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When bureaucracy isn't a dirty word - Marko Bogoievski

10 Sep 2009

WHEN BUREAUCRACY ISN'T A DIRTY WORD - Marko Bogoievski


10 September 2009

Life after Telecom is marked by surprising contradictions for Marko Bogoievski, he tells Jenny Keown.
In his eight-year reign as Telecom's chief financial officer, Marko Bogoievski railed against the bureaucratic processes that burdened the giant corporate and made quick decisions impossible.

But the thing that struck him most, when he left Telecom early last year to become chief operating officer of transport and energy infrastructure investor Infratil, was the "distinct lack of process" applied to some of Infratil's capital allocation decisions.
He wanted to set things right.

The 46-year-old stepped up to the top job in January, when Infratil's founder and former chief executive Lloyd Morrison developed leukaemia and went on leave to seek treatment in the United States.

While Morrison keeps a keen eye on the business, and is expected to return to Auckland International Airport director duties at the end of the year, Bogoievski's leadership style is beginning to emerge.
 
He expects his executives to justify how they come to their financial decisions, which are peer reviewed.

"Anyone who has worked with me for the last 20 years would say it's quite an unusual thing for me to be pushing," Bogoievski says.

It was these kind of structured processes which slowed the cogs at Telecom, but at Infratil, which has a nimble team of six executives backed by a team of analysts, speed isn't such an issue, he says.

"I think there is a lot to be gained from exposing the rationale for all the decisions you make so people understand why you are making them. But I'm not suggesting for a minute that there is a democracy happening here."

Under Morrison's lead, capital allocation decisions, which require disseminating large amounts of information, were "processed tightly".

While Bogoievski has been keen to brush up decision-making processes in the firm, he is quick to point out that Morrison's ability to make things happen was extraordinary.

Morrison founded the investment bank Morrison & Co in 1988, which led to the formation of listed investment company Infratil in 1994.

The firm specialises in investing in infrastructure such as electricity, ports and airports in New Zealand, Australia, Britain and Europe. It started with $50 million of investors' capital, and now has a market capitalisation of just under $1 billion.

 Bogoievski's application of his financial disciplines will come as no surprise to financial markets, where he carved a formidable reputation as Telecom's chief finance man.

 Described by Brook Asset Management founder Simon Botherway as a world-class chief financial officer, Bogoievski smoothly managed the extraction of Telecom's monopoly profits in New Zealand, and later stemmed the flow of its haemorrhaging Australian operations.

 He has an impressive CV. Armed with a Masters of Business Administration from Harvard Graduate School of Business, he has held several senior financial, operational and sales roles in Lion Nathan, Ansett, Elders Financial Group and PricewaterhouseCoopers.

He missed out on the top job at Telecom in 2007 in favour of British Telecom's Paul Reynolds.

Bogoievski left because he didn't agree with the direction the company was headed, in particular how the Government enforced a split into three units, retail, wholesale and network, called operational separation.

"Operational separation is an un-natural, large-market idea imported from the United Kingdom with zero analysis, and will be exposed as an unstable and disappointing transitionary regime in the New Zealand context. Telecom has its best talent focused on delivering 'equivalence' rather than new products that will benefit customers," Bogoievski says.

Telecom should sell its network, so it becomes a single national network built on open standards with competition at retail level, and public subsidies should focus on difficult-to- serve territories only, he says.

"I'm certain that's the outcome that Telecom has a reasonably high likelihood of facing in any case."

Regardless, Telecom is water under the bridge now for Bogoievski, who describes his Infratil role as the highlight of his career.

He was attracted to the business because he thought it had developed a good reputation for work with central and local government. "If you are an investor in infrastructure, with a genuine long-term orientation, you need that capability."

 An example of this is Infratil's 64 per cent stake in Wellington Airport. The other major shareholder is the Wellington City Council.

 "It's an ideal model. They are a commercial council, and provide interesting perspective and genuine contributions. People rabbit on about private-public partnerships, but that's a distraction really. You can put private-sector capital alongside public, whether it be local or central government."

