COMICS, GET YOUR NEW TEL COMICS->Martino on the rocks
By Geoff Elliott
January 25, 2003
DOMENIC Martino cut his teeth as an accountant in Perth in the brash '80s. Big ties, big ideas and a John Newcombe-style moustache. It's a look he never gave away.
Who's to say what a chief executive of one of Australia's biggest accounting firms should look like? It's just that somehow you don't expect them to look like Martino, who resembles a well-heeled and sassy entrepreneur.
Martino could never conform to the stereotypical image of a bean-counter ensuring companies fulfil their reporting obligations under the corporations and taxation acts.
As it turns out, however, this apparent conflict with Martino was more than just skin deep.
Martino has always lived up to his image: a confident salesman; a hail-fellow-well-met kind of chap who had panache in the boardroom and a desire to make lots of money.
He wheeled and dealed and ultimately didn't know when to stop. Martino personifies the problems that have suddenly beset the accounting industry around the world – highlighted by the collapse of one of the so-called big five in the accounting industry, Andersen. On Monday it was Martino's style, at the very least, that claimed his career at Deloitte Touche Tohmatsu. He was a man for the times – just not these times.
The end came surprisingly swiftly.
For months Martino, and his employers, weathered damaging revelations, aired in The Australian, about his directorship at failed telco company New Tel.
The pressure had been mounting on Martino since the liquidator to New Tel, rival accounting house PricewaterhouseCoopers, said New Tel could have been insolvent for up to 12 months. If true, and they knew it, a criminal case is in the making against New Tel's directors, including Martino and his old friend, New Tel chief Peter Malone.
In the days before his resignation, The Australian also revealed details about Martino's free mobile phone accounts from New Tel, which he was using long after he left the company.
Controversy also surrounded his tie-up with Perth businessman Alister Norwood in lingerie company No Regrets, which was queried by the corporate watchdog.
Martino always mixed his professional life with his life as a businessman – sitting on boards of companies that awarded big consultancy contracts to Deloitte. In the case of New Tel, Deloitte pocketed $4 million in 2000 and 2001. No-one – certainly none of his colleagues at Deloitte – was complaining about his inherent conflicts of interest then.
But the accounting industry now finds itself in a new era of corporate responsibility. Perceptions, as much as actions, are paramount.
"Martino will take leave to consider his future," Deloitte said in a statement. "He cited as reasons for his decision to resign the ongoing publicity associated with his past directorship of New Tel, and his belief that it was good corporate governance, and in the best interests of Deloitte and its people, for him to step aside while New Tel's affairs were investigated during liquidation – a process that could take many years."
The move is another nail in the coffin for accountants from the big firms sitting on the boards of corporate Australia – at a time when there is a desperate shortage of professional directors in Australia.
For his part, Martino is making no comment beyond a Deloitte statement saying he "believes firmly that any future investigation of New Tel will demonstrate that he properly fulfilled his duties as a director until he resigned in February 2002, 11 months before New Tel went into liquidation".
Deloitte chairman Lynn Odland (he is now interim chief executive) said Martino decided last weekend he should quit.
The firm insists he was not forced to go despite plenty of hints to the contrary – that partners at the firm were uncomfortable with the extent of Martino's outside business interests.
Odland was hardly rushing to Martino's defence this week, saying that while it had been common practice for partners in Australia to hold directorships on public companies, "it's not something I've done in my career".
And he and new chairman Harley McHutchison were quick to speak of the difficulties in having partners sitting on public company boards.
McHutchison raised the heat on Martino by telling one newspaper: "If a director who is a partner commits some kind of crime or whatever there is the possibility the firm will become party to the action."
Odland added that while Martino had only stepped down as chief executive and was still a partner with Deloitte, he expected him to leave the company.
Clearly Martino had little choice. His resignation is a sign of the times and highlights the turmoil in Australia's professional financial classes as the frantic deal-making from the booming '90s dries-up – while at the same time regulations governing the financial services industry tighten-up.
In a world where the fashion in finance is now for captains of industry to talk about how they are establishing world's best corporate governance protocols, Martino's close ties to one of Australia's more breathtaking corporate collapses left him in an untenable position. Martino was on the board when it raised more than $100 million and now there's nothing to show for it.
"The concerns expressed about his role at New Tel is probably seen as a reflection on Deloitte," said Geoff Brayshaw, managing partner in Perth of accounting group BDO.
Brayshaw knows Martino well and stresses that he does not make any judgment on Martino's role at New Tel, adding the issues are probably more to do with "perception problems".
"Domenic has always been known as an entrepreneurial individual, I don't think Domenic would deny that. It is one of his assets."
