Kevin, the other Gallagher brother

In one of the most predictable developments ever, Santos CFO Sherry Duhe quit the company last week because she was jack of CEO Kevin Gallagher. Aren't we all?

It is an open secret that Gallagher presides over a culture of dysfunction and fear at Santos.[[Though Gallagher has clearly been working on his Glassdoor ratings since 2023 when his approval there languished at 23 per cent versus 89 per cent for Woodside's Meg O'Neill. He's now at 47 per cent.]] Liam and Noel from Oasis would probably claim blood ties if they'd seen one of Kevin's outbursts. Duhe is only the latest senior executive to throw up her hands and leave. How telling that a highly regarded outsider came in and didn't last 12 months. In fact, Gallagher must be real bad given Duhe put up with gold-plated monster Sandeep Biswas at Newcrest for twice as long.

What I love is that Duhe provided particularised written feedback to Gallagher about his toxic style of leadership, and while Gallagher was feigning a preparedness to reform himself, he handballed the job of purging her immediately to Santos' witless chairman Keith Spence, ever Gallagher's humble servant.

Did Spence launch a thorough, independent workplace investigation to ascertain whether Duhe's grievances were real or not? Very funny. Spence is like a Sicilian father. You've slighted my precious son – begone! Take her out the back and feed her to the pigs. 

Duhe is a principled actor, spurning the golden handshake that would've obliged her to sign a non-disclosure agreement, depriving Santos of the opportunity to bullshit its shareholders about the reasons for another C-suite departure (Santos will still bullshit liberally behind the scenes). 

Spence would've been in shock. What do you mean I can't buy you off? It's never not worked before! Literally every other executive who has signed an NDA on the way out of Gallagher-era Santos will be looking at Duhe thinking, Good. On. You. Sister.

An egomaniac without peer

When Gallagher commenced as CEO nearly 10 years ago, Santos was on the bones of its arse. Under his predecessor David Knox, the company had bet its balance sheet on a mega-project – GLNG – that didn't deserve it. Gallagher ushered in operating discipline that Santos had never had, the company having long suffered from the near-fatal mindset of being king shit in Adelaide. Often the only way to change an entitled, lazy culture is to be a brute, and so Santos and Gallagher were a perfect match. 

But along the way, Gallagher became an egomaniac without peer in corporate Australia, which really is saying something. The last four years have been littered with company-funded monuments to his vanity, all while shareholder returns have languished.[[As MST Marquee's energy analyst Saul Kavonic puts it, Santos' compound annual growth rate in total shareholder returns of 4.3 per cent since 2018 "is barely competitive with a bank term deposit."]]

There was the company's (secret) private jet flying Gallagher (a Scotsman) to Edinburgh where Scotland just so happened to be playing a rugby Test (which he attended). The logical contortions deployed by Santos to justify this lavish fringe benefit were genuinely groundbreaking.

There was the book by leadership coach (and Santos consultant) Vanessa Vershaw, which gushed comically about Gallagher's "natural charisma" and "intense eyes so blue they are disconcerting." Santos hosted her book launch and Santos employees received free copies. Incidentally, it is commonplace for CEOs who go mad to have a personal guru on retainer.

There was the $6 million retention grant from the Santos board, to prevent Gallagher from entertaining a rumoured job offer from Woodside. There was his aborted side hustle: almost joining the board of Mineral Resources before shareholders sunk the move. What a perfect cultural fit Gallagher would've been for Chris Ellison Inc. I'm only half joking.

The front gates of Gallagher's former home in Perth even featured a lightning bolt and the initials "TCB", which stand for "Taking Care of Business" – the personal motto of Elvis Presley (he says the gates were like that when he bought the house). Gallagher imagines he is the King, but he's actually a psychologist's picnic.

Gallagher has now presided over four disclosed takeover offers that did not lead to a transaction: Scepter Partners' $6.88 per share bid in 2015, which Santos rejected; Harbour Energy's $6.95 per share bid in 2018, which Santos rejected; failed merger talks with Woodside in 2023; and finally, the $8.89 per share bid led by Abu Dhabi National Oil Company that fell over last month.[[Bear in mind that since 2015, Santos has issued new equity in two major raisings and also acquired Oil Search. The share count has more than tripled.]] 

