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Opinion: Don't think that the appearance of Don Elder before a Parliamentary Select Committee will answer the questions as to what went wrong at Solid Energy

Posted in Opinion

By David Hargreaves

Given the heat being generated by the subject, it seems entirely possible that when former Solid Energy boss Don Elder fronts Parliament’s Commerce Select Committee on Thursday he will end up with his head being paraded around the Parliament grounds on a spit.

Well, perhaps not literally, but certainly in a figurative sense.

Elder has confirmed that he will head into the lion’s den. It is to be imagined that the event will be standing room only. Though it’s likely that there will also be people with picnic hampers and wine in order to truly savour the event. It will be like the glory days of the Roman arenas.

The public has been well wound-up by the news that Solid Energy – under Elder’s watch – has become a financial basket case (debt close to NZ$400 million and seemingly mounting by the minute) that will probably have to be bailed out expansively by you and I.

That is galling. But then of course comes the revelation that despite no longer being on deck at Solid Energy and now officially on the dreaded gardening leave, Elder is still currently enjoying the fruits of the last of his up to NZ$1.3 million a year salary. Plus there will be an unspecified severance payout on top of that, very likely to also exceed NZ$1 million.

The Opposition parties are pretending to be outraged. They are not really of course. They are actually delighted. A bone-fide Government cock-up, with a pantomime villain (Elder) thrown in for good measure. Political ammunition doesn’t get any better than this.

But after everybody’s had fun and perhaps Elder’s been put in stocks so that the people of New Zealand can throw rotten fruit at him, will anything have been achieved? Well, of course not.

By the tone of the statement Elder issued last night, in which he said he would endeavour to help the committee in any way he could “subject to the lifting of obligations imposed on me by Solid Energy” he doesn’t intend to be some sort of fall guy. Indeed he even had something of a shot at Solid Energy, saying he had made himself available to assist the Solid Energy team at last week’s sitting of the Committee, but “was advised that I was not required to be present”.

My guess is that while there will be bloodletting, the committee appearance by Elder will only be a rather grubby circus sideshow.

At risk of being seen as something of a killjoy, could yours truly suggest that the villain of the piece here is not actually Elder at all.

Has Elder made a right royal mess of running Solid Energy? Well, it appears so doesn’t it. But the point is, he was allowed to make a mess of it over a long period of time. And if a chief executive is running wild – and it seems that Elder was given license to pursue his own pet projects – then that comes back on the board.

If people really want to get to the bottom of what happened at Solid Energy, it would be at least as relevant to have everybody who served as a director on the board in say the last 10 years to front up.
The real problem here appears to stem from the fact that there were a number of changes to the composition of the board between 2005-2007.

During that period incumbent chairman Tim Saunders – who had previously had a well starred directorship career – stood down in the wake of the disastrous collapse of Feltex, which he also chaired. John Palmer, who had done a terrific job of chairing the once-problem Air New Zealand, was parachuted in to head the board.

So, the situation you had was a board whose members were mostly quite fresh in the job – and generally there were only about two or three members in an up-to eight-strong board with direct mining experience.

The problem was that Elder had been there a lot longer than the board and in that sense it would appear that he “captured” the board – that is, he was the guy who had been there a lot longer than them, he had the experience, he had the plan and they trusted him.

The real warning sign was in 2010-11 when the Government was starting to prepare assets for sale, including Solid Energy. The board at the end of each year was required to value the company. The Solid Energy board reckoned that their company was worth NZ$3.5 billion. Independent sharebrokers – who would have to help in any sale of Solid Energy – reckoned it was worth about half that. And in fairness to the government, it is about that point that questions do seem to have started being asked.

But it was too late.

Buoyed by booming coal prices in the mid-2000s Solid Energy had sailed into a load of questionable “pet” projects, involving lignite, renewable resources and all sorts. Once the coal price crash came in 2011 the company was in no way insulated.

Elder undoubtedly believed and still will that what he was doing was right for the company. The problem is that any chief executive has to be strongly questioned, yes, by the board, and challenged on the strategies they, the CEO, set out. If this was done at all then certainly it was not done anything like vigorously enough.

The necessary clean up of the Solid Energy mess has started. Unfortunately what we have seen so far is the rather typical, in the corporate world, strategy of trying to clean up the mess very much behind closed doors.

It is entirely usual that a chief executive “resigns” – they are never fired – and that they then get a “golden parachute” to ease their journey down from the top. These golden parachutes normally come with the proviso that the said CEO doesn’t talk about what happened. It is completely wrong of course. Effectively the person with whom the buck is supposed to stop is actually paid for failing.

In this instance a full inquiry would seem very appropriate. This is a state-owned company answerable, ultimately, to the taxpayer. It went wild, it lost a lot of our money. And we want answers. Unfortunately Thursday’s select committee appearance by Elder won’t come close to satisfying that.

