It is said that “to the brave go the spoils”, but how difficult is it to be brave and courageous as a manager today? Cameron Cooper investigates the ability to “have a go” and the possible results.
Australia does not hide its contempt for disgraced tycoons. Christopher Skase (Quintex), Laurie Connell (Rothwells) and Alan Bond (Bond Corporation) – their names stand as symbols of the excesses of ’80s and ’90s business. Aggrieved stakeholders and zealous regulators have neither forgotten nor forgiven the trio and their ilk.
Contrast their pariah status with famous American bankrupts who failed at least once before going on to achieve fame, riches and an iconic reputation in the corridors of business. Nineteenth century US tyre tycoon Charles Goodyear discovered how to vulcanise rubber but later left his family in debt. In 1875, condiment manufacturer Henry John Heinz filed for bankruptcy before making tomato sauce and his fortune. And automobile manufacturer Henry Ford’s first two car manufacturing companies collapsed before he set up the revered Ford Motor Company.
While the comparisons may be flattering to the three corporate cowboys from Down Under, it does reveal plenty about the gulf between American and Australian attitudes to business risk and tolerance of failure.
Professor Evan Douglas, Head of the Brisbane Graduate School of Business at the Queensland University of Technology, says Australian businesses typically take a safety-first approach.
“In Australia you’ve got much less tolerance of failure because of the stigma attached to bankruptcy and the stigma attached to failure more generally,” he says.
Professor Douglas says entrepreneurship is the link between invention, innovation and success. Societies such as the US and parts of Asia adopt and embrace the attitude that failure is a justifiable pit stop on the road to business success.
“It’s like rolling the dice,” he says. “If you don’t roll them you can’t win. But you’ve got to expect to sometimes lose.”
In a recent SBS television program exploring the Australian business psyche, organisational psychologist David Peake comments that the US “chest-thumping” business style sees “failing as a learning experience”.
“In America you fail your way to success,” Peake says.
For CEOs and senior executives, business risk is often trickier to handle than everyday management issues. Risk, by its very nature, does not lend itself to forecasts and set rules. Bill Palmer, Director of Professional Standards at the Institute of Chartered Accountants in Australia, agrees that the ability to fall and get up again is an important part of American business culture.
“They almost pride themselves on the fact that to be successful you’ve got to have failed once before you get there,” he says. “Their version of the capitalist system is that it’s all about risk and reward and there’s a trade-off . . . whereas we have an attitude that it’s more important to not fail than it is to succeed.”
Palmer cuts Australia some slack – he says bigger American markets allow more scope for risk. But he is an advocate of a more creative Australia.
“Innovation is more important than ever. And what innovation brings is risk because by definition, if you try new things, not all of them are going to work.”
There is evidence that Australia’s risk-averse nature is damaging returns for business and stakeholders. In a February cover story in BRW on corporate sloth, the magazine claims Australia’s top 1000 enterprises have too many passive assets. According to BRW’s calculations, these enterprises earned, on average, 80 cents of revenue for each dollar of hard assets over the past three years – a figure that is arguably too low. The average return on shareholders’ funds was a mere 7.5 per cent. BRW concludes: “On these figures, at least 400 enterprises would be better off closing and giving investors their money back.”
Susan Campbell, Financial Policy Adviser at accounting industry group CPA Australia, is not convinced that Australia’s market size is to blame for a conservative business sector.
“We cope with financial risk being in a small market,” she says. “We cope with commodity risk, interest rate risk and foreign exchange.”
She notes, too, that Australia can compete when it has the will – such as on international sports fields.
“No one says we can’t compete in cricket because we are only a tiny country, or football or any other sport we want to put our mind to . . . If business is something that we really want to compete in we do have to put money into it; we do have to provide the institutions and the training and the seed funding.”
It is hard to argue. The Sydney Olympics, the Rugby World Cup, the Australian Institute of Sport, and cricket, tennis and golf – they have all been the benefactors of a constant flow of private and government funds and they are all areas where Australians tend to punch above their weight on the world scene.
Campbell says Australia seems particularly reluctant to finance new business ventures.