In terms of those earlier bids, the time value of money foregone is immense, since Santos has gone nowhere since (its share price closed on Tuesday at $6.32). Left on the altar four times, wouldn't you have to concede that the only common denominator is you? 

Not Kev, oh no. "I love the way that you use the term failed," he snapped at the press upon the collapse of the ADNOC bid. "Who failed? We're not actively out selling the company, so we haven't failed. If someone's trying to buy the company and they don't buy the company, I guess you can say they've failed. But you'd have to ask them that question, not me."

A Joyce-sized problem

Gallagher is exhibiting Alan Joyce levels of delusion here (although he will never achieve the same infamy because Santos is not a consumer-facing company). If he wasn't actively selling the company, why in the last two years did he have Citibank, Goldman Sachs, Rothschild & Co and even Jon North, earl of the Edgecliff Centre, scouring the globe for a potential buyer?[[There's another red flag: Gallagher takes his investment banking advice from Jon North and his PR advice from Sue Cato. Who else does that?]] Under enormous pressure from Santos shareholder L1 Capital to unlock value, ADNOC was the only whole-of-company bidder they could find.[[Total was interested in Santos assets but Gallagher wouldn't entertain that; Gallagher couldn't divest GLNG to APLNG because it might've looked like Origin's Frank Calabria was getting the better of him; and he couldn't sell assets to Beach because that would be a victory for his former protégé Brett Woods.]]

A recent anecdote encapsulates Gallagher's leadership perfectly. Back in April, he was highly exercised by members of Santos' graduate program attending a company event in business casual attire. He sent an internal group email over the weekend expressing his disappointment. 

When the new week began, he raised the matter at length in a meeting of his direct reports, held in Brisbane. Santos' quarterly business review (QBR) meeting for the company's top 80 executives was the following day and Gallagher warned that the male attendees better be wearing neckties. An SOS was filtered down to the troops. 

At the QBR the next day, Gallagher launched immediately into a rant about dress standards – not wearing a tie being incontrovertible evidence of laziness, and so forth. In a collective act of defiance, a number of staff present wore the same plastic black tie adorned with flamingos from the nearest souvenir shop. Why? At a QBR the previous year (according to multiple sources), Gallagher had removed his tie, gushed about camaraderie and team-building, and told the executives he didn't want to see any of them wearing ties.

Fixating on the superficial, and using dress or personal grooming as instruments of psychological control, are the common behaviours of insecure narcissists. This is textbook stuff.

Chairman Spence isn't even pretending to manage Gallagher, his old chum from Clough and Woodside. Excluding James Hardie's Anne Lloyd, Spence may well be the worst chairman in the ASX 100 (and again, that's against stiff competition). He is retiring in 2027 but Gallagher says he's staying on longer. Will the Santos board let Gallagher handpick the next chairman, too? 

Major Australian equities funds know that Gallagher is a Joyce-sized problem. As one told the Peter Lee survey last year, "The downside to Santos is the level of power and influence that Kevin has in the organisation. In our view, it is excessive, and there is a risk that it turns out like Qantas where the board failed to adequately keep the CEO in check. We get the sense that Kevin sets the agenda and will decide when he leaves. That responsibility should rest with the board, not the CEO." 

You really have to wonder about the other Santos directors – including 'blue-chip' names like Yasmin Allen and Vanessa Guthrie – tolerating a captured chairman and a deranged CEO, but it's honestly a template story in Australian business. 

What amazes me most is that Santos shareholders aren't angrier, especially since Spence and Gallagher let another bidder run screaming from the data room. Will they seriously allow Spence to stay another 18 months? Gallagher  is performing an uncanny impression of someone determined not to sell – determined not to deal himself out of a job. Come February, he'll chalk up a decade at Santos. Imagine his grip on reality a couple more years down the track.