The grave illness of now late billionaire Richard Pratt has inspired a steady stream of tributes from Prime Minister Kevin Rudd down.
While most of these tributes focused on Pratt the philanthropist, Pratt the arts patron and Pratt the pillar of the community, Pratt’s real skill was as an entrepreneur and wealth creator.
When Pratt took control of the Visy empire in 1965, turnover was just $5 million. Today the company employs more than 5500 people and has annual sales over $2 billion.
Here are eight key strategies used by Richard Pratt to build his empire. I am indebted to James Kirby, managing editor of Business Spectator and author of Richard Pratt: Business Sectors of the Billion Behind Australia’s Richest Private Company, for his help.
The fact that so many luminaries have come out and paid tribute to Pratt should be no surprise. The billionaire was a master networker whose influence extended throughout politics, sport, the arts community and philanthropy. As well as investing a huge amount of time in relationship building, Pratt has also invested a lot of money, particularly through political donations to both sides of politics.
These networks paid real dividends. For example, the successful establishment of Visy’s paper mill in the NSW regional town of Tumut was a tribute to Pratt’s relationships across government, the local community and even environmental groups.
Similarly, Pratt has spent an enormous amount of time and money investing in customer relationships. On top of frequent customer visits (a trait picked up by Pratt’s son Anthony, who reportedly spends a few days each week flying around the US visiting customers from his Atlanta base) customers are regularly wined and dined or offered discounted tickets to sporting events and the theatre. There are few competitors in the paper and packaging sector in Australia, and Pratt figures these little bits of corporate largesse can make a difference.
Pratt is famous for being involved in every detail of his business. As he once said in a speech to the Family Business Council, the best managers “look for ways to make things happen”.
Crucially, this was not confined to the boardroom. Pratt loved touring the factory floor, seeing how the business was running at ground level and checking up on his staff. “The best managers manage by walking around,” he told Kirby. “They’re visible and they never, ever tire of going on to the factory or ship floor. They make a point of visiting their sites at odd times, after hours and on weekends. They visit their customers frequently.”
While paper and packaging has always been Pratt’s main focus, he has been able to diversify his family’s fortune in a number of ways. In 1979, Pratt moved into recycling. A decade later, he established Visy’s US business, which has since become a key part of the empire.
In the early 1990s, Pratt backed his son-in-law Alex Waislitz to set up the Pratt family’s investment company, Thorney Holdings, which invests in a range of mainly small and mid cap companies. This has allowed Pratt to become involved in sectors as diverse as biotechnology and manufacturing.
But Pratt has been careful not to expand too far from his core business. This lesson was learnt in the late 1980s and early 1990s, when Pratt made a disastrous move into financial services with life insurance company Occidental and Regal.
Visy isn’t a consumer business, so it’s not surprising that it hasn’t been a major advertiser over the years. Instead, Pratt has got publicity in other ways, including sponsorships of sporting events, support for the arts and, of course, philanthropy. The Pratt Foundation gives away about $14 million a year and Pratt admitted in a 2007 interview with The Australian that the donations serve a dual purpose. “Of course there is self-interest, it is public relations,” he said.
One of Pratt’s key rules is that investment in new technology is crucial. He argues that old machinery is a losing proposition – new equipment is safer, more efficient and keeps workers happy. But as Kirby explains, there are a few caveats. Workers must take responsibility for their new equipment, and new machinery should have a one-year payback.
Pratt’s leadership style has often been described as being like a benevolent dictatorship and certainly it’s clear that in most cases Pratt’s word was the end of the argument. Nonetheless, Pratt also inspired incredible loyalty by showing it himself.
Employees are well paid and top performers are rewarded with gifts and other benefits. For example, for many years, the person who brought Thorney Holdings the best investment deal of the year used to receive a luxury car or world trip. (This year, money was donated to charity in a credit-crunch concession). It is little wonder Visy workers stayed with Pratt for decades.
Despite the benevolent dictator tag, Pratt’s beautifully-managed succession plan shows that he has been able to give family members space to take control of their own corners of the empire. Under the Pratt succession plan, Pratt Industries USA will go to Anthony; Thorney Holdings to daughter Heloise and her husband Alex Waislitz; and Visy Industrial Packaging goes to daughter Fiona and her husband, Raphael Geminder.
Crucially, each business has been managed by its owners for the past few years, ensuring an almost seamless transition from one generation to the next.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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