The corporate culture messiahs don't always deliver miracles

Friday 10th May 2002

Beware of directors and executives who forecast healthy future profits for their companies after extensive reorganisation or have messianic visions of an ideal corporate culture.

Equity investors should give more weight to evidence that a company's decision-makers have a hard-headed, realistic approach to business and shun wild optimism, rigid philosophies and corporate ego-
centricity.

Many companies stray from the hard-headed, realistic path so recent apparent examples of the phenomenon were not unusual.

Carter Holt Harvey chief executive Chris Liddell seemed to have a cultural vision when he addressed the company's annual meeting on April 24.

Chairman Sir Wilson Whineray and Mr Liddell discussed the company's latest year, current trading environment and prospects fully and simply, as shareholders would expect.

Mr Liddell then talked about "creating a winning culture." He said the company had measured culture through an internationally benchmarked study that showed CHH did not have a "winning culture" compared with a high-performance organisation.

"So we put in place a series of programmes which have had tremendous results over a three-year period."

Mr Liddell said the challenge was much deeper than that. The first survey was for the company's salaried staff; 3000 of 11,000 employees. CHH then measured across the whole company, using a "simplified but even more international survey through the Gallup group."

"The results showed how we still have a major hurdle to overcome - capturing the hearts and minds of our waged workforce. This is not unusual for a large industrial company. Nevertheless it is not a winning team culture and we need to change it."

Mr Liddell's verbosity may have got the better of his commonsense. He has no show of "capturing the hearts and minds," unless (to paraphrase politely one of his countrymen) he grabs people by delicate parts of their anatomies.

Capturing hearts and minds in any field denotes slavish devotion to a cause.

Japan was used for years as an example of the capture of hearts and minds for a corporate cause but that ideal crumbled in the face of the Asian economic crisis and Japan's continuing problems. It is an ideal unlikely to be achieved among a "waged workforce" in any western society.

Receivables management company RMG moved last week to play down earlier optimism about the company's prospects and "clarify its current trading position and outlook for the medium term."

The company had been substantially restructuring its business since July, after a deficit of $A10.71 million for the year ended June.

Various issues related to the company's management systems and operations became apparent. "As at the end of the first half of the current financial year, directors believed that these issues were behind the company and that the second half would produce a considerably enhanced performance."

It became apparent that some of the operational and management issues remained after a review of the March trading result. RMG's profit before interest, tax, depreciation and amortisation for the year ended June 20002 was likely to be in the $A500,000 to $A1 million range. That suggested the final net figure could be another loss.

The company said it had taken various steps to fix things.

Coincidentally, RMG a day later announced the resignation of its chief financial officer. The chief operating officer also resigned after taking up the job last September in a "significant appointment."

RMG's announcements coincided with heavy share turnover, 17.46 million shares being traded in the week ended May 2 on falling prices.

The annual meeting of technology-based group Renaissance Corporation was told that a difficult year in the first half of 2001-02 became even harder to manage in the second half.

Last year's annual meeting was told 2001 would be a challenging year but "one in which we appear to have the tide running our way."

This year chairman Richard Ebbett said the company had been through an exceptionally difficult period and had to make some tough decisions.

"I am pleased to report that, four months on, the strategies that were put in place late last year are proving successful. The company had traded profitably for each month this year. However, the company is now focused on restoring profitable growth in 2002 and beyond."

We will see.

The reply from Hong Kong-based SEA Holdings to Guinness Peat Group's call for the winding up of Trans Tasman Properties was another example of high optimism.

SEA has 55% of Trans Tasman, so the former company's opposition to a wind up means the proposal will fail at the May annual meeting. The interest came from SEA's comments about Trans Tasman.

The Hong Kong company said TTP was financially viable and much more could be achieved by building on the group's existing base.

"We should recognise that investors may have held their shares for many years and that GPG's break-up proposal will clearly not be attractive to those investors because it will curtail TTP's longer-term plans."

SEA said liquidation would deprive long-term investors of the opportunity to maximise their investment over a time frame of their own choosing.

To which it can be replied that TTP has had "long-term plans" for years. Every year was supposed to be the turnaround year. Still the shareholders wait.

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