One of the most unsurprising events of 2019 occurred on Monday: Rubicor’s directors finally called in administrators (FTI Consulting) to take charge of the company they had gradually destroyed over the past four years.
Yes, in layman’s terms Rubicor finally ran out of money and have gone broke.
Rubicor’s auditors, Pitcher Partners, unambiguously flagged the strong likelihood of this occurring late last year (Rubicor 2018 Annual Report, page 16).
In each of the five previous blogs I have written on the topic of Rubicor’s recent performance I identified many things that this board both said and did that were clearly delusional or incompetent.
The three directors of Rubicor; David Hutchison, Angus Mason and Sharad Loomba are surely the worst public company directors in Australia.
Is there another board of directors that has delivered such a consistent track record of incompetence, self-serving hypocrisy, obfuscation, lying and withholding of material information?
Let me present the case for the prosecution for each allegation:
A) The evidence for incompetence
- Abysmal people leadership capabilities: CEO David Hutchison failed to hire and keep the recruitment executives he needed to balance his own lack of recruitment expertise. When the most recent Rubicor board took control of the company in mid-2015 they were fortunate to inherit a handful of very experienced, competent and respected recruitment executives, including Sue Turk, Andy Bradshaw, Ian Tyler, Lyndsay Steadman and Juliet Magee, among others. Each of these leaders headed important parts of the Rubicor business. Within two years all of these executives had departed. None of the people hired to replace these leaders stayed for more than a year. Any leader who can’t hire and retain other high quality leaders is an incompetent leader.
- No focus on improving consultant performance: When a recruitment company’s annual report boasts of progress in such areas as re-branding, head count reduction and technology consolidation then fails to provide any evidence of progress in the critical areas of consultant capability and productivity, you know the board doesn’t have a clue how to improve the company’s long term health.
- The CEO and COO don’t meet customers: When the COO emails staff to explain what he and the CEO do each day (because it was clear to those staff that neither of them were doing anything effective to improve the company’s performance) and there is no mention of either of them spending time with the company’s customers then you know the CEO and COO don’t understand sales or recruitment.
- Investing in unproven concepts way outside the company’s core competency: The directors’ oft-mentioned Candidate Engagement Platform was supposed to deliver a new stream of revenue that would flow via third-party access and sales to the Rubicor candidate database. It was an idea whose flaws a first year business student could spot. No business case was ever presented to justify the subsequent investment of time and money yet the board persisted with the delusion that they were onto a winner.
- Going broke: When you take a company from annual sales of $204 million, $37.7 million gross profit and $3 million cash in the bank (July 2015) to bankruptcy four years later (in the midst of the recruitment industry’s greatest -ever bull market) you have the ultimate and inarguable measure of how incompetent you are as a board.
B) The evidence for self-serving hypocrisy
When the board took over, new directors David Hutchison and Angus Mason accused the previous board of not delivering on their promises and presiding over diminished shareholder value, while extracting excessive directors’ fees from the company. At the 2015 AGM, their first as Rubicor directors, Hutchison spoke about the importance of transparency and accountability. Mason then spoke about the importance of governance, building trust, building performance and aligning the interests of all the Rubicor stakeholders.
Comparing the 2018 financial year (the last one for which results are available) with the 2016 financial year (the first full year of the Hutchison-led board) it is demonstrably accurate to say that all the directors personally extracted rapidly increasing amounts of money from Rubicor while at the same time presiding over the rapidly declining health of the company.
The respective Annual reports reveal that over three years:
- David Hutchison’s total remuneration increased from $374,000 to $660,000 (up 76.5%)
- Sharad Loomba’s total remuneration increased from $274,000 to $664,000 (up 142%)
- Angus Mason’s total fees and consulting services income increased from $36,000 to $167,000 (up 364%)
At the 2018 AGM a shareholder asked about the exact nature of Mason’s services to justify such an increase. “Corporate financial advice, strategy, marketing, customer platform and for the introduction of their new technology platform” was the response.
The three directors increased their combined remuneration and consulting fees by 80 per cent in a single year; from $766,000 in the 2017 financial year to $1.38 million in the 2018 financial year. This was a year in which Rubicor reported decreases in all key financial metrics accompanied by a share price slump of 35 per cent across the same 12 month period.
