Sunday, 26 August 2007

The corporate world of Australia and mini Enrons

The corporate world of Australia from the late 20th century has plenty to do with economic rationalism and deregulation. Business opportunities emerge when sectors of the economy and industries opened up, making it possible for shrewd businesspeople to have those opportunities drop on their laps. Deregulation brought a visibly more undisciplined phase of activities in industries and emboldened the daring and scheming to embark on ventures previously unthinkable. These exuberance and excesses were gradually corrected and smoothed out after shocking corporate scandals and failures were exposed in Australia and overseas.

Australians are proud of their reputation of trading fairly and making deals honestly, with almost absolute integrity and rare tricky bargaining. What you see is what you get. People doing business have a sure sense of security and accountability, and services and goods are delivered with guarantee and follow ups. Hard bargaining down to half of the offered prices is commonly seen as an insult, indicating that previous offers from an Aussie were not genuine and falsely inflated. This tactics is not tolerable and smacks a kind of untrustworthiness. In business and in the market, there are in general few, very few, cases of full blown frauds and scandals by ego-centric business crooks, in a comparison with sensational and colossal business scandals in the US.

Business doing in any economy is filled with plentiful stories of rising stars and downfalls. Talks about the “tall poppy” syndrome are common in Australia, as an excuse for not having been able to produce legendary leaders or tycoons in this medium sized country. This habit in fact illustrates an underlying tendency towards equity and a wariness of unscrupulous practices which may enhance the status of the few successful. Outstanding performance, extravagance, or extraordinary claims attract suspicion and even condemnation in cases of disclosed malpractice. The downfall of such a “hero” is met with glee, satisfaction and relief.

This has been harshly categorised as a sign of mediocrity in this society and perhaps a cause to pedestrian pace of growth and creativity in recent times, in an urgent comparison with tiger economies or even with other developed economies. This notion has been turned around by ambitious entrepreneurs for a lack of understanding of and support for their marvelous feats. They could blame this syndrome for the difficulties they encountered in business expansion or failures in efficiently utilising resources. This tall poppy syndrome seems an obstacle to their impressive fame and status to be recognised fully in this mediocre country, unlike those accorded to American super tycoons or management gurus. It also seems to have undermined many successful ventures and destroyed reputations of some celebrities.

There are indeed some prominent cases of fascinating rocket rises and collapses in the business world of Australia, which simply cannot drag that syndrome in to blame. The 1980s was an innocent age of early deregulation, without the idea and experience of sufficient supervision, and financial sectors found it unforgivable not to make large investments of some kind. In public sectors, Tricontinental investment bank managed to accumulate bad loans and loaded up intolerable burdens on its parent, the State Bank of Victoria. The subsidiary had to be closed down, and the state bank went to seek rescue from the Commonwealth Bank. This was cited as a shinning example of bad management by the state Labour government at the time and gave ample ammunition to the opposition Liberal Party under Kennett. There was also this Pyramid collapse in 1990, once the largest building society in the state of Victoria. I had only faint ideas at that time of the complicated liquidation and real impact; even with massive government bailout, depositors were said to have retrieved their assets at a ratio of a few cents of a dollar. Large numbers of people were affected and billions of dollars evaporated; worse still, confidence on the financial system was shaken during these financial disasters. A few banks collapsed, often taking the form of rescue/mergers by a larger bank, disappearing quietly in contrast to their splashing launch.

There was a more colourful display in private business sectors of Australia. The one person who is qualified to claim the detriments of the “tall poppy” syndrome is Alan Bond. The winner of the American Cup, the Australian of the Year, owner of top Aussie beer brewers and founder of the first private university in Australia has rightful pride in looking back at these achievements and making loud criticisms of others savagely undermining him and subduing his valiant ventures.

