Friday 1st June 2001
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I am late and lost - a JAFA driving through the streets of Hamilton, searching for manufacturing giant Gallagher Group. The chairman's personal assistant tells me "follow the road, you can't miss it". I stop and ask. "They're just up the road, you can't miss it," says a local. Right. Aaaargh!
When you know where to look, it's easy to spot Gallagher's new, $8 million premises rising out of the industrial landscape on the 50ha block the company owns. It can be seen clearly across the lake from the other side of the city. Like they say, you can't miss it. The modest chief executive and chairman, Bill Gallagher, had some qualms about the new building's prominence. But not so much so that he agreed to a joking request from local MP Bob Simcock to lop one storey off because it marred the view from his lakeside home.
Gallagher doesn't need a big building to be a household name in Hamilton, or well known beyond. Some locals call the town Gallagherville. They're only half-joking. Bill and brother John (who left the company in 1997 but is still a shareholding director) are the hometown boys done good. They have built their father's electric fence business, started in 1938, into a company turning over $100 million a year, employing 450 people here and a similar number overseas. From electric fences and farm machinery they have expanded into access control, security fencing and injection-moulded plastics. Their technology is in 130 countries, keeping prisoners locked up in the United States and elephants corralled in Africa. They've got factories the world over and 70% of their products are exported.
Even better, they have stuck to their roots and the head office remains in Hamilton. Relatively low compliance costs, the weak dollar and an efficient waterfront meant Gallagher could stave off the seemingly inevitable trans-Tasman drift. As if to ram the point home, the company sponsors just about every Hamilton sporting event you can think of, is a major contributor to local charities and has strong involvement in local politics and business organisations. And now its head office dominates the skyline.
But Gallagher's company isn't just a local hero. Gallagher himself has been showered with accolades, including a Companion of the New Zealand Order of Merit and an MBE for services to business and exporting. (At the time, cousin Martin Gallagher, Labour MP for Hamilton West, asked what MBE stood for: More Blooming Ego? Gallagher considers that a great hoot.)
In 1938 Bill Gallagher senior, company founder, electrified his car to keep his pet horse from using it as a scratching post. Today, complex access control technology is set to become the company's biggest earner. How do you go from tinkering with fences to being a $100 million technology exporter, all from little ol' Hamilton? Not without trials, bust-ups and determination, it seems. I went to the Waikato to find out.
"Oh, you're here to see Bill," says the receptionist. All his staff call him by his first name and, despite the New Zealand workforce now numbering in the hundreds, he knows nearly all by name. A stickler for detail? Maybe. Margaret Comer, Gallagher's personal assistant since 1985, says he's more like a tornado. "Bill's like this huge jet going through the place and I'm cleaning up bits behind him," she says.
I heard similar things from others who know him. But Gallagher is more dapper and quietly spoken than I expect, hunched over his computer sorting through email. He says he is aiming for a paperless office - but he hasn't quite got there yet, judging by his desk.
But good manners and a paperless office don't make a family fortune. What's behind the Gallagher success? Entrepreneurship and innovation seem to run in the genes. When the brothers joined the firm they'd already been in business, running a dive shop and selling underwater regulators they'd designed and built in their father's factory. "Around 1960 father said, 'Are we going to make money or are you going to play around underwater?'" Gallagher junior says. So they sold the shop and Bill finally took over the company in 1974. He recalls an accountant friend of his father's saying they'd be broke in no time. Instead of failing, the company's turnover doubled each year for the next three years, as electric fencing started to take over from the company's mainstay, agricultural machinery. Now the NBR Rich List estimates the family fortune at $48 million. And that's after they've given a lot of it away.
Crucial to Gallagher's international success has been its commitment to research and development. It spends more than 15% of its payroll - around $5 million last year - employing 60 R&D staff. "When it comes to new product launches it certainly puts us in front," Gallagher says.
