Questions: 1. Leading Reassuring people is central to Glenn Rufrano’s ability to maintain morale in the difficult situation he finds Centro in, but honesty is a defining characteristic of a successful leader. Using leadership theory, describe Rufrano’s leadership style. Support with reference to the case. 2. Human resource management Are the human resource management approaches at Centro appropriate strategies? Why or why not? 3. Decision making Rufrano’s decision-making is critical to the success of Centro. What are some of the influences on decision-making that might impact on the rationality of decisions he is making? The case study HURDLE JUMP THE NEW CENTRO CHIEF FACED DAUNTING OBSTACLES WHEN HE FLEW IN WITH A MISSION TO TURN AROUND THE BESIEGED PROPERTY GROUP Story: Nick Lenaghan The eyes are the windows to the soul, it’s said. For several months after he arrived at Centro’s worldwide headquarters in suburban Melbourne, Glenn Rufrano did his soulsearching in the middle of a vast, open-plan office as his 150-member corporate team laboured in cubicles around him. “One day I must have looked like I wasn’t happy,” he recalls. “Someone came up to me and said, ‘Gee, you know Glenn, a number of the staff are worried. You’re looking like you’re worried today.’ I realised that I’m sitting in the middle of this floor and even though I don’t know it, people are looking at me and saying, ‘Holy Mackerel, depending upon that guy’s face maybe we have a job tomorrow or maybe we don’t.'” On reflection, Rufrano puts the day at some time in May last year when the pressure from Centro’s Australian lending syndicate was most intense – at one point the banks confined their rollover period on $2.8 billion debt to a mere seven days. “I remember saying, ‘Oh my goodness, I’d never have thought my daily activity would impact the folks around me.’ I had to rethink how I moved around the office a bit.” It was a rare lapse for Rufrano, whose slight but energetic frame on most days exudes the sense of poise and purpose that bespeak a clear mind. And presumably a great set of lungs, given the 59-year-old’s enthusiasm for scuba diving and jogging. Indeed it was stamina above all else that Rufrano would need for one of the biggest corporate rescue jobs in Australia. After spending the best part of the past four decades in New York working his way up from his first job in valuations through the biggest property market in the world, the boy from Brooklyn knew most of what there was to know about real estate. Until he arrived at a place a long way from home, at Centro’s HQ based in its own shopping centre, named coincidentally – or perhaps fatefully – The Glen. By January last year, when Rufrano headed to the Melbourne suburb of Glen Waverley for his first day at the office, Centro was in deep trouble. One month earlier, the giant retail landlord had opened a Pandora’s box with its announcement that it was unable to refinance $3.9 billion in short-term debt falling due and had instead won a reprieve until mid-February. Suddenly the share price was in the toilet, two shareholder lawsuits were looming, and chief executive Andrew Scott, the architect of Centro’s meteoric success, had quit. The chief financial officer had also departed “on extended leave for health reasons”. Centro’s 740-odd Australian staff were bewildered and despondent from the sudden reversal in fortune; some were literally on the brink of bankruptcy themselves. Then there were the 23 banks and insurance companies considering very carefully whether it was time to pull the plug. In the local parlance, it was a sandwich with only one filling when former Centro chairman Brian Healey offered Rufrano the job. “It was a bit of a surprise. Not a total surprise,” Rufrano recalls. “Everybody knew something was going to have to happen. I made the assumption that if Andrew [Scott] was going to leave – and I didn’t know that – they’d just bring in someone from Australia.” Perhaps more surprised was Rufrano’s wife when her husband canvassed the prospect of a year Down Under. “It was actually my 35th wedding anniversary about this time. So I said to my wife ‘Mary, I’m thinking of doing this.’ She said, ‘What are you talking about?’ She’d never been to Australia. I said, ‘It will be fine; it will be an adventure.’ Both my kids were gone. We’ll go away. We’ll fall in love again. We’ll make another life of it. I always just looked at it as a great challenge and an adventure and the right thing to do.” Created out of the ruins of homebuilder Jennings Properties in 1991, Centro had plodded steadily enough before the appointment in 1997 of former Coles Myer corporate treasurer Scott, whose financial wizardry unleashed a decade of explosive growth. Scott’s growth formula – generating management fees while pushing the ownership of individual shopping centres through a complex machine of intertwined property funds and syndicates – worked a treat as interest rates fell and the property market soared. In 2003, the ambitious Australian took on America, swallowing a series of suburban mass before gorging on two enormous portfolios; first the US$3.2 billion acquisition of the Heritage Property Investment Trust; then, in February 2007, the US$5 billion take-out of New Plan Excel Realty, the real estate investment trust Rufrano himself had spent seven years helping put together. That deal gave Centro a $26.6 billion empire, controlling some 682 malls big and small across America, along with another 128 shopping centres in Australia and New Zealand, making it the second largest retail property