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.