KEY POINTS:
A major issue for most columnists is what to write about each week. New Zealand business columnists are lucky in this regard because there are usually two, three or more interesting topics worth commenting on at any given time.
The past week has been a good example of
this.
On Monday, Mark Stewart's partial offer for Abano Healthcare expired and this is a great story about how the target company board of directors fought the unwanted bid and generated a huge increase in shareholder value.
On the same day, Jim Delegat gave another inspirational address at his annual meeting and the recent success of his company deserves a full column.
The following day, Hallenstein Glasson held its annual meeting in front of a sparse gathering. Shareholders had to work hard to extract from chairman Warwick Bell that the company has big growth plans in Australia. Bell also revealed, after a large amount of pushing and prodding from the floor, that Hallenstein Glasson was hoping to appoint a managing director who has Australian retailing experience and would be based in Australia.
The Hallenstein Glasson meeting brings up the issue of how some companies articulate a clear vision while others are reluctant to communicate any precise strategy to minority shareholders.
On the same day, Dairy Equity shareholders voted in favour of liquidating the company, even though directors recommended continuation, and the Real Estate Institute released its November statistics indicating that the housing slump was continuing to deepen.
But the one story that kept cropping up again and again during the week was the revelation that Brian Henry, the main promoter and chief executive of Diligent Board Member Services, was the same Brian Henry who was a director and a significant shareholder in Energycorp, one of the more spectacular corporate collapses of the late 1980s.
File newspaper clippings on Energycorp reveal a spectacular collapse, massive debts and accusations of fraud.
Energycorp didn't have the same profile as Equiticorp or Chase during the late 1980s but it, along with Judge Corporation, probably best reflected the excesses of the 1980s. The two companies listed less than 12 months before the October 1987 crash, their share prices soared and they both collapsed just twelve months after they were established.
They were also backed by high-profile businessmen. Judge Corp's major shareholder was the Todd family, New Zealand's wealthiest family, and Energycorp's biggest backer was John Spencer, the country's then richest individual.
The February 1987 Energycorp prospectus and recent Diligent prospectus were totally different in two important areas, namely size and disclosure.
The Energycorp prospectus was tiny but it revealed that Gerard Henry, Brian's brother and the main driving force behind the company, had been involved with six failed companies in the early 1980s. These six companies were named in the prospectus.
By contrast, Diligent's prospectus was large and glossy yet there was no mention of Brian Henry's involvement with Energycorp.
How could a prospectus issued in the dim, dark days of the 1980s have full disclosure of a director's involvement in failed companies yet the Diligent document, issued in a supposed enlightened age, does not contain this information?
The answer is that the Registrar of Companies requested that this information be disclosed as far as Energycorp was concerned but not Diligent.
This represents an important topic but my initial thoughts were that readers have had enough of the 1980s and many businesspeople make mistakes and Brian Henry shouldn't be hounded because he was a director of a failed company two decades ago.
When the Takeovers Panel issued two important documents on Wednesday morning, a decision was made to write this column on these issues rather than Henry and Diligent.
But reports and comments from Wellington on Wednesday afternoon indicated that there was a great deal of anger and frustration at Diligent's NZX listing ceremony. It appeared that Henry had not disclosed his Energycorp involvement and bankruptcy to his fellow directors and the Diligent board had asked him to resign as chief executive.
At 8.51am on Thursday, Diligent announced to the stock exchange that Henry had resigned as CEO but he would remain a director and had been appointed global sales director.
Plans for this week's column switched back to Brian Henry and Diligent because this debacle has a number of important lessons.
Energycorp was listed in early 1987, following the issue of 12 million shares at $1 each. The company was formed to purchase Heat Harness Corporation from Mr D Henry for a cash consideration of $4.68 million. Heat Harness manufactured and leased wood fuel burning equipment and supplied fuel for these burners.
D Henry was the father of Gerard Henry, Energycorp's executive deputy Chairman, and Brian Henry. The latter was also Heat Harness's chief executive.
Neil McLaughlin, chairman and managing director of Baycorp, was Energycorp's chairman.
Energycorp's share price surged from $1 to $4.50 and within months of listing, the company announced it was diversifying into property, electronics, manufacturing, financial services and food.
Brian Henry, who was group sales director, was appointed to the board. A company profile revealed he had an extensive background in establishing training sales organisations and was a significant Energycorp shareholder.
Energycorp promoted Epicorp Investments, which listed in July 1987, and quickly purchased assets from Energycorp at greatly inflated prices.
Epicorp's share price soared from $1 to $2.50 but it was placed in receivership on February 23, 1988, just five months and 25 days after listing.
Heat Harness and everything else Energycorp embarked on was a failure. Neil McLaughlin resigned as chairman on February 5, 1988, Energycorp's share price collapsed and the Bank of New Zealand appointed receivers six days later.
Energycorp was one of a large number of flimsy companies that the Bank of New Zealand lent large sums of money to. This reckless lending nearly put the bank under and was the main reason why it was later acquired by National Australia Bank for a proverbial song.
The reckless lending to Energycorp and other failed 1980s companies is one of the reasons why the country's major banks now focus on residential housing lending and why many start-up companies find it difficult to obtain loans unless the owners are prepared to offer their homes as security.
NZ has a light-handed regulatory regime and there are no requirements for directors to disclose their past history unless they have been bankrupt in the previous five years.
However, this places a great deal of onus on directors to act responsibly and make a full and frank disclosure of their business achievements, both positive and negative.
Brian Henry failed miserably in this regard and he was naive to believe that the media wouldn't unravel his past failures and give it prominent coverage. Henry should have known that it is far better to make a full disclosure rather than concealing it in the hope that it will never be revealed.
Henry is no longer chief executive of Diligent because of his poor disclosure, rather than his association with Energycorp and his bankruptcy nearly two decades ago.
The clear lesson from this debacle is that business people should always make a full disclosure of their past history and financial intermediaries should undertake a thorough due diligence before they support an IPO or any other financial product, particularly when it is planned to raise money from the public.
* Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management and owns shares in The Warehouse.
