Tokyo, 1 February 2020.
Tony Clifford, the 28-year company veteran and newly appointed CEO of Pan Pac Forest Products, was presenting to the company’s board of directors. It was his first day on the job in his new role. In Japan’s capital city, the effects of COVID-19 were beginning to be felt, he explains.
“All the face masks had been purchased from the convenience stores and sent to China. A week later, I was back in New Zealand and media reports were just starting to trickle through about this new disease. Shortly after that, Pan Pac held its first management forum to begin plan and manage the company’s response to the pandemic.”
In March Prime Minister Ardern announced New Zealand’s “go hard, go early” pandemic response.
Pan Pac’s production was shut down for five long weeks.
Clifford says the shutdown the company endured at Level Four came with a price tag of $45 million, roughly 10% of annual turnover. While some of that loss has been recovered through a rebound in demand, good production levels, and international price increases, there’s still a shortfall of around $20 million.
“I still strongly believe that we could have demonstrated that we could have operated our businesses here under Level Four,” says Clifford.
“Social distancing would have impacted production, but we still could have operated under restricted conditions at around 70-80% capacity. That’s a heck of a lot better than zero.
“Since lockdown lifted last year, I’ve spent the last 12 months lobbying to prove that we could operate in the event that New Zealand ever gets back to that situation again.
“I’ve been pretty disappointed in the Government’s approach. They haven’t even wanted to listen to either myself or anyone else in the timber industry. And their answer has been ‘that will never happen again, so don’t worry about it.’
“Part of my learning from what I witnessed in Japan, is ‘get prepared’. It doesn’t cost that much to do that, whereas to respond to, and manage the situation as it is evolving is much more difficult.
“They (Government) still won’t enter into dialogue in that space. Every time I meet a minister, I say ‘Can you talk about a future Level Four scenario? Send someone to audit us’. There’s no interest, and the only response is, ‘There will never be another Level Four’.”
Clifford’s vision for Pan Pac is to hand the business over in an even better condition than he received it. He concedes it was in pretty good state when he took over from Doug Ducker.
“But there are always improvements you can make. Even at the end of my tenure there’ll be lots of things to work on. Every day you find a better way of doing something. There’s contemporary ideas in the people space, and one of my ambitions is to have more of our people more directly engaged in our business. I have an innate belief in the capability of group endeavours. A group of people with different ideas, different experiences, and different motivations, working really well together can produce a better result. I am constantly looking for methods and techniques to engage people.
“Another aspect of greater engagement is shared leadership. There’s often a perception, particularly in larger businesses, that all the leadership and decisions have to come from the top. But it’s impossible to do that. In a company like Pan Pac, there’s probably 1,000 decisions a day being made and you really want people to feel empowered to make the right decision on the day and feel that they’ll be supported in that decision. If it goes wrong, that’s ok, just don’t do it twice, and learn from it. Whereas in other organisations there isn’t the opportunity to make mistakes, the boss makes every decision. When the business gets as large as ours, I can’t be involved in every decision.”
As for progress on achieving shared leadership, Clifford says Pan Pac is at ‘bronze medal’ level, with a lot of room to develop. He cites the example of the company’s executive team, a group of five executives, plus Clifford himself, with a combined tenure of 90 years at Pan Pac, learning to work together in new ways to increase effectiveness.
Another new initiative engages a diverse group of representatives from across the company at all levels to come up with the tactics and techniques for delivering on the strategic objectives set by the executive team. Previously it tended to be limited to senior management teams only, and production and sales targets. The phase being worked on now is about “Getting the Business Fit for Purpose” in the next three years, so that Pan Pac can take on more ambitious/difficult goals in the future.
Bringing in new ideas is also important. Pan Pac’s great strength of very low staff turnover means there’s a wealth of institutional knowledge, but Clifford acknowledges it can also mean a lack of freshness and new ideas. To combat, the company intentionally networks for new ideas, visiting other CEOs, attending business forums, working with consultants to develop leadership capability and new ideas and ways of doing things.
