Evans & Tate executive chairman Franklin Tate has made a passionate defence of his company’s corporate governance practices and its commercial prospects.
Evans & Tate executive chairman Franklin Tate has made a passionate defence of his company’s corporate governance practices and its commercial prospects.
One week after telling investors the company would incur its first loss in 19 years, a feisty Mr Tate was continuing to bat on the front foot.
“I have a very strong, passionate view that Australia doesn’t need less executive chairmen, it needs more,” he told WA Business News.
Mr Tate, who is Evans & Tate’s biggest shareholder, believes great companies are built by people prepared to put their own money into the business.
“That’s what corporate leadership is about, backing the business with your own hip pocket,” he said.
“Yeah, there will be lows, and yeah, there will be highs, but damn it, the highs will be so much bigger when you’ve got real skin in the game.”
He believes many directors have adopted a “public service” approach to running companies.
“The desire to sterilise our corporate behaviour has gone too far.”
A distinguishing feature of Evans & Tate’s corporate governance model is the role played by its lead independent director, John Hopkins.
His role includes to “ensure that the independent directors can perform their duties responsibly”.
He also monitors the flow of information to the board, can specifically request the inclusion of certain material in board papers, and manages any conflicts of interest.
Mr Hopkins, a former lawyer and merchant banker, spends about two days a week at Evans & Tate, similar to the time spent by many non-executive chairmen at their companies, but Mr Tate says there are crucial differences between the two roles.
“The lead director’s role is to provide independence without crushing that passionate corporate leadership,” he said.
“I’m the largest shareholder, I’m the one whose money is on the line, I have the most amount to lose; it’s me that’s bound up in this business.
“Whoever was the non-executive chairman, that would seriously compromise the corporate leadership and contain my ability to lead the business.”
Mr Tate takes the argument a step further, arguing that chairmen can have a detrimental effect.
“Non-executive chairmen don’t back corporate leaders, they want to be a leader themselves,” he said.
“You’ve got leadership tension then. People say that’s good. That’s bullshit. What you need is someone behind the leader and supporting you.”
Mr Tate also believes professional chief executives could be tempted to leave companies going through a difficult period, in contrast to people who were as committed to their company as he is.
He is concerned that organisations such as the Australian Institute of Company Directors do not support or understand entrepreneurial executive chairmen.
However, a spokesperson for the AICD said its view was that companies should be free to choose whatever governance model worked best for them, as long as they disclosed this to shareholders and explained why, as required by the ASX guidelines.
In regard to the company’s commercial problems, Mr Tate acknowledges that he failed to judge the impact of Australia’s wine surplus.
“We thought the industry would recover quicker from its wine surplus than it has.”
He also acknowledges that the company made poor commercial judgements.
“We got hit twice. We bought in too much stock in ’04 and in ’03 we bought Cranswick, and that came with more stock than we wanted.”
Mr Tate said the company should have reacted faster to its problems, but it had responded.
“In ’05 we announced to the market that we shorted our intake dramatically. We bought 7,000 tonnes less, so we recognised as early as the beginning of this year that we had a problem,” he said.
Mr Tate said the company had also added to its executive team by recruiting managers from within the industry in recent months.
He said the company recognised two years ago the need to upgrade its business systems in response to its rapid growth.
However the necessary changes have not been implemented, in part because the company has had four different chief financial officers over that period.
A new CFO, Terry Power, started this month, following a four-month period when the company had neither a CFO nor a chief accountant.
As a result, the company was under-resourced as it sought to finalise its budgets and complete its annual accounts.
The ANZ Bank responded by recommending that Evans & Tate engage 333 Performance Management, the consulting arm of insolvency firm KordaMentha.
“With the benefit of hindsight, I should have said, ‘well that’s nice, but why don’t we look at somebody like Deloitte, who do wine industry industry work, or Ernst & Young, or whatever’.
“The amazing reaction to the whole KordaMentha thing has been grossly overcooked.”
Mr Tate insists the ANZ Bank remains fully supportive, despite Evans & Tate asking for $8.5 million of additional “short term working capital” and deferring a $2.5 million interest payment.
He said the deferral was the bank’s idea, and believes it was the “singly big confirmation” of its support for the company.
“If the bank had any real concerns, I’m sure they would not have offered that deferral.”
Mr Tate also denied rumours the bank had requested the accelerated sale of inventory and the write-downs.
He added that the company asks for additional funds each year to support its projects, and this year’s request for additional funding was no different.
Evans & Tate is not the only major wine company in WA going through difficulties.
Xanadu Wines announced last month plans to sell its namesake winery and restaurant to Victorian investor Doug Rathbone for $26 million, while Abbey Vale appointed administrators late last month.
EVANS & TATE SNAPSHOT
- Franklin Tate is Evans & Tate’s biggest shareholder and executive chairman.
- The company’s expected loss in 2004-05 is between $4.8 million and $7.5 million.
- Its wine inventory is being written-down by up to $10 million.
- The company is seeking additional funding from ANZ Bank.
- It appointed 333 Performance Management, a consultancy owned by KordaMentha, to review its forecasts and plans.
- Three of the top managers have been replaced this year.
