Time for Tower board to accept some blame

By James Boonzaier

Friday 20th December 2002

Last week's announcement by the Tower board of a full-year net loss of $75 million, following a half-year profit of $40 million in May, was a disappointment to all shareholders.

My tenure as chief executive at Tower ended in July 2002.

There seems to have been a regrettable attempt by the board to avoid responsibilty for the result and deflect it on past management. This is surprising as in the previous 11 years of reporting an annual result, the board enjoyed the credit for the profits made each year. It should also be prepared to accept responsibility for losses.

These comments were made without any prior discussion with me, and despite the requirement imposed by the board on my retirement that neither of us would make personal comments of that kind.

I have now had an opportunity to read the investor report distributed by the board.

Clearly, issues relating to losses, which the chairman, Colin Beyer, referred to in his interview after announcing the result, occurred in the second half of the financial year following my departure. If they had been apparent at the time of my departure they would have been announced then in terms of Stock Exchange regulations.

It appears that $76 million of the losses (investment income, Bridges revaluation and experience losses) relate to "negative investment returns" or "market conditions." These factors appear to be largely uncontrollable.

Two other major items contributed to the substantial full year loss by Tower "technology writeoffs" of $30 million and "operational losses/redundancy costs" of about $40 million. The decision to write off certain technology investments was apparently taken by the board to reflect a new priority on wealth-management products.

The large operational losses in Australia might well in part reflect the challenging strategic situation the company finds itself in. Tower is not a big player in the Australian market. There is formidable competition and Tower still has a risk-insurance bias in its business. The board's decision to restructure (again) and part with a large number of its experienced staff and management (presumably to cut costs) in the latter part of the financial year would have made it difficult to manage a deteriorating financial situation in the company. Presumably the board of Tower's main subsidiary in Australia (of which Tower's Mr Beyer, incidentally, has been a member for a decade) was monitoring the situation.

While my own retirement moneys will be part of the costs referred to, I was paid out in accordance with the law and my contract when the board negotiated with me to retire. That cost comes from a board decision.

Careful management by the board of Tower's profit warning in November might also have cushioned the negative impact of the losses on the company's share price and the consequential damage to shareholder value which has occurred.

The comments by Mr Beyer on my tenure as chief executive and on previous management are inaccurate, unjust and rejected out of hand.

My 12-year period as chief executive was characterised by a tenfold increase in assets and a substantial strengthening of Tower's financial reserves from a weak base. The past three years as a listed entity have been particularly challenging, coinciding as they have with the start of a three-year global bear market.

The listing of Tower was preceded by demutualisation, which was a complex process complicated by many legal challenges which were well managed.

It is unfortunate that confidential boardroom discussions have been aired and used to criticise a particular director. Company performance is the responsibility of all directors, especially those currently on the board.

The comments regarding my tenure by Mr Beyer about "not dealing with non-performers," "unhealthy control" and "resistance to structural change" are his view, which would not be shared by most of Tower's staff, customers and business associates with whom I have dealt over the past years.

It is interesting to note that at a recent annual meeting Mr Beyer strongly defended Tower executives. He is quoted as saying, "If we didn't [pay well] ... we would have all our good people taken from us ... they are really good people."

I understood that to be Mr Beyer's view of myself and my team until very recently.

The Tower board needs to accept that adverse economic and market conditions will negatively impact on the profits of the company from time to time. Seeking a scapegoat achieves nothing. It is also important for the board to finally accept that with the majority of Tower's business in Australia, the company cannot sensibly continue to manage and govern out of New Zealand. Better communication with investors, customers and share analysts who are based in Australia, would be facilitated by a strong presence there.

I believe that the Tower board (which largely remains that elected in the mutual era) would benefit from an infusion of new blood but this is clearly a decision for shareholders.

As a significant shareholder and someone committed to Tower for 15 years I wish the company and its shareholders well. I have a high regard for the company, its staff and its shareholders. There is a great resource here if it is properly managed.

James Boonzaier is the former chief executive of Tower

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