When people have thought about forestry group Gunns Ltd, an adjective or two were never far away. Given the manner of its collapse, “dinosaur” seems to be the most appropriate.
It’s a word association that our coal miners, and many of our coal-fired generators, would do well to avoid. Sadly, their management teams don’t seem to be too bothered. Their shareholders should be.
The news stories in the mainstream media pointed to two main reasons for the decision to put Gunns into receivership – low commodity prices and the high dollar. It’s a combination we have and will hear a lot about, but it really only explains its failures in its final moments.
Anyone who thinks that is the real reason for their demise is kidding themselves, or looking for a government handout.
Whatever the machinations of the last six months, since the company suspended its shares from the stock exchange and new management sought a way to salvage the business, its destiny was set from the moment that its proposed pulp mill was questioned on environmental grounds, and the company chose to fight it, rather than deal with it.
Liz Knight, the business columnist at the Sydney Morning Herald, noted that just five years ago, Gunns was a regular on the list of recommended stock because of its latent earnings potential – “albeit one that the ethical investor fraternity wouldn’t touch.”
Why wouldn’t they touch it? Because Gunns refused to make any attempt to address environmental issues.
As the AFRs Chanticleer columnist noted today, the former executive chairman John Gay led a “dinosaur” culture at the company – emboldened by the company’s extraordinary influence in a small island state and its political connections.
But even after the departure of Gay in 2010, the company had an opportunity to retrieve the situation. A potential white knight (or should that be green knight) had appeared two years previously in the form of Swedish forestry group Sodra – a company that has a reputation for sustainability and which works constructively with environmentalists. It didn’t work out, one observer suggested, because Gunns was convinced that green groups were the devil incarnate, and were better sued than negotiated with.
As one observer noted: “The outcome would have been different and we’d have a green timber industry in Tasmania and a pulp mill. Sodra is huge and successful. Gunns is dead.”
Gunns’ errors were like those of Kodak, or the media. Change in the industry came slowly at first, but it would not prepare itself. In the case of Gunns, it was not new technologies, but a growing recognition of the importance of resource management, sustainability, and aiming for the triple bottom line.
The key lesson – for management and for shareholders – is that green business is real. You can fight it all you like on ideological grounds, but the bottom line is that green wins in the new economy. Not because it feels good but because that’s the new market reality.
Geoff Cousins, the businessman who fought the pulp mill tooth and nail (but was ready to accept an environmentally-nuanced proposal with Sodra) had this to say on the ABC’s 7.30 last night: “If the board of that company, a long time ago, had listened to the concerns of the community, they could have had a very different outcome and a very positive one; and none of these jobs would have been lost and the company could have moved ahead in a positive way. But they were intransigent, they refused to listen until it was too late.”
And now the mining industry, and the coal-fired generators, find themselves in a similar situation, having spent so much energy fighting the carbon price and now throwing their weight against renewable energy incentives.
“I think the Gunns case history is one that the mining industry should look at very carefully indeed,” Cousins said. “Because there are many issues for that industry in Australia at the moment, and in most of those cases the mining industry is going down the same path as Gunns used to go – just saying, ‘Who cares about community opposition, about contrary points of view? We’ve got the backing of the Government and we’ll do whatever we like’.”
And there are lessons for investors too. Nathan Fabian, the head of the Investor Group on Climate Change, told RenewEconomy today: “One lesson for shareholders is that if they wait too long to address obvious governance failures and environmental weaknesses in companies, they will be facing salvage value only for their investments.”
Gavin Neath, from the global consumer products giant Unilever, said this about companies who failed to grasp the fact that business as usual was not a sustainable long-term strategy. “They are so, so wrong. I don’t think they fully understand how wrong they are,” he told RenewEconomy in an interview in January. “I honestly feel that many of those businesses will have pretty limited futures if you talk in five, ten, fifteen year horizons, because if you aren’t getting on to the case now, you can’t put in place the kinds of programmes which are going to ensure your long-term survival overnight.”
On Tuesday, the management at Gunns found out just how wrong they were.