“We’ve got lots of brilliant new ideas and some good innovation and marketing, but we do seem to lack people prepared to put the finance behind them,” she says.
Campbell suggests many venture capitalists or companies simply do not want to be the first in the marketplace and argues government action is required. She advocates less red tape for business grants and a government entity that pays for the development of exciting business ideas and takes them through to a physical stage for Australian organisations to market.
Any consideration of risk and failure inevitably focuses on the recent spate of corporate collapses and the ensuing push for corporate governance reforms. But if notorious implosions such as Enron and WorldCom in the US and HIH and One.Tel in Australia have raised fears, it is worth noting that many corporate scandals have involved corruption and greed rather than risky business plans.
A knee-jerk response and an over-regulated market could swing the pendulum too far. Already in the US there are calls to dilute the Sarbanes-Oxley Act, the new corporate governance code.
Walter Dinale, a Partner at Deloitte Growth Solutions, says Australia’s approach to business risk goes through cycles.
He says an “irrational quest” for charismatic CEOs is on the slide, and companies are promoting people from within “who know the job” rather than hiring high-profile leaders from outside their industry.
“It all points to the fact that we are less risky than the Americans,” he says.
On corporate governance, Dinale says the advantage of a more stringent watchdog regime is that it builds in systems to minimise risk.
“Gone are the days when the high-flying entrepreneur is going to make decisions based on a gut level with very little information at his or her disposal.”
At the ICAA, Palmer contends that Australia must not produce a generation of business leaders who merely “tick the box” to meet corporate governance strictures. He notes: “You can have great corporate governance but your business might go nowhere.”
What is clear is that Australia must become more aggressive.
“The challenge that everybody has got today is that you have to take some risks because that’s what business is all about,” Palmer says. “The key is how they monitor and control the risk.”
Renowned ad man and punter John Singleton reckons far from replicating risky US business trends, Australia should realise it can teach America a trick or two. Speaking on the SBS, he argues that Australia doesn’t need “second- and third-rate” British and American CEOs who come on three-year contracts, make short-term decisions and then bale out with exorbitant parachute packages.
Singleton says the “fair go” mentality of Australian culture can apply to big business.
“It’s based on mateship; it’s based on doing the right thing and a fair go,” he says. “If you’ve got those criteria it’s better than all the legislation in the world.”
Not all are enamoured, however, with the interaction between Australian CEOs and their boards of directors.
Dr Philippa Malmgren, the President of Canonbury Group, a London and Washington-based financial services group that advises investors, banks, governments, brokerages, fund managers and institutional investors worldwide, says that when the economy is going through a period of weakness, that is the time when entrepreneurs are sent very powerful signals that they should take risk.
“When interest rates drop, for example, that’s like a smoke signal to go for it. The message is: money is cheap, take a risk, take your brilliant business idea and try it now. All-important risks that get taken are typically taken at moments of greatest weakness.”
She says IPOs are, by definition, enterprises that have created something out of nothing and are big enough to offer a part of that to the general public. “They reflect the fact that an entrepreneur saw a smoke signal that said ‘it’s time to act and build jobs’.”
However there are some healthy signs that Australia’s corporate structure and entrepreneurial spirit will continue to improve.
For instance, at the Brisbane Graduate School of Business, which is ranked one of the world’s top-100 MBA programs by British newspaper The Financial Times, Professor Douglas says the proliferation of business schools across the country is encouraging a more entrepreneurial spirit.
Learning on the job, he says, is no longer enough and business people need a “turbo education” through courses such as MBAs.
Bernard Cronin, the Executive Director of AIM, Victoria and Tasmania, says that while this is true it won’t future proof you until career end.
“For more than 60 years the AIM has been providing short practical courses to supplement those based on theory. We aim to offer life-long learning in small practical bites that an employee can access as needed throughout their working lives,” he said.
Professor Douglas said that too many Australians equate business management to parenthood, “that you can get good at it as you go along.” This “she’s right, mate” approach puts a business on a potential collision course with failure.
Professor Douglas concludes that “there’s a risk that we get a bit cosy on this island.”
