STEPHEN HARTWELL GREER, CEO OF SMORGON HARTWELL RECYCLING
Interview by Tom Leander

That there is money in junk is an adage particularly true of Hong Kong,
Asia’s scrappy entrepreneurial city where people make their fortunes trading everything. One of the territory’s entrepreneurs who knew this by heart is 38-year-old Stephen Hartwell Greer, an American who arrived in Hong Kong in 1993. By sheer moxie, Greer has built a steel trading and recycling business now worth US$200m in yearly sales, over which he presides as CEO. His company, Hartwell Pacific, was acquired by US$1.5 bn-a-year Smorgon Steel Group in 2005, in part because it was a transparent, mid-tier global business with a well-honed system of risk management and controls. In fact, what is now Smorgon Hartwell, like many Asian ‘miracle’ businesses, grew so fast that a lack of controls almost turned it to junk, prompting a complete restructuring. Greer’s tale is an object lesson in how to harness finance and
management techniques to gain control of a runaway business.

What brought you to Hong Kong?

Well, I interned with Allen & Co, an investment-banking boutique in New York, and later worked as a senior financial analyst for a US chemical company in Germany. But I always knew I’d be an entrepreneur, so after reading a few James Clavell novels, I moved to Hong Kong at age 24 to start my own business.

How did you settle on the metal recycling business?

I decided that it would be better to start my own business rather than take whatever menial jobs were on offer. I grandly named it Hartwell Pacific – Hartwell is my middle name – but its headquarters was my one-bedroom apartment and I had no employees, no revenue, and no particular idea. But that didn’t last long. I started trading in scrap metals because there was a huge demand for it in Asia in 1994, and I believed that I could find sources.

How did you capitalize, and how did you expand?

We got in the business by doing a study of the availability of stainless-steel scrap in Southeast Asia for ELG Haniel, part of the US$50 bn Haniel Group. After the study, ELG Haniel hired me. Then the Asian economic crisis came and I recognized an opportunity to build a regional metal-recycling business throughout Southeast Asia. I thought this could be done with an exceptionally low capital base due to the crisis. I proposed this strategy to the board, but they exited Asia instead and basically fired us as the crisis deepened. So I decided to execute the plan myself.

So you were on your own, which is where you wanted to be in the first place.

Yes. Hartwell Pacific began expanding aggressively by purchasing equipment at fire sales, leasing facilities at rock-bottom prices, and building physical operations throughout Southeast Asia. By 1999, we had opened four physical processing operations in the Philippines, Hong Kong, Thailand, and Malaysia, adding 100 employees. In 1999 we added some overseas operations, including ones in the US and in Mexico. By 2000, we had 150 employees and I was beginning to realize we had expanded too fast.

What kind of risks were developing?

The real risk was internal. The head of my Mexico operations was embezzling money and faking accounts. It nearly bankrupted us. I had to act immediately. I shut down the North America businesses and began preparing to restructure and try to save the company.

How did you reorganize an entrepreneurial business into one with effective controls?

I decided that we’d form a group executive committee to meet every single month. In that meeting, we’d ask: ‘Are there any risks to the security of our business?’ We created a structure of financial controllers, placing one in each major area of business, reporting to the CFO in Hong Kong.

The real challenge was changing the mindset of people we’d prized as entrepreneurs. These “founders” had evolved into virtual kings and queens of their businesses. We were effectively taking away some authority from these general managers but didn’t want to curb their creativity or drive. Rather than talking down to them, the key was to meet as a management group and create the system of controls and security together. By doing that, you create the buy-in to implement and maintain the systems. One immediate thing we did was to give more than one person some basic responsibilities. If a sole person had a key to the front gate or 24-hour access, we’d make sure that two people would have this as a shared responsibility.

How effective are the group meetings?

They are very effective. I lead the meetings, and those required to attend are the group CFO, the general managers for the countries, the head of trading, and the head of business analysis. We review the whole business but dedicate an entire section of the meeting to safety and security systems. If a country is showing signs of weakness – or we have doubts about it – the next group executive meeting is in that country. We tour the facility, asking to look for things that need to be improved, and keep pushing the bar. In fact, we rotate the meeting geographically. Everybody is under the spotlight.

Isn’t this time consuming?

Yes, but necessary. To endorse openness, we celebrate failure. When someone from a country admits to a mistake, we don’t have a witch-hunt, but share the burden of resolving the problem. What we discourage strongly is a culture of keeping quiet about errors. We, of course, also don’t accept repetitive failure.

What were the benefits of tighter control?

When I was seeking a strategic industry partner in 2003, the system of controls made us more attractive and acceptable to the culture of a large public company. In fact, since we’ve been acquired by Smorgon Steel, we’ve still remained a self-contained unit, and the rest of the company regards our methods of management and control as something to learn from.