Personally, I would like to see Elder’s last year’s pay at least clawed back for the tax payer. I would like to see the pay given to the previous board over the last three to five years returned. And I would like to see a full, independently produced report on just what went wrong, involving testimony from all the relevant parties.

Then I might consider putting my hand in my pocket and bailing out Solid Energy.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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12 Comments

Solid Energy … significant

Solid Energy … significant amount of aggregated reporting and commentary at Cantabrians UNITE facebook , which may be of interest and assistance.
 
This includes a link to the superb TV3 Campbell Live coverage of the issue, screened last evening.
 
It seem it will very much be the politicians “on trial at the Committee Hearing Thursday – in how effectively they conduct themselves and press for the answers required/
 
Hugh Pavletich

Why is no one picking that

Why is no one picking that Solid Energy's problems arose out of Don Elder and the Board simply answering the call of their major shareholder! 
 
National are the ones who thought we could literally "dig" our way out of the debt crisis;
 
In a nondescript Southland paddock, on a day Solid Energy chief executive Dr Don Elder described as the proudest and most important of his time with the company, the Government-owned coal miner launched a new era in lignite conversion.
Yesterday, before Finance Minister Bill English, representatives from local government, iwi, neighbours and businesses, Solid Energy turned the first sod on its $25 million briquetting plant; the first processing plant of its type in New Zealand.
 
http://www.stuff.co.nz/southland-times/business/5598805/Huge-benefits-seen-in-lignite-industry
 
It's the Government, stupid.
 
Or, more appropriately, it's the stupid Government.
 
And you wonder why Don's still on the payroll!

Spot on Kate - it's always an

Spot on Kate - it's always an owners responsibility to look into the management of one's assets- and in this case it was the shareholding SOE Minister's responsibility, as well as  the Minister of Finance. 

It's the Government,

It's the Government, stupid.
 
Or, more appropriately, it's the stupid Government.

 
Dumb and dumber!!!: Read article
 
"Yesterday morning, a courier arrived and woke up my household. The delivery was a letter from Novopay informing me that debt collectors would be employed to take control of my $22.78 debt."
 
After she complained, Novopay representatives said they would put debt collection on hold while they looked into the case.
 
The Novopay payroll system, run by Australian company Talent2 and introduced six months ago, has been plagued by problems, and teachers and support staff have been underpaid, overpaid or not paid at all.
 
Ian Leckie, immediate past president of the NZ Educational Institute, said the collection action was "extremely heavy-handed''.
 
He understood debt collectors were approaching teachers while they were working, and the visits were the first they knew about any overpayment.
 
He said the ministry owed money to his school, which had paid $45,000 in advance to teachers who had been victims of the Novopay system.
 
"But our school certainly isn't sending debt collectors around to the ministry for what we had to pay out."

Surely a sign of a Government

Surely a sign of a Government that is broke - both literally and figuratively.

The LABOUR Govt  is to blame

The LABOUR Govt  is to blame for this mess and just to prove it look at a  timeline  with specific dates of the events and how they unfolded .
There is no way a full feasibility , capital  raising , RMA compliance,  Maori claims and Iwi  approval , the acquisition of all plant and equipment and staff and production of a new lignite mine could be done in 36 to 48 months  (about the time that National has been in power )
When Labour realise its their cock-up watch them go quiet

I wouldn't know - never vote

I wouldn't know - never vote for either of them - but according to this report - Labour opposed the lignite initiative;

English slams Labour's plan to can lignite
 
http://www.stuff.co.nz/southland-times/news/election-2011/5923807/English-slams-Labours-plan-to-can-lignite
 
 

That link is going to being

That link is going to being deleted better have a look quick.

The points raised within the

The points raised within the above thread are much appreciated.
 
There ceertainly appears to be a very long history here of political and governance failure.
 
And Solid Energy is by no means an isolated case.
 
Thank you David for an excellent article ...and Vaughan for posing a link to the superb journalism of the TV3 Campbell Live people.
 
Hugh Pavletich

On the subject of SOE's and

On the subject of SOE's and their management, once MRP is floated and many shares are held by ordinary NZers, how much power will they have? If anybody knowledgable in shareholder shenanigans could shed some light...
I know I'm making some assumptions here, but would it be at all feasible for small shareholders to force MRP to behave a bit more palatably, for instance cut the salaries of Execs and Directors, lower profit goals, disclosure policies etc. Could that force the Govt (as majority shareholder) into some politically awkward situations?
I disagree with the sale, but will probably buy shares. I'm just wondering what power a block of voters might have for some direct action here? 

Government has robust powers

Government has robust powers (s13. SOE Act 1986) to direct it's companies if it chooses to. Just pathetic to listen to JoKey lamely blaming others this morning. The trial next year of the SCF directors has the potential to really out these Walpolean pick-pockets posing as Tories.