Joan Withers - A Woman's Place extract
Businesswoman Joan Withers releases her new book A Woman's Place on Monday. Take a sneak peek here at the chapter covering the collapse of Feltex Carpets.
The collapse of Feltex Carpets was the most devastating experience of my professional career. It was the absolute low point.
As a director, I see it as a failure because $254 million in shareholder value was ultimately destroyed. It obviously wasn't intentional but that's what happened.
Our processes were thorough and I don't honestly believe we could have done anything differently but, for me personally, some powerful learnings came from the experience and I'll carry them with me for the rest of my life.
On the positive side of the equation, people tell you when they are approaching you for roles, that they want someone with scars on their back. I've been involved in what was probably one of the
most successful floats in New Zealand's commercial history — the Auckland International Airport IPO — and perhaps the worst — the Feltex collapse.
For me, the Feltex story began when I was appointed to the board in April 2004, about a month before the IPO. I was a director for a little over a year before resigning in May 2005 to take up the role of chief executive at Fairfax Media New Zealand.
Feltex collapsed into receivership on 22 September 2006, 15 months after I stepped down from the board, but I still found myself on the wrong end of a $185 million lawsuit brought by a group of disgruntled shareholders against the directors, promoter and managers of the float.
Mercifully, unlike my colleagues who were still on the board when ANZ Bank called in the receivers, I did not face criminal charges as well.
In spite of the millions of dollars spent on legal fees and the thousands of hours spent preparing for trial, the criminal case against the directors failed spectacularly. After more than a decade, the Court
of Appeal ruled in favour of the defendants (the directors, promoters and investment bankers involved in the IPO) on 12 October 2016.
The nightmare began with a profit downgrade on 1 April 2005 — the first signal to the market that anything was amiss — and lasted for 11 years. It was horrendous. And while the company's collapse
happened long after I resigned as a director, and the whole experience had a significant impact on me, my overwhelming sentiment is sadness at the loss Feltex shareholders endured.
All up, some 8000 shareholders — mainly retail investors — ploughed $254 million into the IPO in 2004. Two years later, their shares were worthless.
During my year on the board, Feltex got the best of my attention, as everything I undertake does. I know I did everything with diligence, care and integrity, but shareholders losing money is very upsetting for any director worth his or her salt.
My detailed notes from the time of the IPO proved useful in the High Court civil case when I could demonstrate the diligence I had applied to my directorial tasks.
When then Prime Minister John Key came to the opening of TVNZ's newly renovated offices at the beginning of September 2016, he asked me what I had learned from the experience, given that by that stage the High Court had ruled strongly in the directors' favour.
My reply? No matter how diligent you are, nor how robust and watertight your processes might be, nor how credible and experienced your fellow directors and other players in the deal might be, things can still go horribly wrong. And if they do, the fallout can be catastrophic and last for a significant period of time.
From that comes my view that having adequate insurance is critical for a director. Insurance gives you the ability to sleep at night. Emotional support is also critical, as is resilience — the ability to keep going — because things can get very bad.
The Feltex debacle reinforced for me the importance of having support at home. Brian was my rock but he was seriously worried about the effect the profit downgrade and its aftermath were having
on my health. I had always been strong and able to cope, and now I had to force myself out the door every morning. Even though Brian is not remotely interested in business, he was the only person I could talk to about a lot of what was happening to me.
It was very hard. I couldn't physically swallow my vitamin capsules let alone eat anything much and I shed a lot of weight. Worse still, this went on for months. Brian was trying to persuade me to eat things he knew were my weakness; in the morning he would try to tempt me with muesli covered with cream.
The destruction of shareholder value was what shocked me the most, though I was confident I had fulfilled my duties as a director diligently and capably. The IPO process was as thorough as it could
possibly have been, and the Securities Commission's investigation, and the High Court and Court of Appeal judgments, subsequently attested to this.
I knew the worst thing I could do was to go into hiding. In reality, even if I had been inclined that way, I couldn't. I remained on several boards so I still had to attend meetings. What I learned was I had to keep going, I had to keep breathing and I had to keep working. And I also learnt quickly who my real supporters were — the people who said, 'I know you feel terrible at the moment but it will pass and you are going to be all right.'
But I don't think anybody really understands unless they have been through it. The pressure was relentless. Every morning there would be yet another batch of headlines and the situation just got worse and worse. Feltex dominated the business media for quite a protracted period of time.
Not every company failing to make its pre-float projections gets hammered. For example, Genesis Energy didn't make its IPO forecast in early 2015 and the share price suffered for a period but it didn't attract the sort of headlines Feltex received. Every time I opened the paper there was something else there.
What hauled me out of it? Ultimately, having to focus on my new CEO role at Fairfax which, being a media junkie, I loved. But I didn't start at Fairfax until 11 July 2005 so there was three months of sheer hell to get through after the profit downgrade was issued in April.
People were generally supportive but all this mayhem was happening around me and, as I was one of the directors, I was seen, in some quarters anyway, to be partly responsible for it.
Former Chairman Tim Saunders and the other directors — quite rightly — believed they had done nothing wrong, but the fallout just didn't seem to affect them the way it did me. For those based
in Australia such as managing director Sam Magill, there was a bit more distance between them and the daily barrage of headlines and articles.
How did I get involved in Feltex in the first place? Tim recruited me (he'd been on The Radio Network board) but I found it hard to forge the sort of relationships I had been used to on other boards, and which I enjoy today, as I arrived just before the float, when much of the work was done. Of course, after the downgrade and the ongoing fallout from that, it was a totally different dynamic.
The director I feel most sympathy for is John Hagen. John effectively replaced me in mid-2005 and was still a director when Feltex collapsed. Because of this, he got caught up in the criminal proceedings.
None of those directors should have been charged. It was appalling. But it was worse for John because while some of the other directors were coming towards the end of their careers, John (a former partner at Deloitte) was just beginning his governance journey.
A talented and highly regarded accountant, he joined the board after the profit downgrade, no doubt believing he could help solve the problem, and ended up being prosecuted for his trouble. Though the directors were acquitted and awarded $900,000 costs (later reduced on appeal, but still a very substantial sum), John seems to have backed away from governance since then.
A Woman's Place is published by Penguin Random House (NZ) and will be available from Monday at $40.