Posted on January 5, 2021
We’re at IHC with a legacy from the past
By Gaby de Great and Pieter Lalkens
Translated from Dutch
Ship builder IHC was saved from downfall this year by the government and an industrial consortium. The new top man Gerben Eggink gets one of the most difficult jobs in his career: he needs to clean up hard and cope with a possible corruption affair.
Gerben Eggink started as an interim CEO of IHC this spring. The shipbuilder gad been saved from downfall shortly before. The management structure was based on a much greater turnover than the current level. Eggink had to reestablish hard and was confronted with a corruption investigation.
Gerben Eggink was in Spain at the pool when he got a call from a headhunter at the end of April asking whether he wanted to take on the job to reorganize the heavily-lossed shipbuilding IHC. After half a day of thinking, the answer comes, “I’ll do it.”
He had his reasons for his thoughts. “It was mostly about whether I wanted to do another job. Because it’s a heavy job,” he says from his office in Kinderdijk from which the famous mills can be seen in the distance. Why is he doing it anyway? “I think it’s a beautiful company. I also believe I can do it well, which helps.”
Eggink is not at an unknown in the maritime sector. He reorganized two subsidiaries of dredger and offshore company Boskalis, which is a loyal customer of IHC and has a major shareholder in HAL. HAL, including owner of the FD Media Group, is one of the saviors of IHC.
How did you arrive the first time?
“I didn’t have time to prepare that at all. I was almost in my swimsuit. I think I arrived at Rotterdam The Hague Airport at 2:30, and I was in the first meeting at 3:00. But I didn’t have to prepare; I know IHC of course.”
How much is this job different from the other one?
‘It is particularly more complex in the organisational structure. If you have a good organization that only has too many people, it’s here and there delete some functions. But here we have had to figure out how to set this company up properly and simpler. That was more work than usual.’
This brings Eggink to a sensitive subject: the policies of previous drivers. In 2017, McKinsey concluded that IHC was ‘too big for the napkin and too small for the table cloth.’ To survive, it needed a turnover leap from €800 mln to €2 B a year.
What do you think of that advice?
‘In retrospect, that was not good advice. Or we’ve been doing it the wrong way. We’re really in this house with a legacy from the past. The organization is designed to meet that €2 B revenue level which has been far from reached. The organization is therefore top-heavy, with too many management legs and far too few decisions at lower levels.’
In addition to rehabilitation, with the dismissal for a quarter of the permanent staff, Eggink is splitting off companies that are not at the heart of the plan. New directors of divisions are asking for a realistic turnover traffic for the next two years. ‘That is exactly the opposite of what happened here before, when turnover targets were imposed. And if you add those estimates together, you’ll be between €600 mln and €700 mln a year.’
IHC Timeline 2020
24-1-2020: FD reports possible acquisition of IHC by a consortium to ‘keep Chinese out’
30-4-2020: Agreement on the main lines of rescue plan IHC by consortium and State. Dave van der Heijden stops as CEO and is succeeded by Gerben Eggink
29-5-2020: FD reports that banks write off over €200 million in rescue
4-6-2020: Final agreement rescue plan IHC, former State Secretary Menno Rapid member RVC
29-7-2020: annual report 2019: mega loss of €227 mln
29-9-2020: FD reports that IHC is the subject of criminal investigation by the Fiod and OM fot possible involvement in corruption in Brazil
12-11-2020: IHC announces major reorganization: a third of personnel dismissed
How is the support for the reorganization?
“Before I came, it was already supportive. There was a group of employees who saw that things weren’t going well who had made a plan of their own. They all turned out to be good people with a good plan and it comes very close to what I’m doing right now.”
A previous publication of the FD showed that the management blamed lworkplace resistance to change, the workplace accused the leadership of a wrong strategy and sowing a culture of fear.
Do you recognize these cultural collisions?
“Yes, in every big company you have cultural differences and people who don’t get along together. No doubt. But still, it’s more dominant that all those people have an IHC heart. They’re proud of the company and the ships. That’s bigger than cultural differences.”
Has the former management been too little use of that?
“Let me put it this way, I do things differently. That’s how I appointed directors I know are looking for cooperation. And I’m clearly in charge. I communicate a lot and I’m easily approached.”
Are you really in contact with the workplace?
“Sure, that’s awfully nice, and besides, you learn all kinds of stuff. I know how to reorganize a company, but they know how to build a ship. If you take that seriously, you’ll be taken seriously yourself a lot faster.”
Back to culture: should workers on the workfloor be more flexible than before?
“We said, “We’re going to reduce headcount, but we’re going to limit the impact on the shop floor. But you’ll have to be flexible. Yet you can see this is complicated. Someone told me the other day it’s easier to send someone from Kinderdijk to China than from Kinderdijk to Krimpen. If you go from Kinderdijk to Krimpen now, you’ll get a buddy there. It is particularly threshold, because very different cultures are not, of course, very different.”
The new top man was also confronted with a corruption investigation by the Justice Department this year. This suspects IHC of paying bribes through an agent in acquiring major orders in Brazil in the period 2011-2012. The officer would have bribed managers at the client Sapura.
What did you do when you heard the news?
“Right away, what’s going on? Well, that’s pretty simple. Ten pipelay ships have been built for €1.5 B. One agent was used to receive some €14 million of commissions. That’s perfectly normal.”
But part of that sum has been transferred to the Cayman Islands, a notorious tax haven.
‘One of the legal reasons is that this agent has real estate in the United States and Dubai. If you transfer money to Brazil and then you want to get it out of the country, it’s really expensive. That’s the explanation we’ve heard, and I find it quite plausible, but I can’t judge if it’s true.”
Isn’t that too simple?
“I’d have to say right away, would you do that now? Our compliance is now a lot further developed than it was then. But I also have to say that the reports by accountant KPMG are simply mentioned in the accountant’s reports. No one raised a red flag.”
But KPMG raised red flags in the past, right?
“Yes, but not us. That is a subject of conversation: have they warned us enough? We’re investigating that.”
What are your preliminary conclusions?
“We have asked the law firm Wladimiroff to do a thorough investigation here. They interviewed all the people involved in it then and they searched the archives The good news is that we have not found any evidence that we have known this. We’ll report that to the DA if we have a conversation with them soon.”
Is the corruption investigation in combination with State aid not very inconvenient?
‘It is distracting , which is obvious, because the stakeholders wanted to know what’s going on. The State also comes asking questions. They are legitimate and we have all answered them properly. And they’ve got the same story I tell you now.”
How long will the State remain shareholder of IHC?
‘If the “Spartacus” is delivered to Deme then that is the moment the government is making its way for the industrial consortium. We’re working on the last part, a beautiful ship it has become. At the end of January, I expect the transfer. Then I hope that file is closed.”