Built to Last

Sunday, April 1, 2012 - 12:31

Daniel Grollo doesn't just have big shoes to fill, he has many shoes to fill in a family company with a history going back to the 1940s. Tom Skotnicki reports.

Portraits of the family patriarchs, Luigi and his son Bruno Grollo, sit symbolically in the Grocon boardroom. The construction giant's chief executive, the 41-year-old Daniel Grollo, is part of the third generation of the family business which began more than 60 years ago with a Melbourne concreting firm in the late 1940s.

The youthful-looking Grollo, who splits his time between Australia and New York, is all too aware of the fact that typically the first generation makes a fortune, the second generation builds on it and the third generation spends it. Grollo reflects his father, Bruno, has frequently made a similar observation.

This is not surprising given a version of it exists in many cultures and languages, from Italian to Chinese.

But a landmark study of family businesses conducted in the 1980s confirmed it as more than a myth, with only 13 per cent of established family businesses surviving the third generation.

Grollo understands the limitations of a family business. He says his objective is to combine the long-term approach of the family with the financial and operational disciplines of efficient corporations.

For the scion of a successful family, Daniel didn't grow up with a silver spoon. In a status-obsessed Melbourne, he went to a local high school in the working-class northern suburb of Thornbury where his father, uncle and grandparents lived in a virtual compound. At 18, he went to work in the family business as a carpenter. But he has enjoyed a meteoric rise and was appointed chief executive of the company in his early 30s.

Grocon is the largest privately owned construction firm in Australia with an annual turnover estimated at more than $700 million. Major projects underway include the $1.2 billion CUB site redevelopment on the edge of the Melbourne CBD and the re-development of Myer's flagship Melbourne store.

In Sydney, it is expected to complete its 161 Castlereagh Street development next year, at which time the site will be occupied by ANZ and law firm Freehills. In Queensland, it is in the process of completing the massive Soul residential development in Surfers Paradise.

Grollo says the success of the company cannot be attributed to a single factor.

"Like any success story there is a lot of hard work and application, a bit of luck and a lot of seizing of opportunities," he says.

"It was a combination of all three at different times."

Grollo says the project that was seminal in establishing the family's reputation for delivering on large-scale projects was the Rialto building, which in the mid-1980s was the tallest office block in Melbourne.

"It really was betting everything in an economy which at the time wasn't that flash." He said the business had matured to the point where it was able to build over live railway lines to construct the Fairfax head office and rebuild the MCG for the Commonwealth Games where there was an internationally imposed deadline.

Discussing the Grollo approach to risk, he says his father tended to be conservative and risk averse.

"He is a complex character ... in some ways he is very conservative ... but when the transaction is right he becomes absolutely focused. I think those hallmarks still exist in the business today. We are relatively conservative and monitor risk carefully, but we do take on some very, very risky projects."

The passion and commitment of Bruno was never more on display than when in the early days of the Rialto there was great apprehension about the floor-to-ceiling windows. The burly Grollo, determined to prove the safety of the building shell, took a running jump at an upper floor window. His son says it was "something out of the ordinary".

Grollo says families are a collection of individuals and there are always events and episodes that contribute to an understanding of their personality and character.

"For my father, what was most indicative was the care and loyalty he demonstrated to my mother when she was sick. That is what really explains him."

Dina Grollo died in 2001 at 58 after a long illness. She had suffered a stroke in 1997 which left her paralysed.

It is no coincidence that in the longer term many family businesses struggle. However, to be fair, there are few public corporations that survive and remain successful over half a century or more.

The biggest problems faced by a family business include succession and ensuring the best qualified executives are responsible for the day-to-day operations. Nepotism also tends to be a hit-and-miss recruitment strategy.

It makes little sense to limit executive control to a single genetic pool. However, internationally, there are many family businesses, particularly in Europe, that can trace their operations back several hundred years.

Grollo, who has been on the board of the publicly listed BlueScope Steel since 2006, says the key to success is to combine the best of the corporate world with the strengths of a family business.

"A really good family business is passionate, has a strong set of values, strong belief in its strategy going forward, a powerful focus and great accountability."

Many of these qualities are common to all business. But Grollo says corporate accountability tends to be relatively short term. "It is usually measured in a single dimension and it comes down to profit.

"But long-term sustainability is less about profits and more focused on long-term value creation."

Many family businesses are inclined to limit executive salaries and pay less than public corporations. But Grollo says there needs to be an alignment between staff payments and the success of the business. "As far as executive remuneration is concerned I have often asked myself what is fair, but executives have a great deal of responsibility and are required to give up a lot of family time.

"You certainly have to reward effort and hard work that helps the company with long-term value creation."

When it comes to succession planning, it is impractical to expect all family members to equally share in the success of the business when some are far more involved in its operation.

Grollo says his father, Bruno, and uncle, Rino, agreed to divide the assets in the family business in 2000. His father assumed ownership control of Grocon in the split, while Rino took the other Grollo interests (including the family's share in the Rialto Building).

Recently, Daniel tackled the succession issue with his brother Adam and sister Lee-Anna. The result was the siblings received a range of property interests owned by Grocon, while Daniel retained the construction and property development business.

Grollo and his siblings dealt with it at a significantly earlier age than his father and brother. "My family [he and his siblings] dealt with it probably a decade or more earlier than Bruno and Rino did," Grollo says.

He admits it was not an easy process.

"Periods of change are difficult, but I always believe it is better done as early as possible."

