The sudden resignation of Bob Mansfield has left the giant telco looking for a new direction as well as a new chairman.
A board dispute among directors is always a catalyst for change, particularly when it concerns a major listed company. The big question is whether it is for the better or worse.
Recently we've seen it at National Australia Bank , which has had a huge ripple effect through the board and executive team. Now it's Telstra .
The surprise resignation of Telstra chairman Bob Mansfield and his very public swipe at some of the other Telstra directors certainly rattled a few cages and will undoubtedly bring changes.
At issue here is the direction of Telstra. It's this issue that has obviously split the Telstra board and is splitting the investment community.
There are two schools of thought.
One is that Telstra should stick to its knitting and become a well-run, efficient telecommunications utility which has low costs and pays good dividends. It's something I wrote about here back in February and used Telecom New Zealand as a case in point.
Telecom NZ also was a monopoly, and to fight the competition and the inevitable loss of market share, it has pruned costs and played to its strengths. Investors have accepted the move and see the stock as a high-yielding utility.
Many say Telstra should do the same.
The other school of thought is that Telstra has to stay a growth stock and needs to expand outside its core competencies to provide that growth.
Its forays into Asia through Pacific Century Cyberworks have been far from impressive and cost the company millions in terms of write-downs .
More recently this acquisition for growth strategy has turned its focus to here in Australia.
But despite this, Telstra's share price has been languishing around the $4.50 mark over the past few weeks, even after the very public acquisitions of the Trading Post group and the computer services operation Kaz Group .
This acquisition campaign was being driven by Mansfield and chief executive Ziggy Switkowski but obviously seems to be at odds with other directors, who have launched a campaign to undermine the strategy. The leaked board discussion of a possible $3.5 billion takeover offer for the Fairfax media empire showed just how antagonistic some directors were to the Mansfield/Switkowski strategy.
That leak no doubt started the process that culminated in the Mansfield resignation and now casts a serious shadow over the future of Switkowski, who has lost one of his major supporters on the board.
It also casts doubt over the acquisition for growth strategy.
So what's the implication for the Telstra share price? The day after Mansfield resigned the share price rose 2 per cent and the wider investment community seemed reasonably happy.
"More positive than negative because it was widely known the board was having some internal issues," is the view of Macquarie Equities. "This is one step in alleviating the problems within the broad of Telstra."
Its analysts are recommending clients buy or sell on the underlying Telstra business, and not on the changes to the board.
"This is the first step in realigning the long-term business strategy of Telstra," is the view of Deutsche Asset Management, which hasn't changed its share price target.
Industrialist John Ralph is filling the chairman's role for the time being, with many watching closely for the permanent appointment.
Mansfield was a close business adviser of Prime Minister John Howard and, with the Federal Government still a 51 per cent owner of Telstra and pushing for a full sale, it's likely any new chairman would need to be sympathetic to a full privatisation.
History tells us the ramifications of a board or executive restructure usually take a year to wash through fully. So don't expect a quick turnaround in share price.
David Koch is Channel Seven finance editor and hosts Sky Business Report on Sky News channel.
