Businesswoman Nadia Lim was recently the victim of inappropriate comments by DGL Group's chief executive.
Businesswoman Nadia Lim was recently the victim of inappropriate comments by DGL Group's chief executive.
OPINION:
Normally I would say ignore the idiots, but the inappropriate and unacceptable nature of comments made by Simon Henry, the CEO of NZX and ASX-listed company DGL Group, alongside his request to be quoted on them, highlights why company culture matters and how it impacts the valueof a business.
I have had a strong personal reaction to these comments; there is no place for this behaviour. The remarks belittle the achievements of Nadia Lim, which is completely unfair. It is also disrespectful to her, and to all women.
Long-term investors now weigh up climate risk, diversity, brand and social licence, as well as financial indicators, when valuing a business. All of this connects to the ultimately subjective view of what you should pay for a business. If you're not already doing so, investors should include culture as a strong consideration as well. A culture drives performance and determines if your strategy lives or fails, it's a representation of a company's values and fosters the wellbeing of its employees.
Culture is one of the most important lead indicators to future value of some businesses - a terrible business with a great culture might still be a terrible investment, but I am certain a good business with a terrible culture will be a terrible investment in the long term. Public response to the comments from the CEO of DGL has been strong and rightly so. It also reiterates the importance of leadership and culture.
DGL has been a very successful financial roll-up play, this is where a business floats and buys everything that moves. DGL has completed circa 10 acquisitions in just over the past year, adding significant revenue and ebitda to the group, while upgrading earnings materially.
The market has rewarded this growth, with the shares rallying from an IPO at $1 to more than $4, making the CEO's stake worth more than $500 million. Compare that to 2020, when the entire business only made $3m profit according to its prospectus prior to the acquisitions.
Usually this success is something to admire, they took a large risk, found two stockbroking firms to arrange a float and have invested aggressively. This is possible because DGL is trading on 18 times ebitda, buying businesses predominately between five and six times ebitda. Turning what was probably a $100m company into a $1 billion valuation in two years.
A period of integration is now required, adding synergies, paying down debt, and achieving alignment across those acquisitions, while attracting new capital from larger investors to continue to grow. When escrow rolls off at year two, the CEO could bank some cash, and then if the playbook is followed, they may consider selling the whole business to a global player who fully integrates it. That playbook is 101 for a roll-up business and if successfully executed can make people wealthy.
Food for thought for investors
Where this comes unstuck in the longer term is winning the hearts and minds of your employees and stakeholders, ensuring your acquisitions don't take the money and go set up all over again in competition. That your newly acquired clients want to keep dealing with you, that you can attract new capital and eventually that the acquiring company thinks what you have built is worth what the market has paid for it.
If your capital providers turn you off, if your employees, clients and social licence all think negatively about a firm because of derogatory comments, then the entire business can be impacted and therefore, so will investors. It's food for thought when you are thinking about your investments. Yes, the balance sheet, future earnings projections and strategy are important, but we can also think about the company's culture, do your values align?
And if they suddenly don't, will you walk away?
True value is measured in the long term
What continues to surprise me is the correlation of short-term financial success to be viewed as a right to behave however you like, as the DGL CEO has done. Short-term financial success seems to become the measure of something's worth and the validity of someone's views. Short-term financial success can be fleeting.
The people I admire the most are the ones that measure themselves by the broader societal impact they have with their assets, not the size of their business; as we know, the next cycle is always around the corner.
DGL Group chief executive Simon Henry.
I am old enough to have seen a few cycles, and as Kenny Rodgers says, "there'll be time enough for counting when the dealing's done". I have seen businesses prosper and then explode, businesses struggle then thrive, good businesses perform year in and year out, and occasionally do what Goodman, Woolworths, Fisher & Paykel Healthcare, Xero or CSL have done and just quietly get on with life and build great companies with great cultures.
This is an important reminder that no matter where you are in life, there is benefit in being humble.
What I have learned is that culture doesn't mean everyone being nice, culture is the collective of how an organisation behaves when they think no one is watching and how that influences decision making, strategic direction and outcomes.
A business's strategy begins with culture. It's not an afterthought. The culture of a firm is what unites that group of people to ensure they are aligned on where they are heading - without that alignment, it ends in tears. I use an example in our office about some global banks when I want to make that point.
Culture often gets confused and thought about as a notion of "how do we make sure everyone is happy?" I believe culture is ensuring you aren't doing things to make people unhappy, and that you are encouraging the behaviours that improve a firm and connect a team, and discouraging the ones that don't. It is about being clear and consistent with what you expect and accepting it's a living thing that needs constant investment, improvement, care and focus.
The culture you build is deeply important and for good leaders, as the custodians of culture, it should be inherent in the day-to-day.
All of this starts with leadership and the understanding that every decision - or in the case of Henry, any derogatory comment - has a broad impact.
I'm thinking today about the impact on his employees, I bet it's tough at the office right now. It is not fair that people who come to work each day wanting to do a great job are unfairly looped up in the comments their leader made.
I don't pretend to be a perfect human, I have at many times wished in life I had a rewind button including once when using a pet name for my family when referring to an MC at a very public event, much to the ire of the audience and embarrassment to myself. But I believe that we should all aspire to be slightly better every day, aligned toward a long-term vision. Despite the short-term financial success DGL has had, I am frustrated.
If we allow an echo chamber for these kinds of comments and walk past them without calling them out, nothing will change. We can, and must, do better than this.
• James Lee is chief executive officer at Jarden. Jarden was the arranger and joint lead manager in the IPO of My Food Bag
