10 big rich mistakes
Tuesday, 28 August 2007
Last Updated: Monday, 25 August 2008
By James Bennett
Last month SmartCompany bought you 10 secrets of the stinking rich. Now it’s time to take a look at the other side of the coin. Believe it not, occasionally Australia’s richest men and women do make mistakes – here are 10 of their worst.
Falling out with business partners
Arguments between business partners, family and friends can have huge personal and financial costs. Co-founders of industrial and construction group Transfield, Carlo Salteri and Franco Belgiorno-Nettis, went their separate ways after falling out over succession issues in 1997. This also led to a further falling-out between Franco and his eldest son Marco Belgiorno-Zegna. The net wealth of the Belgiorno-Nettis family fell as a result of the spats, and it was forced to sell parts of its empire to repay debts arising from the settlement with Belgiorno-Zenga. The family’s wealth has since recovered to about $800 million.
Taking on too much debt
Borrowing too much money at the wrong time has brought many of our most successful entrepreneurs undone. In the 1980s, debt claimed scores of business people who had borrowed big when asset prices were high, only to see asset prices collapse and interest rates rise. John Elliott, Bob Ansett and Alan Bond were among the most high-profile victims. With interest rates currently on the way up after a golden economic period, it will be interesting to see if any modern entrepreneurs will find themselves in a similar position.
Not diversifying
While most of Australia’s richest business people start with one business, they are clever enough to safeguard their fortunes by diversifying. Australia’s great family fortunes, such as those of the Smorgon, Myer and Liberman families, have spread their money across a number of industries and investments. Rag traders the Gazal family and Daniel Chen have seen their fortune shrink in recent years as the Australian clothing sector has contracted. They have few other assets to fall back on.
Failing to read the market
The rich have an uncanny knack for knowing exactly what the market is going to do. But they don’t always get it right. Many traditionally conservative entrepreneurs, including Kerry Packer and the Smorgon and Liberman families, misread the “tech wreck” of 2000 and lost money. Perth resources industry veteran Gordon Martin thought the market would love oil company Coogee Resources, but was forced to pull the float earlier this year. John Kinghorn floated his company RAMS Home Loans at exactly the wrong time this year, as the United States sub-prime crisis hit. The value of his 25% stake has more than halved, although he did pocket $650 million in the float.
Having too much pride
Rich people can afford to indulge their passions, but sometimes it can be very costly indeed. Kerry Stokes spent about $200 million fighting News Corporation, Publishing & Broadcasting Limited and Telstra over the collapse of his C7 pay-television channel, only to lose his case in the Federal Court. Now he is reportedly considering an appeal. Stokes is worth $2.7 billion, so the legal action is hardly likely to make him broke, but spending 10% of your fortune on what to many looks like a lost cause shows how expensive pride can be.
Expanding too quickly
It’s a common business mistake. A company is growing quickly through rising sales and acquisitions when suddenly the problems start – the infrastructure (usually people, IT or accounting systems) can’t cope. Rupert Murdoch’s acquisition spree in the 1980s drove News Corporation into trouble. The Roberts family, which founded construction giant Multiplex, took on too many projects and its share price collapsed. Food retailer John David is another whose empire crashed after too much growth.
Getting divorced
Nothing shrinks a fortune like divorce. One year you’re worth $300 million and on top of the world. A year (and a lot of lawyers later) you’ve got a new spouse and a $100 million hole in your bank account. Greg Norman’s former wife Laura demanded half of his $270 million fortune during their recent divorce; the Great White Shark is reported to have settled for about $110 million. Money may not buy love, but unhappiness is definitely expensive.
Getting in trouble with the law
Ending up the wrong side of the law can destroy reputations and fortunes. Alan Bond and Laurie Connell, two of Perth’s high-flying 1980s businessmen, ended up in jail and lost millions. Rene Rivken and Steve Vizard’s reputations were badly damaged by convictions for insider trading. In the last 12 months, Macarthur Coal founder Ken Talbot has become embroiled in corruption allegations. Shares in the company fell when he stepped down as chief executive.
Going public
Floating a company has made many Australian business people fabulously rich in the past few years – just ask Kerr Neilson of Platinum Asset management, whose fortune increased by more than $1 billion when his company floated in May. But the autocratic style of many business people is not necessarily suited to public companies. Brett Blundy privatised his Brazin after watching its share price sag 30% in 2005-06. Lloyd Williams privatised property developer Hudson Conway in 2000 and Bob Ell privatised his property company Leda in 1990.
Dying
The death of a business leader can have disastrous consequences if proper succession plans are not in place. The best example is the battle for Lang Hancock’s estate, which erupted into a bitter fight between his wife Rose Porteous and daughter Gina Rinehart that took more than a decade to sort out. So if you can’t live forever, at least leave a clear will.
So much for the mistakes our richest people make once they've made their fortunes. How did they get there in the first place? Read 10 secrets of the stinking rich.
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