 Infratil's investment in Wellington Airport, NZBus and TrustPower shows its genuine involvement in the community, he says.

"It's not just words in some glossy annual report. They've spent 15 years committing themselves with a community-minded philosophy." 

He is enjoying being able to make timely, vital, capital decisions with the small management team - again, a relief after his experience at Telecom. "The difficulty at the Telecom board is it's really hard to make 180-degree shifts at any point in time, even though you can see the obvious pressures on the legacy business, and changes that need to be made." 

Punters predict Bogoievski, given his financial nous, will make a big stamp at Infratil. He intends to. Morrison, even before he fell ill, laid down his succession plans, he says. 

"We've had a lot of serious discussions about how I'd run the business differently."

Morrison's faith in Bogoievski was reinforced again last week when the Auckland International Airport board approved Morrison's appointment of Bogoievski as his alternate as a board director during Morrison's medical leave of absence.

Goldman Sachs JB Were analyst Marcus Curley says Bogoievski had big shoes to fill. "What he has done is be quite thorough, going through the business and its investments and keeping up his communication with the market in terms of gauging opinion, and grasping what the issues are and the sorts of things they need to do to go forward."

 Infratil faces a difficult financial market, and while the firm doesn't need to panic, it does have problems - underperforming European airports and some underperforming smaller investments, he says.

 Bogoievski will make some big decisions about what constitutes the core assets for Infratil over the next six months, Curley says.

For one, Infratil is expected to sell its majority stake in Lubeck, an underperforming airport in northern Germany.

Investors have also become concerned about Infratil's debt problems.

In May, the firm reported a full- year net loss after tax and minority interests of $191m, mainly because of non-cash writedowns on assets.

Bank debt increased $73m to $323.2m, which pushed total debt, including bonds and perpetual notes, to $1.21b from $1.15b. 

"We don't have months to deal with performance issues. You are better off fronting them," Bogoievski says. "In this kind of environment, it becomes harder to talk about the merits of holding on to businesses, especially when you're talking to retail investors."

 Bogoievski's plans revolve around maintaining aggressive growth by keeping a diverse equity base offshore, a higher proportion of assets in Australia, and good returns in parts of its energy and transport portfolio.

 He is adamant that Infratil will become one of the largest listed entities in New Zealand over the next 10 years, and one of the most significant infrastructure investors across Australia and New Zealand.

 "You think about the compound returns we are looking for and the nature of the opportunities."

For example, he points to Trustpower, in which Infratil has a 50.5 per cent stake alongside the Tauranga Energy Consumer Trust, which owns 33 per cent. Individual shareholders own the rest.

 Trustpower has a pipeline of business development and capital projects over the next few years, including wind-farm and hydro developments across Australia and New Zealand, he says.

 While some observers thought Bogoievski, given his past experience, might invest in telecommunications assets, he says the main focus will be in the energy and transport fields across Australia and New Zealand.

 However, he believes public- private partnership opportunities may emerge from regional developments of the Government's $1.5b fibre-optic network proposal.

 Bogoievski is happy to be working back in his home town, Wellington. He grew up in Petone in the 1960s and 1970s, "a typical sporty kid", supported by his Polish immigrant parents. He was determined to leave high school after sixth form, but wound up completing a Bachelor of Commerce and Administration at Victoria University.

 He enjoyed economics, and in his second year, a serious knee injury turned his focus from sport to study, with good results.
Bogoievski describes his leadership style as "fair".

"I avoid reading management books. They are prophetic and contradictory. I can think of much better things to do with your spare time. I don't think management is a science, and there are no formulas that I've seen which have proven to be reliable."

He doesn't much like the idea of a "white knight" chief executive either, and sees more power in establishing a balance within an executive team of people who have real experience in their own fields and can critically assess ideas.

It's all part of that process he's been so determined to instigate.
(c) 2009 The Independent Business Weekly   

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