Big is not always better for engineers

In the first of a four-part series on managing turbulence, SELWYN PARKER highlights a firm that rejected a lucrative merger to retain control of its own future.

It was a tough offer to resist - a big, prestigious American consulting company waving a fat chequebook. Why not take the money and merge?

For Tonkin & Taylor, the home-grown environmental and engineering consultancy that is building Auckland's power supply tunnel to the CBD, this looked like the stability they thought they needed in the shifting sands of international consultancy work.

The suitor was Rust, a giant in engineering consultancy with influential international connections as well as money. The big American could offer a continuing portfolio of work, a financial umbrella, extra expertise. It all added up. After all, practically every other New Zealand consultancy had sold out to international sugar daddies.

The company was sorely tempted. "We even got to the stage of doing due diligence," recalls Terry Kayes, Tonkin & Taylor's joint managing director. But after much agonising, the company pulled out of the deal and elected to go it alone. "We decided we wanted to determine our own future, be masters of our own destiny," adds Kayes. "It was a cathartic experience, a turning point for us."

That was in 1993, and Tonkin & Taylor has never looked back. Despite the apparent handicap of smallness in a turbulent sector dominated by elephants, the 40-year-old Auckland-based consultancy has prospered. Today the company is working on projects throughout Asia like the $US200 million Securities Commission building in Kuala Lumpur, in the Pacific and in its home base. "You don't have to be part of a big group to survive in international consultancy work," concludes Mr Kayes.

But it didn't necessarily look like that at the time, or even since. Nearly everybody in the sector has been forming alliances with indecent haste. Only two New Zealand-owned consultancies survive - Tonkin & Taylor, and Worley. Of the others, Murray North was taken over by America's Woodward-Clyde, Royds Garden went to Anglo-American group Montgomerie Watson, and KRTA is in merger negotiations with an Australian company. Even the old Ministry of Works has gone the way of the others. In a nice reversal of the Colombo Plan, the MoW now has Malaysian owners and is known as Opus International.

Tonkin & Taylor has developed other in-house principles of survival besides that of self-determination. In a typically highly-geared industry, it likes low debt, typically at a ratio of 55 per cent equity to 45 per cent debt. "Banks are fair-weather friends," says Mr Kayes with a smile.

He remembers when the company got in a bit too deep in the late 1980s. It also helps that Tonkin & Taylor often contracts for companies with deep pockets that attract cheap finance, like a current client in Asia, Eastman Kodak.

It is another house rule to pick projects fastidiously. This is also unusual in an industry that can be greedy for work just to keep staff busy. Explains Mr Kayes' fellow managing director, Kuala Lumpur-based Bryan Richards, who has spent 20 years in Asia: "You don't want big projects to represent a high percentage of total turnover."

Prone to acts of God, politics, international currency movements, cancellation, erratic payment schedules among other uncertainties, big projects have proved to be a graveyard for many international consultancies, in particular British ones. So Tonkin & Taylor likes a high proportion of steady, safe work.

Local ownership is another stable element. Typically, Tonkin & Taylor's overseas subsidiaries in the Philippines, Malaysia and Fiji seek local participation. They don't worry too much about the level of ownership; it boils down ultimately to what the partners bring to the association. Also, local ownership is good diplomatic relations. Nor does it hurt business that Mr Kayes is the honorary consul for Malaysia.

Tonkin & Taylor's structure is based on common sense rather than any high-falutin theory. As far as possible, the overseas operations mirror the management design back home, which is to say they are flat, give staff considerable autonomy, and require them to work together in the collegial and pleasant way preached by David Maister, the authority on management of professional firms, of whom the managing directors are fans. Indeed, staff have been asked to leave for breaching the Maister code.

Current ownership rules are designed to perpetuate innovation. After the entrepreneurial founders, Ralph Tonkin and Don Taylor, retired, the rules were rejigged to effectively require partners to step down at the age of 58. Now they are required to sell down their shareholding to minor levels of ownership, though they may continue to stay on as employees.

"The philosophy is to make way for younger people coming through. It's a continuity issue," explains Mr Kayes. Bryan Richards puts it more bluntly: "We don't want people going on for ever." Now 54, Mr Kayes has got just four years to go before it's his turn to sell down. "I'm totally comfortable with the prospect," he insists.

Self-determination, it seems, works even better in a turbulent world when there's room at the top.