When Angus Mason and David Hutchison made their play for control of Rubicor with only 8% of the shareholding, the then-Board dismissed their attempt as a self-serving, corporate raid. This has proven to be true.
Mason and Hutchison took control of a business that was arguably worth much more than its market capitalisation and focused on extracting as much individual financial gain as possible. Their original and continual acquisition of Rubicor shares was all about control, not investment in a brand they had belief in. They preyed on a resource-weak target, did nothing to provide the necessary leadership and rode it hard for personal financial gain until the money finally ran out.
These two men espoused the importance of transparency, accountability, governance, trust, performance and stakeholder alignment but finished up being poster boys for the exact opposite.
C) The evidence for obfuscation, lying and withholding of material information
- The original pitch to take control: When the new board took its place in June 2015, David Hutchison made an unconditional undertaking that upon his appointment as CEO, he would transfer labour hire contracts to Rubicor to the value of $43.7 million in revenue and $5.37 million in profit, at no cost to the company. Needless to say, these multi-million labour hire contracts failed to materialise. Rubicor compounded their embarrassment by having to say, in response to a ’please explain’ from the ASX in early 2016, that the “….status of its contract discussions are “so uncertain and indefinite that it is not in fact market sensitive information”.
- 2018 performance: From the 2018 Rubicor Annual report (published just ten months ago): “From my perspective, FY2018 was as transformational a time as any in the Group’s history. Rubicor is now a stronger company and following further restructuring, we expect to return to statutory profitability in the years ahead. During the FY2018 year, we increased our attention on sales training, performance management and communication to improve client lead generation and lift gross profit per consultant. Rubicor is now operating as a more efficient company, and we remain committed to developing our services while restoring growth and profitability”
Public company directors are paid to know the health of a company, make decisions to maximise that health and make also accurate statements about that health. The 2018 Annual Report was full of lies.
- Proposed management buy-out of Xpand was never revealed: In 2017 the senior executives in charge of running one of Rubicor’s premium and successful brands xpand made an offer to the Rubicor board to buy xpand. The offer was declined and no public announcement was made about the offer or the subsequent departure of the key xpand executives who led the MBO.
- Unpaid superannuation and the cancellation of large contracts: During 2018 Rubicor’s temps, contractors and employees gradually began to discover the extent of their respective missing superannuation payments. Unhappy temps and contractors then speak to their on-site employer about the missing money.
When a quick resolution is not forthcoming it doesn’t take long for high profile end-user clients (in this case, Telstra and the WA Government, among others) to terminate the working relationship, whether a formal contract exists or not.
Rubicor Government was terminated from the Western Australian Government Temporary Personnel Services supplier panel and this information was almost certainly known to the relevant Rubicor executives prior to the 2018 AGM, held on 30 November, yet no mention was made of this fact by the CEO at the AGM.
These contract terminations and the reasons for them, was information material to the performance of the company. As a public company the Rubicor board had an obligation to make an announcement to the ASX about this market-sensitive information. They never did.
Rubicor’s auditors, Pitcher Partners, make no mention of the unpaid superannuation in their unqualified approval of the 2018 Rubicor financial reports although they did provide the clearest possible warning of Rubicor’s precarious financial state (to anybody who had slogged through the endless spin and delusion coming from three directors in the report’s opening thirteen pages) when the auditors “cast doubt about the Group’s ability to continue as a going concern.” (Rubicor Annual Report 2018, page 16)
In May 2007, when Rubicor announced its intention to list on the Australian Stock exchange with a $75.8 million initial public offering the company had 19 operating business in 29 offices with over 480 employees. Sales were forecast to exceed $330 million in the first year with EBITDA of $24 million. Shares opened for trading on 15 June 2007 having been oversubscribed.
Just over twelve years later the company has crashed and burned after four years of incompetence, self-serving hypocrisy, obfuscation, lying and withholding of material information from David Hutchison, Angus Mason and Sharad Loomba; Australia’s worst public company directors.
I’ll be fascinated to read what corporate receivers Ms Dunn and Mr Park have to say in their official report detailing the causes of Rubicor’s collapse.