And being in front is what drives the man. There were seven electric fencing manufacturers in New Zealand in the 1970s. Now there are only three, and Gallagher is the world leader. It is also number one in the world market for animal control and perimeter security. Gallagher electric fences keep the big rhinos and elephants in at African game parks; one was even used in Holland to guard the people accused of the Lockerbie bombing. Prison fencing makes up 62% of sales in the US, has been sold to several hundred South African prisons and to 18 prisons in Australia.
Ironically, it has had less success back home. The Corrections Department is just implementing a security-fencing standard for New Zealand prisons. In a rather stilted written statement to Unlimited, department spokesman Gary Bowman says the use of electrified fencing was reviewed and rejected. No explanation why. "They're too busy chasing escaped criminals to look at new technology," Gallagher responds on the company's website. "It's hard to be a disciple in your own country."
The product innovation continues with the 1999 purchase of "gateway" card access control technology from a former electric fencing competitor. Called Cardax, the brand is number six in the world in its field. Gallagher regards Cardax as his next big adventure, and he is determined to take it to the top within 10 years. Cardax's clients include Telecom, Beijing Airport, the London Underground and the Futures Exchange in London. The access security business is expected to overtake the electric fencing division within three years.
The company's focus on innovation has allowed the group to compete on quality rather than price, while still keeping a low cost of production. That adds up to good profits. Just how good is hard to tell, as Gallagher Group is a private company. Bruce Munro, a non-executive director since 1997, says "Take my word, they're a very successful company." According to former business development manager John Walley, in 1995 the group was making money at $US0.67 to the Kiwi dollar. "With a big chunk of the business in US dollars it could be run by anyone and they would still need a wheelbarrow to take all the money to the bank," Walley says.
"I shake my head over the 'what might have been', and wonder if new buildings are a good substitute for a productive investment strategy," says Walley, who left the company after disagreements in 1997.
In late 1996 trouble broke out at a company retreat, leading to the departure of managing director Neil Richardson (now Foundation for Research, Science and Technology chairman). At the meeting, he and other senior managers had argued, among other things, that Gallagher Group needed to change tack on its traditional country-based distribution channels, with globalisation transcending borders. They argued that distribution needed to be brought in-house.
Senior executives Steve Aldridge and Walley took over when Richardson left, but Aldridge was headhunted to run an Australian company a few months later. Then in late 1997 Walley was allegedly told he was "past his use-by date", and left the company after 12 years.
The ructions are at odds with Gallagher's image as a caring employer who engenders great loyalty from staff. Gallagher is tight-lipped when questioned about the company's management problems. His friends say he was too trusting and was deeply hurt by the events. Gallagher interprets the disagreements as attacks. "My personal style is to give senior executives freedom, providing it is under the general policy of where the company is heading," he says. "We had a disagreement over the direction of the company. They wanted me out, to run the place [themselves]. I wasn't ready to go."
Gallagher's cousin, Rob Booth, was brought in as operations director and right-hand man, but recently resigned for health reasons.
Walley and Aldridge dispute they had any plans for a coup. "Rather, we were trying for the first time to have a full and frank discussion on what was ailing the group," Walley says. "There was a lack of alignment in the senior players' approach to management. A rational approach to the issues was, in our view, well overdue - we wanted to move GGL forward." Having one person at the top making decisions is not good for delegation or the job satisfaction of quality people, who then either pull or are pushed away, he says.
Munro says Gallagher doesn't expect to have yes-men around him, but he has strongly held views. "Some people were valuable 10 years ago. What was suitable then may not be today. The business has outstripped some of them."
Meanwhile, Gallagher Group failed in its bid to stop Walley working in the electric fencing industry anywhere in the world for four years. He had the restraint reduced to just one year, which had already passed by the time he won his personal grievance case in the Employment Court and Court of Appeal. Walley was then able to consult for rival French electric fencing firm Lacme. If nothing else, the case raises problems about corporate governance in owner-operated companies and the wider ownership of intellectual capability, he says.
