Who takes responsibility for Faulty Tower?

By NZPA

Friday 6th December 2002

Tower Ltd chairman Colin Beyer gave his former chief executive, James Boonzaier, both barrels yesterday when apportioning blame for the company's $75 million annual loss.

But he may have blasted himself in the foot with his highly unusual attack that had journalists nearly dropping their pens in surprise.

The issue is one of governance -- who is to blame for wiping hundreds of millions of value from one of New Zealand's oldest companies? When things go wrong, can a board hang all blame on management?

Instead of the customary vague corporate statements about leaving by "mutual agreement", the veteran chairman pointed the finger squarely at Mr Boonzaier.

Tower, like many New Zealand companies, came a gutser with its expansion in Australia, where it lost $70 million. On a very rapid expansion path for many years, Tower had to make a $35.8 million writedown on Bridges, the company Mr Boonzaier had hailed as leading Tower to a brighter future and achieving critical mass to play with the big boys.

Mr Beyer said the board lost confidence in Mr Boonzaier shortly before he resigned in July.

Mr Boonzaier had done "a reasonably good job as CEO while we were a mutual". His concerns related to management of Tower once it became a listed company.

Mr Beyer assailed Mr Boonzaier for concentrating too much on attending meetings, making announcements, talking to major shareholders and doing things to promote the share price.

But Mr Boonzaier told NZPA that he thought the first line in a CEO's job description was to talk to shareholders.

Mr Beyer also felt that there should have been more focus on the changing Australian environment, which was impacting on Tower's business there.

He had concerns about the management of IT projects, with horizons being too long in terms of payback.

Despite all this, Mr Boonzaier was paid $2 million on termination of his employment. When asked whether the new CEO, when finally selected, would have a golden parachute clause, Mr Beyer said it would be a "normal" contract.

Mr Beyer "sincerely apologised" to shareholders and said the board did not shrink from its responsibilities, despite acknowledging it had acted too slowly.

Quizzed on responsibility he said the problems were unquestionably management issues and the board had worked well throughout.

Asked why he didn't fall on his sword, he said: "Do you want a public hanging? You can have one if you want."

Mr Beyer said two long-standing directors would stand down this year to "reinvigorate" the board. This would not include 64-year-old Mr Beyer, who was appointed the same day as Mr Boonzaier 12 years ago.

The obvious question is, if Mr Boonzaier was not suitable to lead a publicly listed company, why did it take the best part of four years to get rid of him?

"It sounds to me like a board which isn't accepting accountability for the result and is clearly seeking to avoid that," commented Mr Boonzaier.

In his defence, he cited Tower's tenfold growth under his leadership, a "respectable" half-year profit of $40.7 million announced shortly before he quit and a comparatively great share price of $4.30 against today's $1.66.

The company had been trading ahead of budget, he said, but had since had to cope with "shocking" investment markets.

"He (Mr Beyer) is grasping at straws and worried about re-election," he said.

The Shareholders Association is calling for accountability from the directors.

"It is an absolute confidence issue that needs to be dealt with," chairman Bruce Sheppard said.

"They should all tender themselves for re-election. They should all present their case for remaining on the board and before they put their names forward... they should gaze at themselves and determine whether they can actually add any value to the company."

While Mr Beyer talked of accountability, he denied it was a governance issue.

"If the shareholders want somebody to go they will get rid of him and I think that's fair enough," he told NZPA.

"I certainly don't hide from adversity and I don't hide from responsibility, and if the shareholders think the board is responsible rather than the chief executive then they don't understand the different roles of governance and management."

He said his apology was "implicitly admission of responsibility".

Forsyth Barr Frater Williams executive director Don Turkington tends to feel the board should share greater responsibility.

"Clearly the board felt let down by Boonzaier but Boonzaier was there for 12 years and his point is that the board has to accept some responsibility.

"I haven't looked at the ins and outs of it, all I know is it's a fiasco. I'm not so concerned about the board or the chief executive, but the shareholders who have lost so much money."

Tower's share price has not recovered since halving in the wake of its November 1 profit warning.

Yesterday, the company stressed that all its units, including Bridges, were trading profitably.

Excluding the writedown, the trading loss of $39 million was within, albeit at the top end, of the $30-40 million range it warned of.

Companies have a habit of clearing the decks before a new CEO arrives and there was undoubtedly an element of that with the $31 million writedown of Information Technology.

Most of the losses were one-offs but some, including restructuring costs of $10 million and a $26 million loss through poor investments, are likely to be repeated, possibly on a lesser scale.

Acting chief executive Keith Taylor said the company was expecting "normal levels of profitability" in the current year and a resumption of dividend payments.

Macquarie Equities head Arthur Lim said investors were seeking a firmer indication of what profitability levels were likely to be this year, rather than the vague statements offered by Mr Taylor. The market had also wanted an announcement on the new CEO, he said.

Mr Beyer promised "no more nonsense and no more self-promotion" from the company, but when asked if the share price fall made Tower a takeover target couldn't stop himself.

The "true value" of the company was well over $4/share and he hinted the company that is "dominant" in New Zealand must be a tempting target.

"It may be that one or two of our businesses in New Zealand are worth a lot more to others than they are to us.

"Who knows? There's been an awful lot of rationalisation in financial services and we might become part of it and if the price is right we will become part of it."

But from being touted just over a month ago as a possible buyer of Royal & Sun Alliance Asia Pacific, Tower has reversed from predator to prey.

The shareholder meeting, due in late March, seems sure to provide more entertainment.

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