For nearly 50 years, Pan Pac has been a significant contributor to the region. Just over 1% of Hawke’s Bay’s work force are employed directly or indirectly by the company. Producing mainly appearance grade timber and wood pulp products, the company brings much needed economic diversity to the region, reducing exposure to the international pip fruit and viticulture sectors.
One of Pan Pac’s key relationships is with Napier Port.
Todd Dawson, CEO of Napier Port says: “Pan Pac is a significant customer of Napier Port through its log, pulp and timber businesses with each contributing revenues both directly and indirectly to the port. In addition, Pan Pac supports a number of other exporters and importers in the sourcing and supply of forestry related products that transit through Napier Port.
“Pan Pac’s presence in Hawke’s Bay and volume through the port contributes significantly to the ability of Napier Port to attract and retain international shipping services to Napier. The availability of these services in turn provides benefits to other importers and exporters in Hawke’s Bay. Additionally, our close working relationship allows the two businesses to support and share technical expertise from an infrastructure and engineering perspective.
“Finally, Napier Port and Pan Pac are aligned across many community and sustainability initiatives which we see as a strength to enable greater scale and influence in support of positive contributions to the local Hawke’s Bay economy and communities we are proud to call home,” says Dawson.
Working in an ecosystem
Historically, Pan Pac has not sought the limelight. However, this lack of a broader public profile, hasn’t served the business when issues such as the outfall pipe leakage trigger public concern.
Clifford concedes that’s a fair point, explaining: “We are a B2B company and largely export focussed … so we don’t do any consumer level marketing, because we don’t have consumers as customers. All of our customers are businesses.
“Having said that, we are cognisant of our space in the world and in Hawke’s Bay ecosystem, and I say ecosystem because it’s more than just business, it’s more than residents, it’s more than just councils. We’re a pretty reasonable sized employer, and the recent BERL report shows that we contributed $541 million to the regional economy last year.”
Pan Pac’s workforce is largely unionised under a single collective agreement, with 100% of operational and trade staff belonging to either First Union, or E tū Union. The average Pan Pac salary across all staff is just under $100,000 pa, well above the Hawke’s Bay average of $56,543 pa.
Clifford says the company’s relationship with the unions is “pretty good, and improving all the time”. He admits, like any union-company relationship, there are rough points from time to time that can hurt the relationship, and noted the company is comfortable working under a collective agreement.
In March 2016, First Union workers issued a health and safety strike notice, refusing to load wood into the company’s Thermally Modified Timber kiln.
Fast forward to December 2020, the $2.5 million kiln was dismantled, without ever being put into commercial use, with Clifford saying to Hawke’s Bay Today: “We are dismantling the kiln due to historic operational issues. The asset is surplus and we need some of the area for other operational functions.”
When approached, First Union declined to comment for this story, saying it wasn’t a good time due to the upcoming collective agreement negotiations, but would be happy to comment once the bargaining is resolved.
Two topical issues influencing the forestry and timber sector are the wall of wood and farm conversions.
On the wall of wood, Clifford says that we’re well into it. “In Hawke’s Bay it’s largely been smoothed by early and delayed harvesting. Pan Pac has been a beneficiary of the surplus of wood that’s been available, and Hawke’s Bay has benefitted in that we have timber processing to add value. In other regions a lot of the extra wood is being exported as logs.”
As for farm conversions, Clifford says that there haven’t been many in the Bay. “There is a tiny percentage of farms being converted to forestry in our region. What we are supportive of is the Regional Council’s ‘right tree, right place’ tree planting solution on marginal farmland.”
On the environment
On the environmental front Clifford wants Pan Pac to achieve more than mere compliance. “We’re trying to move on from a ‘social licence to operate’ to having leading KPIs. We’re constantly looking for ways to improve our performance. Some of the (environmental) objectives that our shareholder has set for us that have to be achieved by 2030 are pretty ambitious and will take a lot of effort and time to do that.
“We’ll rise to that challenge and it’s fortunate that our balance sheet and profitability of the business is such that we can allocate time and resources to that field.”
Pan Pac is developing a sustainability strategy, which has aforementioned environmental goals, and will be released later this year, based on material issues that matter to the company’s stakeholders. There are ten priorities including health and safety, water pollution and sustainable forest management, biodiversity management and protection and water conservation practices. The initiatives align with 11 (of 17) of the UN Sustainable Development Goals. This is a significant body of work and has involved input from external and internal stakeholders, and will be updated annually.
