Not so fast Davy Boy

Look at the result from Mighty River Power out this week, profit up by over 40% and retail customers up by over 30000 for the last year.

Contrast that with Contact Energy Ltd [CEN.NZ] FY 2009 profit release out in August. Profit down by more than 50% and retail customers lost, more than 40000.

Reason?

Well according to David Baldwin, CEO , it was "overconfidence" (see arrogance in the dictionary for possible explanation) that led to the spectacular drop in profit and associated loss of customers and reputation:

"There's a fair amount of reflection over what we've done in Contact and it has to be said hubris had been building up over several years."

The 45-year-old is urging his staff to re-adjust their thinking.

"If we assume that everything good that happens to us is all good luck then we won't carry that confidence [forward] and we'll start afresh." NZ Herald Sept 5 2009

Of course if you accept that arrogance is the reason for the slump in profit you would have to sheet the responsibility for that arrogant attitude down to the company leader/s, after all we know that company culture is fostered by its leadership right?

Well, apparently not. David was nice enough to share the responsibility for his muck up with his staff.

Weather plays an important part in company fortunes and boy oh boy meteorologically speaking David has had a bitch of a year with that.

Of course that is understandable, weather is crucial to running an electricity utility company and that is plain to the average Joe but I have rarely seen David blame the weather when it is in his company's favour, it seems to be down to his good management. Boy David has some great connections there - as opposed to the 40000 connection lost over the last 12 months.

Many of you reading this will be thinking, what is your problem Mr Rickard, any company can have a bad year?

Very true and there can be many reasons for a bad year, some of them out of leaderships hands but these reasons are universally known and should be accounted for when running a business.

The big problem that I have though with Origin Energy Ltd [ORG.ASX] appointed David Baldwin is that he and his board of directors were almost single-handedly responsible for Contact's bad year.

They raised electricity prices (probably validly) at a time when they doubled directors fees while in the same week having an expensive lunch at a posh restaurant on the shareholder tit. The shite then hit the fan and they waved bye bye to more than 40000 customers and what they had left of their reputation.

Very few individuals will put their hands up and criticise such a monumental stuff up and put the blame on where it lies, with David.

The piece that I quoted from in the NZ Herald was so soft soap I have to rub myself down (control your excitement) again with dettol just to feel clean again.

The fact that David and his board are still employed after their stuff up is hard enough to stomach but his PR exercise of apportioning blame to everyone else rather than solely on himself is a business slight of hand often used in New Zealand to bury ones mistakes as time passes and it should not be accepted by Contact Energy shareholders.

David, the board, his executives and the puppet masters at Origin Energy should be ashamed, but it is clear that they are not and that is the cutting part.

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Hard times make Great Businesses

Efficiencies gained during economic downturns are good for business long-term. New Zealand businesses need to seize the opportunity now to focus on producing innovative, value added, niche products and services to increase export and business profit margins and stop using the current conditions to moan about their situation.

So the New Zealand dollar is at a post float 23 year high, exporters are hurting financially and moaning about it, petrol and energy costs are crippling, labour costs keep rising, mortgage rates are spiraling, Kiwis are leaving in record numbers and it is due to get much worse should Labour be returned to office come election time and time to back up promises of pre-election spending come home to roost.

There is little we can do about the current government imposed meltdown except push on and continue to try and do business.

I'm continually unimpressed with John Bongard from Fisher and Paykel Appliances, farmers and other exporters coming out in the media every time the dollar goes up another cent, John's energies and expertise would be well better focused on improving efficiencies at his factories-27 people have just got the push from his South Island factory- in whatever way he can.

His push into Thailand is a great idea and clearly his company would well benefit from moving more of the New Zealand enterprise there. Businesses change, as do circumstances, and we must change to fit as things move on.

I'm not sure what John hopes to achieve by moaning and bitching but the days of protectionism from the Government for his sort of business seem over and he cant fall back on his companies history of operating as the bully boy, protected, monopoly it once was.

The reason business owners start a business in the first place is to presumably gain some sort of independence and freedom from working for others. The corollary of that independence is the responsibility to take account for the business and the conditions in which it operates under.

Sure, it is tough when you can see profit walking out the door as the NZ dollar ticks up another cent but these tougher times are good for business in the long run. There is nothing like testing how good management really are when the shite hits the fan. It is hard times like these that really great companies are made. To shave off cost by doing something better or more efficiently or investing in new technology to advance the product you are making.

This cycle of business is important to the long term sustainability of a company. When the fat is trimmed and efficiencies gained the company can lay a foundation to move in a more positive way.

Clearly some companies have always been well managed and there is nary a scrap of fat to trim. When looking for such a company to invest in, try to avoid businesses with an oversupply of superfluous expensive middle management - a really good sign something isn't right in a company structure. One drowning in such an over supply is Restaurant Brands, the fast food operator.

New Zealand is a small market and we produce small volumes of everything we export and we have heard ad nauseum about kiwi business "finding their niche" and it is true that this is the way our economy can really push ahead.

Now is a great time to start. Margins for exporters and local producers and sellers are being squeezed tighter than Michael Cullen's nether regions when the words "tax cut" are used, so to focus on upping that margin makes prudent sense.

We can never compete internationally on a volume basis with our largely commodity based export industry, so we have to process, package and re manufacture our commodities to squeeze more dollars from foreign pockets.

Current conditions are pressing, on business and consumers. We can use these conditions though to finally look at actually doing what our "business leaders" and politicians have been rabbiting on about for years.

Working smarter and more efficiently isn't just a Labour party PC catchphrase, it is an important part of New Zealand's future. A future where we are smarter and more efficient and as a consequence wealthier and therefore healthier and happier.

Lets hope the John Bongards of our business world can be a little wiser, stop moaning and put their money where their mouth is instead of foaming at the mouth.

Lets be a little more proactive rather than reactive to business conditions.


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