30 August 2009

The Importance of Banks

The three of us sat quietly in the conference room; there was not the customary banter about work and people. We waited for the phone to ring; but it remained still. We checked our Blackberries for that elusive message, but they were also at rest.

Night replaced day; employees left for home unaware of the tension that was building in Room 6.03. My young General Counsel asked me, the old, experienced hand with the grey hairs to prove it, “Is this normal?” “No,” I replied without elaboration.

It was my birthday; but I had no plans to celebrate. My family was far away; my mind focused on the crisis before us.

I am Chairman and CEO of one of the bigger companies in Australia; let’s call it Propco rather than the real name. But the Company is very real. We have 250 employees and another 350 employees in a sister company that is still tied to us financially. These employees depend on the Company for their livelihood. In a recession, there are no jobs for them if we fail. We pay good salaries and benefits; I feel responsible for each and all of them.

I also feel responsible for our investors, typically pooled retirement accounts and pension funds, who have entrusted us with their future. I feel responsible to the banks, who loaned us precious and now scarce capital to expand our business. The burdens weigh heavily; we cannot fail; too many are counting on us and me specifically. This year has not been a good one for me to sleep.

The Company is a model corporate citizen. We are the leading property company in environmentally sustainable efforts. When we were public, we led the international Dow Jones corporate sustainability index. This year, as others cut back their environmental efforts, we launched a Sustainability Institute to fund and coordinate worldwide research on sustainability efforts and results in the commercial property sector.

We support key charities to help those in need. When the Property Council solicited donations to provide for homeless kids, we gave more than any other company in Australia by far. When neighbors lost their homes in the Victoria bush fires last year, we donated land and built a house, which was auctioned and all the proceeds donated to the bushfire victims.

We are the number one rated company in Australia for worker safety. Ask the Mayor of Sydney about us, and she will describe us as a poster company for corporate citizenship.

We did not reach this precipice of corporate life or death by poor performance or bad investments. The Company is outperforming all of its peers. Our office buildings are among the best in Australia; maintenance and presentation are unsurpassed. Our tenant retention is an unheard of 80%. As industry wide average rents decline, ours are increasing; as market vacancy increases, our vacancy diminishes. Our performance is above budget and all expectation. Our portfolio is exceptional and our employees even better.

We stand at the edge because of the global liquidity crisis. We have loans that were made when banks had money and these loans are now maturing when capital is unavailable. There is no issue of our ability to repay the debt; we just do not have a billion dollars of cash to pay the loans off now.

We sit and wait for the call from a U.S. international bank, our lender facility agent, telling us that all the banks have agreed to extend the loan maturity from 4 June until 30 June. This large international bank was saved from failure by the U.S. Government. If they had failed, our hopes would likely have suffered similar fate.

No one benefits from our failure. The employees, who are productive members of the community, lose their income; investors lose their investment; banks lose part of their capital they will not be able to relend; the community loses a key and active force for good.

Under Australia law, if the Directors determine the Company will be unable to pay their bills in the next 12 months, the Directors must close the company and cease doing business. Failure to act accordingly is both a criminal and civil offense; continue doing business when you know you will default on a loan translates into jail time and loss of personal assets. The stakes are high and no one, including me, will take that chance.

Chapter 11 bankruptcy is a United States’ issue. Australia, and much of the non US world, does not treat debtors so kindly.

If Propco were closed due to ‘insolvency,’ a receiver will come in, liquidate the assets, and pay whatever proceeds to the creditors. If our portfolio were liquidated at fire sale prices, because potential buyers cannot access capital, it would result in major property devaluations and certain further bank defaults. It is probable, the property industry would collapse in a series of loan defaults triggered by asset devaluations, and the banks would fall next. The economy would be devastated; an economic depression almost a certainty.

Propco is one of thousands (maybe hundreds of thousands) of businesses around the world that rely on banks and related financial institutions for capital and liquidity. If major banks were allowed to fail, companies everywhere would fail – not because of poor performance but due to the sudden withdrawal of financial liquidity in global markets. A global depression would be the inevitable consequence.

Back in Room 6.03, the CFO’s Blackberry phone buzzes and then rings. Citibank has received the extension approvals; the risk of default has been pushed back until 30 June. The agent cautions, however, no one believes we can refinance the loan by 30 June and there will be no more extensions.

In the weeks that followed, staff worked day and night, weekdays and weekends to refinance the maturing debt. Thanks to the active leadership of key banks including a German bank, which was saved from illiquidity by the German Government, the loan was refinanced on 30 June, to the amazement of all participants except us.
Our employees continue to work productively, our investors continue with their retirement funding plans, our banks feel assured their loans will be repaid. The economy has stabilized giving hope that a recovery is near.

For those who argue that major banks should be allowed to fail and the Federal Reserve and other governments’ central banks should not have acted proactively to provide bank liquidity, I think their theories are not based on real people and real business.