Gallagher spends a third of the year overseas, maintaining a close relationship with the company's distributors - the group even holds minor shareholdings in some of them. "Companies that do well in export are ones where the chief driver is keen to travel," Matheson says. "Where the chief driver stays at home and delegates, it doesn't normally work as well."
Long-time friend Bruce Goldsworthy, of the Employers & Manufacturers Association, recently attended a dinner to which all Gallagher's overseas distributors were invited. One Dutch distributor spoke about how years ago his father had travelled to a trade show in the United Kingdom and brought home a Gallagher electric fence. But they couldn't get the fence to work properly when they got it home and complained to the Hamilton company. The Dutch family was sitting at home one dark winter's night when there was a knock at the door. Standing in the doorway was Gallagher, come to fix the problem in person.
This hands-on approach is impressive. Walley, who now heads the Canterbury Manufacturers Association, says a lot can be learned from the Gallagher Group about successful exports - both the dos and don'ts. "In my view, their biggest mistake is the conviction that the world can be run on 'seagull' visits from New Zealand. Bill Gallagher might see this as the greatest strength." Walley felt the firm needed more than regular visits to its distributors and would get more control from bringing distribution in-house.
Australia was his first target, with Gallagher setting up a distribution network there before using the company's new electric fencing systems to launch a European operation in 1975. First he had to battle a maze of national regulations. His eyes shine as he explains how he snuck onto the European Standards Organisation of Confederated Electrical Industries as the Australian representative because New Zealand didn't have status.
The international standards, as originally proposed, would have killed off the electric fencing industry, he says. The new standards he helped introduce removed barriers to trade and opened the gates to Europe. Gallagher Group was the first foreign company to gain entry to the local electric fencing markets in Holland, Sweden and Germany.
"One of the things I learnt was if you're going to Europe, anywhere is on the way or on the way back," Gallagher says. Today the company has products in 130 countries. It makes the bulk of its goods in Hamilton but also has factories and sub-contractors in India, the US, China, Argentina, South Africa, Northern Ireland and Germany - mainly where there are closed markets.
Gallagher has been on the Trade New Zealand board since 1995 and has long been involved with the Employers & Manufacturers Association, in particular using his own experience to advise others on international standards, trade practices and research and development.
A personal influence has been Herman Simon's Hidden Champions, a book that argues "narrow the specialty and take it worldwide". At a Harvard reunion in Berlin (Gallagher attended a part-time executive management programme from 1989 to 1991) he first heard Simons talk about private companies being hidden champions: people had never heard of them yet they were dominant players in their world niches. "There were nine major lessons in Hidden Champions, and we fit about seven of them. He ran through them and I thought, 'Shoot, that applies to us'." The hidden champions were usually family firms, the average longevity was 70 years, the average length of service for the chief executive was 35 years and there was usually difficulty in the changeover.
Nevertheless, Gallagher is determined to keep the company private, though a further two non-executive directors joined the board last year. As for the tricky question of succession, both his son, Ian, and John's son, Keith, work for the company. History shows that the third generation often squanders what their forefathers built up. "The first one sets the scene, the next one builds it up and the third ones piss it all against the wall. It is part of our challenge to endeavour to make sure that doesn't happen," says John.
Hopefully those engineering and innovation genes run deep.
Gallagher was the first of his workforce to sign up during compulsory unionism and enjoyed a smooth relationship with the union for many years. Trouble struck when the company wanted to move from a collective contract to individual ones and abolish overtime payments. It claimed workers would be better off by getting an overall pay increase.
What got up the union's nose was Gallagher using his membership to turn up at site meetings, circulating documents to staff claiming the union was not acting in their best interests. Engineers Union national secretary Andrew Little says Gallagher was trying to play both sides and had an obvious conflict of interest. "He knew the level of influence he commanded in what was a generally unskilled company. It was more than paternalistic, he was telling people what was good for them."
An outspoken critic of recent Employment Contract Act changes, Gallagher is still truculent over his stand with the union. "I acted in the best interests of the staff, not the best interests of the union."
In any event, staff are now all on individual contracts.
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