Morningstar far from burying the hatchet

While the Supreme Court case between Morningstar Inc and Graham Rich could be seen as the pinnacle in the whole eventful saga, the truth of the matter is that much is still yet to happen.

The main reason is that both parties still have issues to resolve.

In the case of Morningstar Australia’s ex-chief executive officer Graham Rich, he remains committed to his allegation that Morningstar Inc, the US parent company, acted in an oppressive manner towards its Australian arm, and is planning his case for unfair dismissal.

While he is no longer the chief executive officer of Morningstar Australia, Rich remains a non-executive director of the research house.

And with no business limitations placed on him in the judgement handed down by Judge Barrett in the Supreme Court two weeks ago, Rich is a relatively free man. In fact, it has been reported Rich may be considering establishing a boutique research firm or consultancy.

Rich toldMoney Managementhis priorities are now firmly on his future and has a fairly pragmatic attitude towards the process that is occurring around him at the moment.

“My focus will be on moving onto the next phase of my business career. Anybody who knows me knows I am not a destructive, tearing down type of person,” Rich says.

Meanwhile, in the case of Morningstar Inc, its immediate priority has been to develop a plan on how it will re-finance Morningstar Australia out of its present insolvent state.

In a formal statement issued last week by Morningstar Inc following the Supreme Court judgement, the company confirmed its disappointment in the performance of the venture with Morningstar Australia and that the management change was indeed deemed necessary.

“While we have made progress in Australia, we have been disappointed with our financial and operational results in this market and believe we can be more effective in delivering Morningstar’s products and services to the investment community with new leadership in place,” Morningstar Inc chairman and chief executive Joe Mansueto says.

The statement throws up questions about the future direction of Morningstar in Australia and the future of qualitative research in Australia.

Rich has his own questions about the future success of Morningstar Australia, in particular, the ability of the Morningstar Inc. board of directors to provide an effective service to the Australian market.

“Morningstar has always taken a strong position over any ructions to a fund manager that are seen as detrimental. Fund managers should now be asking these questions of Morningstar,” Rich says.

Further, he says given the appointment of Bevin Desmond, president of international division of Morningstar Inc, and Tao Huang, chief operating officer, as joint managing directors, these sorts of questions are extremely valid.

“They have no research experience, no funds management experience and are not Australian,” Rich says.

Further, according to Rich, Desmond is a human resources manager and Huang is a computer expert.

Yet to be confirmed in court, Morningstar Inc managing director Don Phillips says his company has now committed $1 million to Morningstar Australia to dig it out of insolvency, with plans for more capital raisings in the future.

“The time to raise capital is not when a company is on the brink of insolvency,” Phillips says.

He says given this, the next stage is for Morningstar Inc is to recruit a new managing director for Morningstar Australia that is both Australian and lives in Australia.

For the time being, Morningstar Inc international division president Bevin Desmond and Tao Huang, the chief operating officer are acting as joint managing directors even though Phillips says local expertise and knowledge is definitely a priority.

“This is what we have sought in all our international partnerships. A research background is clearly a plus.”

Morningstar Inc is currently speaking to a number of recruitment firms, however due to the visibility of Rich’s dismissal, Phillips says they have had a great number of enquiries and received many resumes.

“Bevin and Tao’s real expertise is knowledge and operations. They know how to craft and create a great investment and research business,” Phillips says.

While he says Desmond and Huang are not experts on the Australian business scene, there are people in the organisation such as Daisy Chee who are.

Phillips says once Morningstar Inc has recovered from its self described difficult period, the company will have a better sense of how long it will take to restore Morningstar Australia’s image and position in the market.

Although Phillips does not believe fund managers should question the value or meaning of their existing rating from Morningstar, he understands that they could do so given Morningstar’s own practice to place hold ratings on fund managers when there are management changes.

“It is a fair analogy for them to make but we are concentrating on putting the business on a firm footing. If we are on people’s watch list, then we accept that challenge,” Phillips says.

Phillips says while he likes Rich very much and wishes him all the best, he hopes he concentrates more on the future.

“I would love to see him focus on new business, rather than the old.”