Clifford says Pan Pac is collaborating with local government and other Hawke’s Bay businesses on ways to support each other to achieve our environmental targets. “It’s really exciting!”
The company has fully embraced the new environmental standards for plantation forestry that came into force in 2018.
“We were largely working to most of those requirements; it hasn’t been a major problem for us as we already had a lot of forward planning, environmental considerations for things that we were doing.
“Ten years ago we had a slash (branches and stumps) wash out event and learnt a lot from that. We know about managing the end of the harvesting cycle on site in high risk areas, making sure that the slash left behind was appropriately managed.
“We process everything down to 700mm long and chip that as a value recovery. We have currently five trucks dedicated to bringing in bin wood, whereas a few years ago we only had one.”
Pan Pac only has small parcels of red zone forest (very steep/erosion risk/ proximity to waterways). Some of the things Pan Pac must consider is roading infrastructure, how to haul the wood out, where they will leave slash and post-harvest, where to place slash traps.
“November’s heavy rains tested the systems in our forests and they worked pretty well,” says Clifford.
The outfall pipe issue from a few years ago, stemming from the installation of an upgraded waste water treatment system, was a challenge for the company that took many years and input from many parties to resolve. Clifford was the pulp GM at the time.
The Environment Court noted in its decision of 28 June 2019: “Pan Pac had demonstrated a responsible approach to treating its wastewater and had committed considerable resources to ensuring effective treatment facilities are in place. In addition, we were satisfied that, with the exception of the discolouration issue, Pan Pac had a good record of compliance with its discharge permit conditions.”
A condition of the Environment Court decision was the establishment of the Pan Pac Environmental Trust: “…with broad purposes involving benefit to the Hawke’s Bay community by promoting enhancement, restoration and protection of the environment, and the offset of cultural effects on defined Mana Whenua Hapū”, with the company donating $100,000 per annum for the 35-year term of the consent agreed by the parties.
Myron Bird is chair of the Whirinaki residents community consultation group and a foundation trustee of the Pan Pac Environmental Trust (www.ppet.org.nz).
“The community group was set up to give Pan Pac feedback from the local community. In the early days there were problems with dust and noise, but that’s largely settled down.
“Pan Pac is a responsible and responsive neighbour. Engagement with the company is very relaxed. We’re currently dealing with a dust issue and the mill is aware of it and is looking into where the problems are coming from and putting in dust monitors. I have no doubt they’ll have feedback for us soon.”
Like all community groups, Bird says it’s becoming harder to garner interest joking that the lack of good contentious issues is inhibiting membership!
As for the Trust, Bird says that each year trustees review and assess the funding applications to decide how the $100,000 will be spent across the region, with the money split evenly between environmental and cultural applications. The first year’s grants went to Ōtātara Outdoor Learning Centre workshops, Whakatipu Kaitiaki programme, Te Wai Mauri Trust and Kākābeak/Ngutukākā propagation.
The positive vibes are echoed by Scott Richardson, chairman of the Hawke’s Bay Mountain Bike Club. The Club has more than 2,600 full-time members and an additional 1,500 casual members who pay for the privilege of riding the (more than) 100 kms of trails in the company’s Tangoio forest. At peak season, on a busy day, there could be up to 300 riders in the forest.
Richardson says the club has had access to Pan Pac forests since mid 1990s. “It’s a long relationship and collaboration. Pan Pac has been very accommodating. Tony (Clifford) is an advocate for us. He understands our needs and supports us. As a club we are respectful and appreciative of their needs, and we’re very grateful.”
For the most part, Pan Pac has been a quiet giant in Hawke’s Bay – an economic driver with a low profile. But it feels like the company is changing and beginning to reflect the leadership style of new CEO Tony Clifford. Its external relationships in the community are ever more important environmentally, recreationally, culturally and appear to be getting higher priority. And this is perhaps a style better suited to today’s public expectations, when communities are raising the bar for what they regard as necessary pro-social corporate behaviour.