Sometimes even Australia’s best business journalists can back the wrong horse as Alan Kohler did with discredited Air New Zealand CEO Gary Toomey.

Crikey was struck by his good hard reporting of the Ansett debacle including a tough interview with discredited CEO Gary Toomey last night on national television.

But the memory twigged about a column that Kohler wrote about Toomey in 1998. I’d never seen something on the back or front page of the Fin Review that so boosted the career prospects of an Australian executive yet to be appointed a CEO somewhere.

Journalists produce so much material that inevitably some of the predictions or endorsements turn out wrong.

(Previously I had a bit of a shot at The Age’s Stephen Bartholomeusz in this space for allegedly saying Pyramid was fine. But as neither Bartho or I can find or agree on the said column, it is easiest to take it out and move on. That said, I’m happy to say Bartho is Australia’s most thorough business columnist but in my view he should go in harder with that amazing knowledge he has acquired over the years.)

But with Kohler leading the charge against Toomey and the Air New Zealand board at this point, it is worthwhile to go back and look at what he said three years ago.

Toomey Australia’s best finance director

By Alan Kohler

Excellent Fin Review Columnist

BHP director Margaret Jackson might have an interesting, left-field candidate for John Prescott’s job right under her nose: Gary Toomey, the finance director and second-in-charge at Qantas.

The idea of getting an airline bean-counter to run the great Broken Hill Pty Co Ltd would have the Newcastle steel men at BHP falling about in helpless laughter, but as Jackson, also a Qantas director, would well know, they could all learn a lot from Toomey about how to run a large corporation in the ’90s.

Thanks directly to the efforts of Toomey, with CEO James Strong and chairman Gary Pemberton, Qantas has been one of the great Australian corporate success stories of the ’90s – since it was floated in 1994. As dismal as BHP’s performance has been since then, Qantas’s has been phenomenal.

Toomey is probably Australia’s best finance director. In 1996 his qualities were recognised internationally when he was named by Global Finance magazine as one of the 25 chief financial officer “superstars” of the world, the only one from Australia.

What’s more, the things he is good at are the things BHP needs: cost reduction and capital efficiency. In fact, these are the challenges that virtually every Australian corporation is now facing with varying degrees of success, and the skills needed to deal with them are similar across all companies – whether it’s in mining, manufacturing or transport.

It is widely assumed that BHP’s directors will have to do what several other Australian boards have done and bring someone in from the United States to run the place after Prescott. Maybe they will, but Australia’s management ranks are not entirely without talent. There are a few Australians even running American and European corporations.

Toomey is an outstanding example of the sort of executive that the pressures of the ’90s is producing, and that large corporations need.

In fact, guess who, it is rumoured, the directors of ANZ Bank – a group that includes Jackson and BHP chairman Jerry Ellis – have decided to appoint to their board: Gary Toomey.

Apparently his appointment to ANZ will be announced in a few days. It follows a set of events at ANZ remarkably similar to those that unfolded this week at BHP. Don Mercer left after losing a strategy tussle with the board, and has now been replaced by an outsider – John MacFarlane.

The reason people like Toomey are in demand, and why he might actually make a decent managing director of BHP, is that the late ’90s are characterised in Australia by a very tough double: the compression of profit margins and a lack of growth opportunities.

As a growing list of companies is now realising – firms like Amcor, Pacific Dunlop, ANZ, Coles Myer, David Jones, BHP, Email – the old ways of doing things don’t work anymore.

That involved riding out the tough times with trimmed sails and waiting for revenue growth and price rises to save the day.

Up to the ’90s, this worked fine, thanks to high inflation and a lack of competition. But with inflation at virtually zero, and competition in most industries at extra-ordinary levels, pricing power has disappeared.

With subdued growth in Australia until recently, limited opportunities for expansion or export in Europe and the US, and now the crisis in Asia, volume growth is also very difficult to achieve.

It means the successful corporations are those that are paying very little attention to the top line and are focused entirely on costs and working their capital more efficiently.