16 August 2009

Nanuk: A Dog's Life

A friend recently asked me if I liked dogs. I recalled an essay I wrote a few years ago about our family dog, which I enclose below.


Nanuk was my third son. He was the only member of our family with four legs and a bark, but he was definitely a family member. Today, Nanuk died. And amidst the sadness that consumes me are my memories of him that I will take to my grave.

Ross was 8 years old and Andrew 13. It was an overcast day in San Diego even in Rancho Santa Fe, which lies inland from the Coast. My wife, Jill, was out of town, visiting her mother as I recall. Andrew had a soccer game in Rancho Santa Fe, and Ross and I were there to cheer him on. Ross’s soccer game started a couple hours after Andrew’s finished, and we boys had time to kill.

Across the street from the Rancho Santa Fe soccer field is Helen Woodward, a care and adoption facility for pets, especially dogs. With time on our hands and nothing better to do, we wandered across the street to Helen W. This was a fateful journey.

I grew up with a dog. Mandy was my best friend as a child. He watched over me when I was only crawling, and went everywhere with me when I was walking. I know the attachment that can form between a boy and his dog.

Andrew and Ross were immediately enthused about the idea of adopting a dog. As we wandered through the outdoor pens, Andrew was attracted to Charlie, one of the most enthusiastic and excited dogs in the place, but probably the ugliest dog too. Ross was attracted to a shy but comely dog that looked part golden retriever and part something else. I was concerned the shy dog would not be as friendly if adopted. I was wrong.

When Jill returned, she was confronted by two bubbling boys who could not wait to share their excitement about what they saw at Helen Woodward. It was not fair. Jill had never spent much time around dogs and was definitely not a fan of owning a dog. But no one could resist the excitement that poured from the two boys with ever more promises of taking care of the pet. Her resistance melted under the earnest pleadings of her young sons.

Upon returning to Helen Woodward, Jill did not care for Charlie. That was okay, because another family was there and wanted to adopt the non-stop jumping and gyrating Charlie. Ross’s pick was being viewed by a single, working woman who wanted to adopt him. Jill liked the shy dog’s looks and demeanor, and the Helen Woodward staff could not resist Ross’s imploring that Nanuk be given a home with a family instead of a single person. We left that day with Nanuk.

It did not take Nanuk long to adopt his new family. He had lived with a woman for four years and then had been given up for adoption when she lost a place to keep him during the day when she was at work. Nanuk was not shy; he had been rejected by the only person he ever was attached to and put in a sterile pen. He was depressed and probably feared added rejection. Once he realized we would not reject him, he moved right into the family circle.

Soon after we adopted Nanuk, Jill had Nanuk at the Veterinarian, who discovered that Nanuk had hip dysplasia. This is a degenerative disease that eventually leads to loss of the use of hind legs. The Vet explained to Jill that’s Nanuk’s mobility would be affected as he aged, and it would probably affect his lifespan. Jill called Helen Woodward to complain, and, their staff apologized and suggested Jill return the dog and they would return it to the original owner (who did not want it). The Helen Woodward staff did not feel anyone would want a dog with serious health impairment.

We decided to keep Nanuk, realizing we would have to face his mobility issue some day. The boys had quickly become attached to Nanuk and Nanuk to them, and we could not bear the thought of rejecting Nanuk and sending him to where he was not wanted and could not be cared for.

Nanuk became best buddies with the boys. Wherever they went, he wanted to be there to. He did have a few unusual characteristics at first. He felt the need to defend Jill against strange men – i.e. any males Nanuk did not personally know. Whenever one approached Jill, whether it is at the shopping center or in the front yard, Nanuk would growl and bark. I had nothing to do with this characteristic; it must have been related to something in Nanuk’s memory and his former owner. Eventually, Nanuk learned no one was going to harm Jill, and he stopped his ferocious demeanor and begged everyone for pets and treats without discriminating sexes.

The second characteristic was his insistence that he pee everywhere possible to leave his scent. At soccer games, this included lawn chairs, scorecards that fell to the ground, and the conventional bushes, fire hydrants, and the like. Nanuk’s desire to be the last to pee somewhere stayed with him throughout his life.

In contrast to his initial shyness, he became the friendliest dog who ever lived. That is an overriding statement, but I believe it to be true. He liked all dogs, people, and other animals in that order. He would run up to strange dogs, his tail wagging, eager to sniff and be sniffed. Some dogs are not so friendly, and Nanuk never won a fight. When attacked, Nanuk would lie down and whimper. I don’t think he was afraid; I think he was disappointed his new acquaintance was not to be a friend.