There are no secrets of how these feats were made. The fortunes of Bond Corporation were built on large and continuing financial backing of banks in years of early deregulation and easy credit. In common business practice, banks look for credible borrowers at their discretion. While they tend to hesitate on lending to small size businesses or ventures and exercise the strictest assessment criteria before issuing a loan, they find it hard not to chase those large corporations deemed credible and offer them generous loans. It may turn out that some corporations are suspiciously more sizeable than they ought to be, but a lending bank is very likely to be hooked on to a certain business which just dangles potential in front of the bank in question and spit out some money as interest payments for ever larger borrowing. Banks under these circumstances have little to resist: they either keep the business running so that they one day could receive the full payment, or pursue the matter to the end and break the business so that they receive little in return. A hooked bank usually avoids taking the second option and is keen to leave the business operational, even if that means pouring in more money for the purpose of liquidity and cash flow.

It must be said that in the business world of Australia a deliberate action to trap and hook a bank is not common, and borrowers are expected to put up their best behaviours to keep making loan payments. This does not exclude the possibility of some extremely creative use of bank loans. Bond mastered certain tactics. He worked hard to building up the image of a reliable business conglomerate, with his appetite of acquiring numerous businesses in varied sectors, and with his purchase of an English castle complete with servants and villagers. His unusual ways of spending money on splendours drew praises and certainly attention from banks, presenting to them with an inflated corporate image. Money matters are then easier to deal with on the basis of business reputation and celebrity status of the borrower.

A popular theme in the US in the 1980s was spending “other people’s money” for the building of your own business empire. Bond had exploited this means to his advantage, drawing money from banks and depositors for his disparate and widely dispersed business expansion, while handing certain money back as interest payments. It was reported that he daringly threw a bundle of office keys to hapless bankers and demanded them to sort out the financial mess of his making in various companies and subsidiaries. Facing a termination of Bond’s businesses, which means they could only get a fraction of their total lending back, the bankers and creditors balked at this grim scenario and humbly returned the keys to Bond, with promises of even more funding in future. Put simply, Bond gambled correctly on financial institutions' addiction to providing much of the funds for his ambitious undertakings.

Among Bond’s crumpling business empire, Bond University remains his legacy, in an oddly positive way. I wrote to the then vice chancellor regarding the university’s awkward situation that it was still curiously associated with a bankrupt and tarnished corporation’s name. The vice chancellor readily admitted that there was nothing he could do, and the board tended not to make a dramatic and conspicuous move when the university was doing good business financially, with considerable numbers of enrolments of overseas students. This vice chancellor appeared having other important matters on his mind, for he soon after returned to the US to answer a call from President Clinton, to serve as one of his advisors.

Bond left untold fortunes to his children to be among the richest people of Australia. He himself has no remorse or regret to the lost money and people involved in bankrupt businesses. His recent writing after serving jail sentence has glossy accounts of his achievements and complaints of being wronged. It is touching somewhat to watch him walking wobbly to the court in as many days just to save some money for his children to “survive”. In 1994, on one regular walk to court, when Bond recognised the guy asking him questions was none other than Paul Barry, a journalist from ABC and the author a relentless Bond book, he threw Barry’s name card on the ground and spit on it in front of cameras. This shows how deeply he hated those who ruined his golden life of an Australian hero and billionaire. There must be this full blown disgust at the back of his mind of the tall poppy syndrome.

Another notorious Australian fraud involves Christopher Skase, a golden boy in the media business, who was even deeply surprised by his own sudden fame and fortunes. He owned Seven networks and made numerous bids to get more media businesses under his arms. That over-stretched the finances of his company Qintex, and the pleasing appearances could hardly hide the truth of a vulnerable business on credit. His failure to produce a small amount of money guarantee for a 1.5 billion AUD international deal broke the bubble image. For this relatively young Australian entrepreneur, the cash flow soon halted, bank credits ceased to come, and receivers came to chase after his assets. In panic, Skase fled to Majorca, Spain and never stepped on Australia soil again, dodging extradition requests from Australia and meeting his fate of death there in August 2001. A former Australian media tycoon degenerated into a regular at Spanish court, attached to a breathing machine to fight off arrest warrant and extradition. He was once cornered by an Australian journalist on the street of Majorca, when he was riding a bike effortlessly and apparently enjoying it. He screamed at the journalist and darted away. All these were on camera.