And perhaps the hardest business of all in which to make money these days is airlines. It is very competitive, with tight margins, and it is highly capital intensive.

In 1993, the industry worldwide lost all of the accumulated profits of the previous 20 years and, on the whole, has been struggling ever since.

In 1993 Qantas made $33 million. Last year’s profit was $420 million. In the past four years Qantas’s cost reduction team, chaired by Toomey, has taken $1.2 billion out of costs and avoided another $1.4 billion – a total of $2.6 billion. The fact that only about $400 million of that flowed through to the bottom line shows how tough the business has been.

When Toomey took over, Qantas’s debt was 70 per cent of total capital, now it’s 42 per cent. Equipment is being worked harder and debt is being paid off.

If it’s not BHP (and realistically, of course, it probably won’t be him who takes over from Prescott this year), Toomey will soon be running a major Australian company.

When he does, he will leave Qantas in a lot better shape than when he found it. While it is easy to focus on the failures, like BHP, it’s worth remembering that there are a few success stories around as well.

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After a few emails back and forth with Alan Kohler, this is what I sent out to subscribers on September 20:

IN DEFENCE OF ALAN KOHLER

A couple of subscribers wrote to defend Alan Kohler who we agree is one of Australia’s finest business journalists. And there was also some defence of Gary Toomey whose mock up photo with Bin Laden is flying around the email world at the moment:

“I have a certain amount of sympathy for Toomey. Air NZ’s board dithered for months before bringing him in, and by then was really in the s**t. The problem is that instead of implementing any serious restructure over at Ansett he sat on his bum and tried to solve a severed limb with a band-aid. All that self-congratulatory “Absolutely” rhetoric made me sick.

Toomey is said to be one of the Good Guys. It’s said to be dickheads like Trevor Jenson that crippled Ansett.

Anon”

Kohler also made contact yesterday and was not pleased that I hadn’t contacted him first before running his 1998 piece really talking up Toomey as Australia’s best CFO.

He had this to say: “I think the jury still has to be out on whether poor management from Toomey is responsible for the mess as opposed to his appalling lack of judgement in taking the performance bonus. he says he saw the problems at Ansett and Air NZ and was trying to fix them. He hired well (from Qantas and Boston Consulting Group) and ran out of time. He only started in February and was interrupted by the grounding crisis. Notice that in recent days he has been trying to put a lot of miles between himself and the board, which is fair enough since the board is clearly mainly responsible. On the other hand I accept that the current view would have to be that Toomey was a better cfo than ceo, which will stand until he gets a chance to prove otherwise – which may now take a while. You can use that if you want.”

In the scheme of things, I reckon Dr Jim Farmer and his predecessor as Air New Zealand chairman Sir Selwyn Cushing are a lot more culpable than Gary Toomey and Kohler’s piece was a little over the top but not definitively embarrassing if you look at the circumstances.

Maybe we should blame Qantas CEO Geoff Dixon because he spent a few years as a senior Ansett excecutive before the Qantas float in 1995.

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Gotty has pumped up Toomey as well

But Alan Kohler is not alone here. Look at what this panel assembled by then BRW chairman Robert Gottliebsen said three years ago:

“The most promising management talent in Australia has been nominated by a panel made up of Roger Collins of the Australian Graduate School of Management, Michael Feeney of AMROP, Chris Figgis of Egon Zehnder, Robert Gottliebsen of BRW, Ian Harper of Melbourne Business School and Paul Murnane of Russell Reynolds.

Gary Toomey, 43, deputy chief executive, Qantas

Qantas chief executive James Strong has set up a very public competition for the top job at the national airline by appointing two deputies: chief financial officer Gary Toomey and commercial manager Geoff Dickson (sic). It is Toomey, however, who has the higher profile in executive-search circles.

Unlike many in the airline industry, Toomey has many years of experience outside the sector, including stints as company secretary at Fauldings and chief financial officer at Arnotts Biscuits.