One of the common problems of a family business is they often feel obliged to provide family members with employment regardless of whether they are interested in the role, appropriately qualified or ready for the responsibility.

In the case of Grocon, Daniel is the only member of the family working in the business. Five years ago there were others, but they have moved on, he says.

Asked about his children, Grollo says he wouldn't necessarily expect them to join the business.

"There is no obligation on them to take over," he says.

Grollo says it is far more important to have a passion for what you do and without it, it's difficult to get out of bed in the morning.

He adds the most important thing he and his wife Kat can do for their two children "is give them the freedom to decide what they want to do in life".

He says he is more concerned about their long-term happiness, whether it involved the business or not.

Grollo laughs off the issues faced by third-generation family businesses.

"If I'm not the one who blows it, then the next generation will get the burden and people will conveniently forget my grandfather's contribution to the business," he suggests.

"I am not new to the concept and my father reminds me of it regularly and has for many years. There is some truth to it to. How you keep up the motivation. The drive for success.

"It is not instilled in everyone. That's why when it comes to my children, rather than be tied by some hereditary obligation, it is more important they choose what they want to do to maintain their focus and be successful."

A bite of the big apple

For the past two years, Daniel Grollo and his family have lived in New York. He says the reason was that after working for the family company for more than 20 years, he was unable to get away for an extended period of leave. His wife, Kat, was particularly keen on living in New York and providing that experience for the children before they entered high school and it became too disruptive. "For me, it just means a bit more travel and I am travelling frequently anyway." Grollo says his family really enjoys the contrast between New York and Melbourne. It is obvious from the way he talks about Manhattan he finds the energy of the city invigorating. Grollo spends about a third of his time in New York and admits it is probably not sustainable in the long term and the family will either be back in a couple of years or he will move to New York permanently (although the chuckle suggests the former is more likely). Grollo says while the firm has looked at international projects he doesn't believe Grocon will seek large-scale global expansion.

Sustainability the New Driver

"Our approach to building is flexible. We can build stadiums, office towers, science labs for government or buildings for the defence force. At our core we are a good contractor that is driven by our values, one of which is sustainability," Daniel Grollo says.

He says being at the cutting-edge of sustainability is all about the future.

"Business success is directly related to your clients and if there is not an alignment between what we provide and want to build and what they want, then it is far less likely the relationship will work.

"Typically we find our clients are looking for a sustainable outcome, a high-quality outcome as opposed to the cheapest outcome."

Grollo is not someone who pays lip-service to the sustainability issue.

"The world's population will be 10 billion by 2050. The bulk of the growth will be in the cities. It will be in the developing cities and we cannot house that number of people without reducing our environmental footprint."

He says one of the solutions will be sustainability and this will be an increasing commercial driver for all businesses.

"The reality is it is a global trend that is about more than just climate change, or carbon tax, we must seek to reduce congestion and the output of waste products."

This is why he argues that increased urban density will be an important factor in reducing infrastructure costs, reducing waste and achieving a smaller environmental footprint. Naturally, he says, it will require good planning and architecture, but increased density can also make cities more liveable.

In recent years, Grocon has worked on several mixed development sites in keeping with its philosophy. He says it started with the company's Martin Place development in Sydney and it continued with the Queen Victoria development in Melbourne, which has an even larger retail sector as well as commercial and residential.

The Queen Victoria site features innovations such as open green spaces and new laneways reminiscent of the redeveloped lanes that have recently brought new life to the Melbourne CBD.

One of the challenges going forward will be to ensure the new developments do not only take place in Australia's larger cities, but also become a feature of larger regional cities such as Newcastle, Wollongong, Geelong, Albury and Shepparton to encourage their development.

Grollo, who lives in an apartment block in New York, says it is also about creating easier access to amenities.

"Of course, it is not for everyone."

Going green

The Pixel Building in Carlton has rewritten the rules for sustainable office buildings in Australia. It is a relatively small development, but is packed with innovative technology, including grass on the roof, various water-collection devices, sun-tracking photo voltaic cells, wind turbines and water recycling.

The windows can be opened at night to allow warm air to purge and there are colourful shading panels made from recycled aluminium. The building was constructed using a newly developed structural concrete made of recycled aggregates.

"Pixel was an experiment to discover what the commercial office building of the future looks like. We managed to ensure the building was carbon neutral so it not only pays back all the carbon it uses in its operation, but importantly all the embedded carbon in the production of the steel, concrete and glass," Daniel Grollo says.

"Over its 30-year life, the building will put back in the grid enough energy to pay its own way and offset the other inputs."

He says Pixel is also water balanced, and doesn't need to be connected to the mains water although for fire and redundancy reasons it is connected to water and electricity grids. "The fact it doesn't drain the system for water or electricity is interesting."

The building earned the highest environmental rating score ever received in Australia and was recently awarded the world's highest rating by the US Green Building Council.

Grollo says it serves as an example of what can be achieved. The technology used is all commercially available. He says with the latest advances it is possible to do even more and Grocon is exploring additional options in its refurbishment of the 100 year-old Legion House in Sydney.

Grollo says iconic buildings such as Pixel and Legion House are enabling the company to offer sustainable solutions more efficiently and cost effectively. He provides the example of a recent office building for the Victorian Government in Dandenong that was contracted to have a five-star environmental rating, but Grocon delivered a six-star building.

"It means the Victorian Government has a world-class environmentally rated office building as a result. That is exceeding our clients' needs and that is how we develop a sustainable business."