Feltex trial - defence highlights key plaintiff witness’s fulsome praise of reform

An Australian consultant who gave scathing evidence against former directors, owners and advisers of failed Feltex Carpets also praised its progress in a series of articles in his engineering magazine after the company floated, the High Court heard today.

John Blakemore, principle of Sydney-based Blakemore Consulting International, was being cross-examined by the defence lawyer for Sam Magill, who moved from Shaw Australia when it was acquired by Feltex, rising to become chief executive and a director at Feltex.

Blakemore is a key witness in the lawsuit of Eric Houghton, who is suing former Feltex directors, owners and sale managers for $185 million in a representative action on behalf of 3,639 former shareholders who say they were misled by the company's 2004 prospectus. Feltex failed in September 2006, two years after going public and the assets were acquired by rival Godfrey Hirst.

Blakemore followed Magill to Feltex, having originally been hired by Shaw Industries in 1999 to audit manufacturing at its Australian factories and outlets. In evidence read to the High Court in Wellington today he painted Magill as being resistant to change and even used the word incompetent, which he later qualified.

Magill stepped down as chief executive of Feltex in June 2005 and when voted off the board in December of that year he said he didn't want to be made a scapegoat for the actions of the whole board.

Blakemore was pioneering lean manufacturing for the carpet sector, using a strategy of long-term supply contracts, just-in-time production, low inventory and fast turnaround times. He said there were massive benefits to be had by reorganising creaky, inefficient factories and manufacturing.

His evidence is that Feltex, and in particular Magill and his offsiders and managers in New Zealand, hindered his efforts to make the company more efficient. And his concerns about the future of the company were such that he turned down shares as part of his fee when he left in June 2003, a year before the IPO.

Weston asked Blakemore in cross examination if he'd outstayed his welcome by 2003 or even the prior year, alienating company managers with his manner and his lean reform mantra. Blakemore's evidence was an attempt to rewrite history, and gave an exaggerated account of the company's pre-float troubles, said Weston.

Blakemore said he "was consumed by it and disappointed I didn't get the management support for it."

Yet Weston produced a folder of seven articles Blakemore had written in which he referred to the success that was achieved at Feltex toward his goals, including the Australian business turning from a loss to a profit. "Feltex floated on the back of these improvements," he wrote in a 2005 edition of his magazine, New Engineer Journal.

In a 2006 article he attributed blame for the Feltex failure to a marketing department strategy starting in January 2005 to fill the finished goods store "with a new range that didn't sell," an explanation he also gave in a book quoted among items in the folder.

Prior to being cross-examined, Blakemore had told the High Court Feltex still had a long way to go to be an efficient manufacturer

"In my opinion there was a significant amount of work to be done for Feltex to be a competitive company in a free-trade environment," Blakemore said. "If not, then the company would fail."

"That was the reason I declined shares and demanded cash for my fee in 2003," he said.

As well as hostile managers, Blakemore said Feltex had poorly organised, poorly coordinated factories with old machinery and a rigid, unionised workforce that was fearful of management.

There was "a short window where Feltex could innovate and succeed" or stick to its old practices and fail, he said.

The case is continuing.

(BusinessDesk)