Skase got a big cut in the development of Gold Coast and Port Douglas. Over-leveraged finances were commonplace those days, in that development projects are supported by bank credits, and as long as property sales are made, developers with a small fortune at the start could make it big in the end. The moment of truth comes when developers over-spend money on huge projects and see slow sales. Development in Port Douglas by Skase was not dissimilar to what Donald Trump did in New York. The difference is that Trump, when in difficulties, negotiated debts restructuring and received additional financial backing from various sources, including Asian and Hong Kong, to survive a collapse. Skase was not that lucky when his bankers rushed in to get back certain assets as they smelt a rat. To a certain extent, this applies to Bond as well.

Bond and Skase bore the immense brunt of public disgust of the rich and extravagant. For high achievers such as Bond, the combination of careless buying sprees, little tax payments, and hiding fortunes for family members eventually put people off. Even during the high tide of deregulation and economic rationalism, there remained little desire for worshipping the super rich and those influential industrial leaders. To Bond, this Australian trait is perhaps the most annoying and evident of a tall poppy syndrome, because, until the corporate scandals surfaced in the early 21st century, worshipping of money and the rich in the US was undisguised, and the media and publications showered those celebrity tycoons and corporate leaders with loads of praises, those people who were just Alan Bond and Christopher Skase of the US. Penalties there on corporate frauds and scandals came much later than in Australia.

Exceptions to this super rich group members being dragged down are Rupert Murdock and Kerry Packer. The former has since left Australia to pursue wider market shares of all kinds of media and entertainment businesses, so the convenience from holding an American citizenship was sought. The latter remained in Australia and retained the riches in several lines of industries on the solid foundation of family business. From the time receiving one billion dollar from a careless and reckless Alan Bond for his Nine networks, a price inflated beyond any estimates, Packer passed the point of no return in his pursuit of mega billions. Many people with average business sense can make it to the top with one billion dollars at hand; with some more genius and originality, they can build a business empire. The fact that Packer went from strength to strength proves that it takes the downfall of a hotheaded entrepreneur to make another a success.

Where is that said “tall poppy” syndrome now? Murdock commands immense admiration, even after he officially became an American citizen and ran true colour tabloid newspapers in the UK. His business empire unavoidably met financial crises, chased by creditors in a similar fashion to that for Bond and Skase, but Murdoch convinced them with his ambitious expansion plans and workable profit-generating schemes. Packer had been solidly protected from being bothered by the press and the public. During one of his heart attacks in the early 1990s, it was shown on live TV that his crew blocked any photo-taking as his ambulance sped away. For a man of money, though a billionaire, Packer received a state funeral in Sydney, granted by the state government, an indication of media power and new political correctness which rates financial achievements highly. One crucial factor is that these two shrewd businessmen control media corporations and are able to minimise the occurrences of negative reporting. In addition, people may come to admire their incredible deeds in Australian style that they not only succeeded in carrying on their family businesses, but in exceeding the best expectations of their parents. Being the richest men in Australia, they obviously knew what not to do: throwing family fortunes away and being uselessly spoiled.

These and other true stories enhance people’s suspicion of some unexpected fortunes made by celebrity businessmen. There is no genuine confidence on the ability of someone to shoot to the top circles fair and square, and there is even less intended respect accorded to high flyers in this essentially egalitarian society. Public anger and denouncement toward big businesses and their leaders with wrongdoing are often unreserved, rather than sympathy and pity. A lack of proper supervision and regulating of financial markets made matters worse, conducive to the crowded course of rise and downfall of certain “greats”. This is understandable, since regulating was directly against the torrents of deregulation in the same period of time. The Australian Securities Commission took on the role of corporate regulator only in 1991.