13/02/2014 - 12:31

Forge: a failure of management

13/02/2014 - 12:31


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It's not often that 6,000 investors are in total agreement, but in the case of the collapsed Forge Group there’s no doubt that all of the company’s shareholders will recognise that the failure had one cause – management incompetence.

Forge: a failure of management

It's not often that 6,000 investors are in total agreement, but in the case of the collapsed Forge Group there’s no doubt that all of the company’s shareholders will recognise that the failure had one cause – management incompetence.

The reason that charge can be so clearly made is that an engineering contractor is nothing but a collection of people who use their skills to raise money, win contracts and build things for other people.

In the case of Forge, and countless other contractors before them, the process failed because management committed one, or more, of the following mistakes:

• underbid to win a contract;

• failed to supervise a contract effectively;

• bought the wrong equipment to undertake a contract;

• employed cheap and/or underqualified sub-contractors; or

• simply bit off more than the company could chew.

What mix of mistakes wiped out Forge will be the job of receivers and other court appointed officials to determine but it’s a dead certainty that the failure will come from a mix of those factors.

Unfortunately, the post mortem, which started yesterday, will be of no comfort to the 1,300 workers who have effectively been cut off at the knees by yesterday’s instantaneous termination of their employment – leaving them wondering how to pay their mortgages, school fees, car loans, and even meet day-to-day living expenses.

Forge management will forever have the faces of the workers they have so badly hurt burned into their memories because of the way they used employees in last year’s annual report to promote the company – with none more poignant than the picture of an African worker named “Innocent”.

Investors too will be feeling the shock of capital lost in a business that disappeared almost overnight, despite repeated claims trading was strong and profits high.

Perhaps the most remarkable claims were made in a management presentation at the Forge annual meeting held in Perth exactly 111 days ago as of yesterday, February 12.

For anyone familiar with cricket traditions, that 111 can now be seen as an omen because it is what the England team calls a ‘Nelson’, a sign of bad luck that can be avoided by standing on one leg.

Forge, it seems, was a company that spent much of the past year doing just that – standing on one leg – because it seems that many of the high-value contracts it held were definitely unbalanced and unprofitable.

For a taste of what investors were told at the October 24 annual meeting consider these classics, which can still be found on the Forge website, including claims that the company:

• has a “tier one” executive team;

• is positioned well for continued success;

• has a strong order book and $103.9 million in cash;

• is a billion dollar business meeting or exceeding guidance; and

• is enjoying continued success across its business units.

What’s so truly remarkable about those claims at the annual meeting is that, 11 days later (on November 4), Forge management requested a halt in share trading.

And 24 days after that it revealed a $127 million profit write-down, a “challenging” liquidity position and the need for the company’s banks to provide fresh debt so existing contracts could be completed.

Excuses for this pitiful process include claims that Forge bought a business, CTEC Pty Ltd, which held some of the contracts that contributed to the collapse.

The problem for Forge management trundling out that explanation is that CTEC was acquired in January 2012, a full two years ago with Forge in charge since then.

Either the contracts were a problem in 2012 when the CTEC deal was done and Forge management failed to see what was wrong, or the self-proclaimed “tier one” management team at Forge was asleep at the wheel for the past two years as the CTEC contracts turned sour.

Analysed anyway you like, Forge is disaster made by a group of managers who believed their own promotional material, and by a board of directors that was not looking closely enough at what management was telling employees and investors.

The net result is a failed business, damaged investors and countless employees whose lives have been turned upside down, and possibly ruined.

A humble apology from everyone in the “tier one” management team would be a good start, but will probably not be forthcoming because that might imply some sort of responsibility for the Forge train wreck.


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