Others say Martino brought a can-do attitude to Deloitte, a breath of fresh air at a firm that, like the other big consultancy and accounting firms, rode the tech-driven stockmarket bubble in the '90s and earned enormous fees.
Deloitte was part of a financial services boom. For more than a decade, working as a professional in one of the big five accounting firms such as Deloitte was seen as a ticket to write your own salary.
It was even marketed as a hip job, as the dotcom phenomenon casualised the white-collar professionals. Partners at the big firms wore black skivvies instead of Zegna ties.
But the party ended in 2000 and the US capital markets were rocked by the collapse of Worldcom and Enron – and the auditor to both companies that helped make their fraudulent activities possible: Andersen.
The dark side of the boom was exposed; one where clever financial engineering, largely led by the investment banks, was the norm and to which the accountants, like Andersen in the US, turned a blind eye.
Martino rose to the top of the corporate tree in Australia with a skillset that matched perfectly the entrepreneurial zeal which took over the big accounting firms in the '90s.
Accountants were in huge demand to help structure transactions and make sure they met ever more complicated compliance requirements within the corporations law and the taxation act.
So many deals were going on that accountants were becoming competitors to the corporate finance teams of investment banks. They couldn't match it with the grunt of the big banks, but they gave it a shot. And that was right up Martino's street.
Perth accountants from from the big four firms, like Martino, are known for their aggressive entrepreneurial style.
As one former Perth-based executive of a big four accounting firm says: Perth's thin capital market – too small to support the big investment banks – has underwritten the need for accountants from the big firms to also fulfil corporate finance roles.
"It's given accountants a prominence in the city's business community you don't see on the east coast," he said.
And it's a hub for specialist mining finance, another role in which Perth-based accountants excel. Martino was no exception.
He was a prominent partner with the aggressive Nelson Wheeler accounting firm in Perth in the 1980s, which was successfully sued for damages (Martino as a partner was a defendant) over its involvement in Kia Ora, an exploration company, and its takeover of Western United, an small investment bank, in 1987.
The case – Australia's longest running civil negligence claim – centred on Nelson Wheeler's independent valuation report on Western United valuing the company at $100 million. Justice Edward Mullighan put the true value at about $6.5 million.
But it was Justice Mullighan's judgment about the way Nelson Wheeler's partners took such an active role in clients' affairs – which included taking director roles – that prompted a warning that sounds so prophetic given Martino's resignation on Monday: "There is a clear line between the businessman and the true professional. When the two are mixed, difficulties inevitably arise . . . the professional relationship becomes blurred, if not destroyed, and conflicts of interest are very likely to arise."
In a 1989 profile of Nelson Parkhill – as Nelson Wheeler became known (it would later merge with Deloitte in Perth) – Accountancy Week said its managing partner Martino "agreed that some firms do not allow partners to accept directorships, but (he) said Nelson Parkhill had decided to live in the commercial world and take a commercial approach".
Being a professional adviser and a director at the same time is bound to present difficulties, as Justice Mullighan found. Or as one Perth accountant and Aussie Rules football fan put it this week: "It's like being the umpire and playing centre-half forward as well."
Martino's resignation is another signal of the end of an era for accounting firms. They have already hived off their consultancy arms – not entirely by choice – and are going back to their roots: compliance and valuation.
In a nutshell: compliance with tax, compliance with disclosure and valuing companies subject to takeover offers.
Martino was alway playing a risky game being so deeply involved in the telecommunications and technology stockmarket bubble, rather than at arm's length.
He had resigned from some directorships when he accepted the chief executive's job at Deloitte in April 2001, but stayed on the board of New Tel, as well as others, like his chairmanship of Sydney Gas.
It appears Martino told few people about his 1999 chairmanship of the No Regrets lingerie brand. Deloitte chairman Odland admitted this week he was "unclear on the details" surrounding No Regrets.
Its prospectus, for which Deloitte provided the tax advice, was so short on detail that the Australian Securities and Investments Commission put an interim stop order on it, later lifted when No Regrets filed more information.
Deloitte this week moved to limit the damage caused by Martino's resignation.
"It is an unfortunate situation," said a spokeswoman for building materials group CSR, which uses Deloitte as its auditor.
"But the way in which the firm has handled it reinforced its standards on governance and ethics."
Other major listed companies, which use Deloitte as its auditors, have also said privately that an incident involving one individual should not tarnish the reputation of the entire firm.
Of Australia's top 70 listed companies, Deloitte acts as independent auditors to just five, including Woolworths, CSR and AGL, with most of its income coming from consultancy fees.
The audit market leader is KPMG, which reviews the books of the majority of the top companies. It also audited New Tel's books. Just how KPMG comes out of the collapse of New Tel will be another story as the liquidator sifts through the wreckage.
theaustralian.news.com.au. |
