra….market size is able to compensate there. NBNco by contrast is an absolute minnow still, so delivering for customers is what it will have to be).

      I’m not sure the situation is as bad as you make out. I don’t think the appointment is a silver bullet either, and has potential to go bad but Simon is entitled to his choices.

  12. If Simon lets go of his shares. Internode will disappear eventually like Ozemail did

    I go on the record to state. It bet better for him to not be a board member and be the guy on the outside influencers, As he’s done since the NBN inception

  13. Main problem with this article: these three people are non executive directors, not executives. They are board members, advisors, not directly involved in the execution of strategy.

    Main problem with many of the responses is the implicit demand for mediocrity.

    Telstra is the 6th largest component of the S&P/ASX200 making up something over 2% of the value.

    So anyone with substantial managed super has a substantial investment in Telstra.

    Likewise iiNet, TPG, TNZ (owners of AAPT) and Singtel are also listed in the S&P/ASX200.

    Bluntly, anyone who is worth more than a million dollars owns a significant chunk of stock in Retail Service Providers who are therefore customers of NBNCo.

    If this is a problem you could appoint mediocre people who haven’t turned their experience into wealth.

    Good luck with that.

    • John,

      there is a significant difference between holding shares through a managed fund, which makes all the decisions about how they invest for you, and holding shares directly, where you make all the decisions yourself. One has the potential to create conflicts of interest if you work in the sector and directly invest in it — the other does not.

      I would think that this would be a fairly basic concept of wealth management.

      It’s why Delimiter’s Code of Ethics states: “Delimiter editor + publisher Renai LeMay does not hold direct shares in technology companies”.

      Because I do have the potential to profit from influencing the share prices of technology companies, by buying or selling shares in companies just before I write something positive or negative about them. Of course, I have a superannuation account which has a component of local shares in it. But I have zero influence over how individual shareholdings in that portfolio are bought and sold.


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