operator in Australia. It also meant the complex and heavily geared machine Scott had devised was ready to implode as mistrust squeezed liquidity from the international financial system, leaving Centro with a truckload of debt and nowhere to turn. “The basic problem was it ate too much and it couldn’t digest it,” Rufrano says. Culture shock was the least of Rufrano’s worries when he disembarked at Melbourne on January 17 last year. Within hours he would be face to face with Centro’s senior executives who still were struggling to make sense of what was happening to them. Rufrano was taking a journey into a new world in more than one sense. The familiar narrative of the past half dozen years – to get bigger and then bigger again – was being overtaken by stories of corporate collapse. No longer was the dealmaker king. Corporate leader-as-survivor was the new paradigm. Suitably dressed in running shoes, Rufrano received a baptism of fire before he had even left the airport, for the first time encountering the intense interest the Australian media would retain in the Centro story. “I only answered two [questions],” he says. “One of them was, ‘Where are you going?’ and [my reply was,] ‘I’m going to work.’ And the other was, ‘Do you know what you’re going to do at Centro?’ and I said something like, ‘No, I don’t.'” Rufrano spent most of that first day in a meeting with the shell-shocked Centro executives, some of whom were contemplating bankruptcy through their own exposure to their employer’s plummeting stock price. “There were margin calls. Many of the senior people had lost very large sums of money. This was not just their jobs. It was very personal.” In that first month on the job, several senior staff unburdened some of their fears with Rufrano. One of the corporate team recounted how his bank didn’t want to give him a home loan because he worked for Centro. “There were people who would come up to me and say, ‘Glenn, do you think we’re going to make it?’ Very frankly at the time I hadn’t a clue. I always felt we had a good chance and I’d always be optimistic and I’d say ‘we’re doing everything that we can’. There were a lot of people who just wanted to hear something positive about moving forward, so that they could go on every day and be okay about it.” Managing morale within Centro became a key concern for the new chief executive. At several points during the year he instituted fortnightly mass meetings as the pressure mounted from the market and the media. Rufrano values the art of keeping it simple and stuck to that principle in the group meetings. His modus operandi was to keep the communication clear and concise, then open it up for questions. “It’s so easy to be complicated. I have found business people sometimes are [too] complicated to try to show they know more than the next person. That is a way of communicating which is just horrible.” Creating the opportunity for dialogue during the meetings is part of the Rufrano approach, even if his replies were sometimes vague for disclosure reasons. “you always have to have an answer. That’s my job.” While the ultimate form of Centro’s rescue plan took months to emerge, Rufrano quickly sorted the options into a three-fold plan of attack: sell assets; attract fresh equity; and negotiate debt with the banks. “I was pretty confident we were on the right courses,” he says. “I didn’t know which course would take us there so my job was to keep us on course with the morale and expect at the end of the day the banks would agree with what we’d always said to them, which was [that] if you believe in us and we are open and honest and we know our business on the properties and we present a reasonable plan, we’re better alive than dead.” It was how Rufrano managed relationships with the bankers that mattered most. The financiers for the maturing short-term debt comprised three main groups: US banks owed $1.2 billion; a group of US insurance companies holding notes worth US$450 million; and the eight-member Australian lending syndicate, which included the Commonwealth Bank, NAB and ANZ. There has been considerable speculation over the role played by the Commonwealth Bank, whose restructure man Ross Griffiths pushed Centro hard. The bank was noticeably absent at a key meeting in New York last September where over two-and-a-half days Rufrano presented and won an in-principle endorsement for the debt-for-equity plan that has given Centro a future. Adding to the complexity were the so-called inter-creditor issues – where each bank would finally sit in the debt stack needed to revive Centro. Here too, by all accounts, Rufrano played a crucial role, keeping a crowd of self-interested bankers moving in the same direction. Refinancing remains a long-term issue for the organisation – reason enough for Rufrano to remain diplomatic about his lenders. “At the end of the day, if success is ‘not administration’, any one bank who didn’t agree could have put us in,” Rufrano says. “It only took one. You can’t let any one make you fail. If you want to succeed you’ve got to work with each one. It could have been frustrating but you don’t treat it that way, you just treat it as a professional and say, ‘What have I got to do to get you over the line?’ Each time this happened – and it did happen in May twice – we were able to get over the line.” That was indeed crunch time, as the Australian banks extended their financial first by one week, then three more to the end of the month before granting a longer reprieve to December. “Back in May was probably the time when we could have come closest to going into administration if we had not handled the situation correctly. The reason for that is even though we were getting the banks to trust in us they weren’t all pulling together at that point. They really started pulling together after that.” Remarkably even-tempered and a straight-talker, Rufrano acknowledges that, being the grandson of Italian migrants, “there’s always emotion involved”. He says: “Sometimes it’s not so bad to let people know how you really feel. Other times though if you really get too emotional, you lose the logic of the situation. That’s no good because then whatever point you’re trying to make you lose.” Rufrano found himself among like-minded company in Australia where he found a calmer and more logical way of doing business. “In the States you’ll get into situations where there seem to be more screams around,” he says. “It makes no sense and you don’t get anywhere.” Small in stature and neat as a button, Rufrano possesses the bounce and enduring energy that would carry him on long runs from his St Kilda Road apartment through bayside Albert Park as he unwound from the rescue mission. Staying power became a highly prized commodity during the year-long Centro restructure – more like an endurance race than the sudden rush for the line, characteristic of the deal-making frenzy of the boom years. Rufrano likens the deal-driven corporate persona that fell out of fashion during the credit crunch as the baseball batter who’s aiming only for the home run. “Today I don’t think we’re out there shooting for the fence. I think we’ll take a single. Next base. What’s more important is consistency. What we’ve got to do as business people is build credibility back. One of the biggest issues we all have is our investors don’t trust us. Whether you’re Centro, or Allco or GM, or Citibank or JP Morgan … they’re just not sure they trust you.” Key to winning that trust is a capacity for encapsulating often complex ideas. “It really is saying to the banks – you have $5 billion of the headstock. The reality is you own us. Let’s find a way for you to take that ownership and share it with our shareholders in a way that’s fair. “It’s never one-dimensional. It’s share the equity, give us time, and we’ll get you the best return to your debt. This is just math at the end. Their alternative was just put us in administration. But in administration it’s more of a liquidating concept. And in today’s market what would they get? They would lose the management and operations and those properties would certainly degrade and they would be selling themselves into a bad market.” Renowned corporate restructure man Lindsay Maxsted was in the process of stepping down from heading KPMG to launch a solo career when he was invited in December 2007 to help Centro with its refinancing woes. He worked long hours with Rufrano over the course of the year and noticed one source of the New Yorker’s negotiating strength came from his ability to listen. “One of his great assets was he could absorb what was going on,” Maxsted says. “He could come to a meeting with a view, take it all in and was quite prepared to go out of the meeting with a different view if he felt, ‘Well that person had a really good idea and I hadn’t thought of that before’.” According to Andrew Rosivach, an analyst at Credit Suisse, Rufrano has a big-picture view. “There is another CEO who said Glenn has ‘fiduciary’ as part of his DNA,” Rosivach says. “A lot of other guys take these fund businesses and see them as financing plays to make another company money and to generate fees. It’s not that Glenn doesn’t like to generate fees; I just think he’s got a view of the long term. You have to act in the underlying fund investors’ interest, otherwise you’re going to end up shooting yourself in the foot.” And Rufrano’s approach will play a big part in the future of Centro, says Rosavich. “There are all sorts of companies globally that at some point turned into real estate investment banks and Centro was one of them. They are all now trying to re-invent themselves back into income plays. I think Centro has a better shot at it than people might think.” Centro’s board is now looking at ways to simplify the entire business, which involves two listed entities, Centro Properties Group and Centro Retail Trust, along with a sophisticated architecture of unlisted funds and investor syndicates. The move continues to differentiate further the infamous “mirror boards” – two boards comprising the same directors – that control the two Centro stocks. Longer-term questions remain over whether more radical changes are needed for its trans-Pacific empire of malls. Rufrano has made pointed suggestions that the time has come for real estate investment trusts to return to their original purpose – as moderately geared entities providing modest but reliable returns for the pension community. That’s the back-to-basics message from a property man who wryly observes that the number of closets in the typical American homes has increased over the past few decades to match their inhabitants’ consumption. “My father had two suits and two pairs of shoes,” he recalls. “I have seven suits and four pairs of shoes. My son has 10 suits and 10 pairs of shoes. And that’s why he needs so many closets. I don’t think it’s going to go back to my father’s time but I think it will go back to my time where there will be less greed. There will be less consumerism and people will recognise that saving is important and they can do with less and still be
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