Cameron Cooper is a freelance finance and business writer.
Creating a worldwide brand
When managing director John Casella set a goal a few years ago for his family winery to take its export wine sales from zero to 25,000 cases, the skeptics raised their eyebrows. Now, the Yellow Tail label of Casella Wines in the NSW Riverina area is one of Australia’s biggest export successes. From a standing start in June 2001, Yellow Tail has jumped to annual sales approaching five million cases and sells to about 15 countries. The distinctive, stylised wallaby on the label of Australia’s biggest-selling wine in the US has caught the attention of drinkers from San Francisco to New York. Clearly, the risk has paid off for the small family company founded in 1964 by John Casella’s parents, Filippo and Maria.
Felicity Hillis, Marketing and Customer Manager for Casella, says the choice to target overseas markets was simple “because we knew that the domestic situation was so saturated”.
“We saw it as a more rewarding option. We wanted to be a worldwide brand so we really had to get out there and plug it.” She admits the early stages were tough.
“We weren’t a Hardys and we weren’t a Southcorp and we didn’t have something like Lindemans that we were trying to sell. It was a product that had no sales history, a company that had no export history, so we hit some fairly large brick walls.”
Hillis says the US is a brutal market: “The Americans are like, ‘you either get big or you get out. Why would we want to deal with you’. They’ve got quite an egotistical and cut-throat approach to business.”
The Casella experience also underlines the fact that sometimes you first have to fail before you can succeed. The company previously marketed a label in the US, which Hillis admits “failed dismally”.
“It didn’t set the world on fire, but it taught us a lot and gave us other avenues to help launch Yellow Tail.”
Despite a rising Australian dollar that is punishing exporters, Hillis is confident Yellow Tail can continue to prosper abroad. She says: “We’ve got amazing loyalty and I think that will separate us from the other players.”
- General Motors Holden – Holden is rebadging 18,000 Monaros to sell to the US as Pontiac GTOs. The export deal is worth $1 billion. Britain’s Vauxhall has also signed a deal for 300 Monaros a year. It is the fourth new export order in the past 18 months following the US, Malaysia and Thailand.
- ResMed – An Australian developer of sleep-disorder equipment, ResMed sells to more than 60 countries. The company distributes through direct offices in the US, Australia, Germany, France, Sweden, Britain, New Zealand, Singapore, Malaysia and Japan, plus a network of distributors to other countries.
- Beeline Technologies – Since the late 1990s, this Queensland business has used global positioning systems to guide tractors in a straight line. It is called “straight-tracking”. When manoeuvring backwards and forwards across a paddock, a tractor operator inevitably overlaps with each pass. Multiplied across hundreds or thousands of acres, it translates to excess use of fuel, chemicals and seed. Beeline now employs more than 60 people in Australia and has an expanding presence in the US.
10 rules for reinvention
- Set unreasonable expectations
- Stretch your business definition
- Create a cause, not a business
- Listen to new voices
- Create an open market for new ideas
- Offer an open market for capital
- Open up the market for talent
- Lower the risks of experimentation
- Divide and conquer
- Reward the innovators
Source: Innovation and Imagination at Work, Australian Institute of Management’s Management Today book series.
Exporters lead the way
Amid the criticisms of Australia’s timid business nature, there are some exceptions.
Tim Harcourt, the Chief Economist at The Australian Trade Commission (Austrade), trumpets the export community.
“On average, the export sector is much more dynamic and innovative than the non-export sector,” he says. “That’s a finding that comes out in studies around the world, so it’s not just an Australian feature.”
So what drives exporters? Management culture is different, they tend to pay staff more and training systems are often better, according to Harcourt.
“They are also the type of people who are a little more forward thinking and internationally minded,” he said.
Commitment, flexibility and responsiveness are among the traits readily evident in our best exporters. The emergence of a business-minded migrant community that is exporting products back to their countries of origin has helped transform the Australian export sector, says Harcourt, citing the wine sector.
“We’ve had a wine industry for 150 years or more,” he says, “but it’s only been international in the last 20. The wine has always been there.”