I remember one time a man with a pony came to a children’s party on our cul-de-sac in Houston. He also had a fierce looking, huge Doberman pincher staked to his truck with a big metal chain restraining this made-for-movies monster. Nanuk saw the creature and immediately trotted over to welcome the dog to the neighborhood. Jill and I looked with horror as Nanuk approached the creature. Jill screamed, “Nanuk you idiot, stop.” Nanuk didn’t care. He went up to the creature sniffed the surprised monster, who was then pulled back by his owner; afraid the Doberman was about to kill Nanuk. Nanuk plodded back to our yard, tail wagging, and peed on the nearest bush. For Nanuk, every day was a happy day.

In San Diego, I would walk Nanuk at night before bed. Not once, but twice, Nanuk encountered a skunk and ran up to the furry black and white slow moving denizen. Nanuk’s tail was wagging 90 miles an hour, at least. But when he went to sniff his new friend, he discovered that some animals really smell bad. One night, Andrew and I washed Nanuk with Campbell’s Tomato Soup. I had read somewhere that tomato soup helped reduce skunk smell. Afterward, Nanuk smelled like very bad soup.

Nanuk tried to befriend wild coyotes in San Diego. Fortunately, the stray coyotes always ran away from the tail wagging, hard charging dog. Fortunately, one of us was always close behind and pulled Nanuk back from chasing into the canyon after his wild cousin.

Our move to Houston was difficult for all the family; but Nanuk was probably the first to adjust. Andrew and I flew to Houston first, because Andrew had high school band camp before the start of high school, and Jill and Ross needed to stay in San Diego. I remember waiting in baggage claim with Andrew, looking for Nanuk’s kennel to arrive. When it did, Andrew went running to the kennel, opened it, and exclaimed, “Nanuk is okay.” What a relief amidst Houston’s hot August weather.

For the next few nights, Andrew and I slept on the floor of the new house without benefit of any furniture, which was due to arrive the week following. We could have stayed at a hotel, but Andrew was worried that Nanuk would be lonely in the empty new house. So the three of us, Father, Son, and Dog slept together on Andrew’s bedroom floor.

Nanuk soon made friends around the cul-de-sac. His home away from home was the Quirk’s, who lived next door. Ann and George always welcomed Nanuk whenever he came over for a visit, which was every day. He played with their three dogs, opened the toy chest in their house and helped himself to their toys, begged for his daily treat, and hung out. When we could not find Nanuk, he was usually at the Quirks.

George Quirk recounts the story of when he was napping in the rocking chair, and Nanuk showed up. The front door was not secure, and Nanuk head butted the door, as he was prone to do, and walked in. When George did not notice Nanuk (because he was asleep), Nanuk barked and nearly frightened George out of his chair.

Nanuk became a party animal on Broken Bough Circle. Whenever there was an outdoor, pool party, especially with kids (who tended to drop food on the ground), Nanuk wanted to be there. He let us know he needed to go out (presumably to go to the bathroom) and would disappear into neighbor Jay’s backyard to bogie with the kids, who loved him and fed him pizza. I would wander over after a while, claim Nanuk, and apologize for his intrusion, which no one ever seemed to mind.

Nanuk was always quick to want to meet new visitors, especially workmen who may have lunches to share. One afternoon, I was looking for Nanuk around the cul-de-sac, calling his name without response. Then the Mexican workers who were working on Jay’s garage begin hollering “Nanuk” in heavy accents. I was mystified. How did they know Nanuk? Sure enough Nanuk emerged from behind the garage, appreciative of the tacos he shared with the workers for lunch. Nanuk was everybody’s friend.

When we first moved to Houston, Nanuk needed a job. Everyone needs tasks to do so they feel productive and contribute to the well being of the society around them. Nanuk’s self-chosen task was to make sure all the squirrels stayed up in the trees. I do not know why Nanuk assumed this arduous task, for there were many squirrels in the cul-de-sac, but he did. For years, until he became slow and lame, Nanuk would charge out of the house, and run around until he was satisfied all the squirrels were up in the trees. One time, in the back yard, Nanuk actually caught a squirrel. Jill and I think the squirrel fell out of a tree or off the telephone wire; because Nanuk was never that fast and catching a squirrel was his impossible dream. With the squirrel at his feet, Nanuk just did not know what to do. He had never caught a squirrel, and was unprepared for that eventuality. The squirrel was dazed (supporting the tree falling theory), and when Nanuk came inside, the squirrel wandered off, unhurt but dazed.

Today, Ross and I took Nanuk to the Veterinarian in Houston. Nanuk could no longer rise or walk without pain. Otherwise, he was alert and loving. The San Diego’s Vet’s warning had come true. But we made the right decision then. Nanuk had a wonderful life, filled with love and affection. And he gave us ten years of unquestioning love. Oh how I miss those big, longing brown eyes, the enthusiasm and wagging tail to greet me when I came home tired from out-of-town travels, the constant companionship for all of us, and knowing that my other two sons had someone to turn to who always, without question, understood their side of every story. Thank you, Nanuk.