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New Zealand polly running for Air New Zealand board

Finally, check out this press release from New Zealand politician and Air New Zealand board candidate Stephen Franks. It gives a perspective of where the debate is at in New Zealand.

“ACT Commerce Spokesman Stephen Franks says the Government’s bungling over Air New Zealand goes further than just rewarding two foreign shareholders with extended control and a half billion dollar taxpayer soft loan. “The government has also connived in breaching market disclosure rules,” he says.

“The Air New Zealand share price movements are dramatic evidence of market uncertainty. The most critical question is: What is Air New Zealand’s exposure to Ansett Australia? Can it be legally forced to pay creditors of Ansett Australia? Could it simply withdraw the letter of comfort? Who was to be comforted by it?

“It is a further insult that instead of answering these questions the directors tell us that they have ‘cast iron’ legal opinions that they personally are not liable for Ansett. Who cares except them?

“What all New Zealanders need to know is whether Air New Zealand can be forced legally to throw good money after bad. The Government must know. Surely even ministers completely inexperienced in commerce would not have promised $550 million in loans without knowing whether it could be simply sucked out to Australia. They must have tied it to keeping Air New Zealand flying in New Zealand. But we don’t know for sure.

“Was that deliberate? The Government, the Market Surveillance Panel and Air New Zealand directors are in continuing breach of duties. To have the Australian Securities Commission investigating our inadequate disclosure piles national disgrace on disgrace.

“I have been asking the vital questions of the Government since before the so-called rescue package was announced. Where is the Market Surveillance Panel? They have more than adequate powers to force the information from Air New Zealand into the market . They can send in investigators to seize papers if need be.

“And it is not just share investors who deserve to know. Every New Zealander considering prepayment for an airfare, or wondering about the value of their air points, is entitled to know whether belligerent Australian unionists and politicians and passengers will be the only beneficiaries of any fresh New Zealand money.

“Consumer Affairs Minister the Rt Hon Jim Anderton and ineffectual Commerce Minister Paul Swain should have insisted on clear public information from their dithering colleagues a month ago. It is no excuse that Finance Minister Cullen was already in the Brierley/Singapore Airlines camp getting the short term rush that comes using other people’s money to rescue something.

“I attach a fresh list of urgent questions for the Government.”

CRITICAL QUESTIONS ABOUT AIR NZ:

Why did the Government agree to leave $550 million with a company under the control of shareholders who have just presided over losing $2 billion in shareholder value?

What about the kind of disclosure and explanation contemplated by the Fiscal Responsibility Act for appropriations?

What can Brierley Investments and Singapore Airlines offer Air New Zealand now, when the chairman says they are part of the problem? Haven’t they done more than enough already?

Why is so little vital detail available for the New Zealanders who are funding this risk investment?

Does the Government tie it to “keeping the planes flying”? No prudent receiver could risk the liability that would flow from not continuing to generate the profits of Air New Zealand’s healthy business so why rescue SIA and BIL when it is the staff, passengers and operating business that could need the cash?

Why was the package not announced as preparation to ensure that a statutory manager has the funds to keep flying if and when the shareholders lose their equity?

Is the debt to be subordinated? Is the debt to be secured?

Are there any conversion options or other rights to enable the Crown to recoup something of the upside it is giving the shareholders, from the money it is risking?

Have Air New Zealand’s other creditors and bankers agreed to waive enforcement or acceleration rights?

What will “due diligence” be looking for now? After the months of looking the Government has already done, on what preconditions can the government decline to throw further good money are bad?

What happens to the package if the Air New Zealand shareholders fail to pass the constitution amendments?

What happens to the package if Air New Zealand shareholders are willing to pass only some of them and not others?

Do the guaranteed director appointment powers of Brierley and Singapore Airlines exhaust their votes on director matters, ensuring other shareholders can at least influence the election of the remaining three?

Are any director slots reserved for election only by New Zealand shareholders?

How well insulated is New Zealand from Australian attempts to seize Air New Zealand assets if it does fly in receivership or statutory management?

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