Problem solving – and the Mainzeal connection

Peter Menzies DistFInstD watched the Mainzeal saga play out over 10 years, detached from its demise, having left the Mainzeal group in 1996, and says he is saddened by the losses suffered by subcontractors and staff.

The Mainzeal company, which he joined in 1971 and which listed on the New Zealand share market in 1975, had a culture and systems to deliver high-quality facilities at market prices and was a loss to the industry, Menzies says.

On 6 February 2013, Mainzeal Property and Construction Limited, formerly known as Mainzeal International Limited (Mainzeal), was placed in receivership and, 19 days later, in liquidation.

Following Mainzeal’s collapse, court action has reached the stage where the Supreme Court has upheld the Court of Appeal’s decision that the directors of Mainzeal breached their duties and has ordered the directors pay compensation for the losses incurred by the company’s creditors.

The Supreme Court determined the directors must contribute $39.8 million to Mainzeal’s assets. When Mainzeal went into receivership about $110 million was owing to unsecured creditors.

During his tenure, Menzies says the Mainzeal group had very conservative rules around what debt would be accepted and how things were done. “Mostly, we built major projects by having them funded progressively by someone we had sold the whole project to, because our balance sheet could never have withstood a large debt coming at a time of stress in the property industry.”

Engineers have, as a priority, risk management because their work is based on proven science and mistakes can lead to collapse of structures or systems with serious impacts on people’s lives, he says. Risk is a constant companion.

In accepting the role of development manager for a project, the risks of financial problems are added to the responsibilities, he says. Short-term finance is necessary for development projects, but the company’s balance sheet must be able to accept sudden negative changes in the debt market.

Menzies is proud of what the Mainzeal group achieved in its early years, saying they had “some really big individual successes”. He says he enjoys problem- solving and that’s what was needed when the Mainzeal group took over the troubled Bank of New Zealand building in Wellington, which had stopped because of “a tough union attitude and a major dispute with the contractor, an Australian company”.

“The first thing we did on being appointed to run the contract was to ask the bank to form a construction company, which we staffed. This was because we knew we would be doing things that would create precedents outside the normal construction industry practice.

“We worked our way through the problems and brought an end to the strike. There was some financial compensation to the workmen involved to restore a culture of working as a team and producing an excellent building. Finishing the building to a high standard ahead of the new completion date was quite an achievement.”

Menzies says he realised during his final year at university, as president of the University of Canterbury Students’ Association, that he was more interested in working with people rather than doing technical work. And it didn’t take long for him to show that trait at his first job, at the then Ministry of Works.

“I was given a job of running motor scrapers and tractors excavating the downstream face of a spur where spillway structures and penstocks were to be built. I had never worked with earth-moving equipment before. When I went to a meeting to introduce myself as the engineer in charge I managed to put the overseers and foremen listening to sleep by talking about the technical aspects of the work.

“A voice within said, ‘Ask them to tell you how to do the work’. There was a stunned silence following this request so I added, ‘I’m very serious, I know nothing about earth moving. I can tell you the technical aspects and with your ideas I can write a plan’. The meeting then came alive as the participants came up with ideas based on their experience and a plan was formed.

“Some months later, the engineer for the project came to me and said, ‘Wow, that job’s just flying. What did you do?’ I said, ‘Nothing, they did it all. I just wrote the plan’.

“That experience never left me,” says Menzies. “To build a team, which was necessary for each new contract, one had to create a structure within which people were encouraged to talk about ideas they have and these ideas are then treated with genuine consideration.”

Menzies soon moved into private enterprise construction, having to shift with every big job which became a serious problem.

“It wasn’t good for our children. I wanted them to have a good home life and education. I took myself off to Auckland and finished up in charge of the Auckland Harbour Board redevelopment scheme. I became a property developer and enjoyed the role with complete responsibility for the project.

“When I retired from property development I accepted some directorships and assisted with some problems on development projects.”

Menzies says he never had any formal training for a board role or for management. “I found my engineering training, which is based on having information, logic, decision-making, and getting on and doing things, coupled with my formation as a practising Catholic, was all one needed. Experience on the job was invaluable.”

He says he has always sought excellence and it can never be compromised.

“Excellence in every aspect of your work has to be the focus. By that, I mean the culture within which the staff are employed, the way that subcontractors are treated and products and services are understood. And, of course, the shareholders have to be well-informed.

“If excellence at first seems difficult, you have to find a solution by approaching the problem in a different way. The characteristics that are very important in a company are that you live the truth and you trust your colleagues. These two are the rocks upon which you build an organisation. Excellence blossoms out of it.”

Menzies says he has always been a great believer in the free market because it regularly gives you a surprise, showing how wrong you were.

“I really love the free market. If the government is based on a democracy and people are voting for the basic things that democracy needs, the free market and democracy need each other.

“The free market has an amazing ability to solve problems and devise new ideas, which lead to company formation and growth in the economy. The government must let this market flourish, attending to the overall law requirements and other functions such as education and regulations.”

At the age of 86 and now living with cancer, Menzies says his future involves accepting treatment and enjoying what life brings with such restrictions. “I try to exercise as much as I sensibly can, but I’m not able to responsibly contribute to any business activity because my thinking is somewhat compromised as well. Life is what one makes of it.”