Growing Through Adversity with Michael Lion

In this episode of Born Scrappy I sit down with Michael Lion, Former Owner of Philipp & Lion and Former Consultant & Chairman at Sims Metal Management, for a masterclass in what really happens when it all goes wrong and what you can learn from it.

Michael's career is one of the industry's most extraordinary stories. He entered the business at 17, built Philipp & Lion into one of the world's largest non-ferrous scrap traders, pioneered copper trade routes into China in the late 1970s, and operated at a scale most traders only read about.

Then in April 1991, it all came crashing down. What followed was years of rebuilding and the lessons he brought into an 18-year career at Sims Metal Management, where the controls he put in place got every penny back through the global financial crisis.

This isn't theory. These are lessons bought at enormous personal cost, shared with the kind of honesty that only comes from someone with nothing left to prove.

In this episode, we talk about:

👉 The worst week of Michael's life
👉 Keeping your eye on the ball
👉 Ego: A trader's worst enemy
👉 Friendship vs being friendly
👉 Nobody's too big to fail
👉 Recognising your risks
👉 And more!

Whether you're just starting out or decades into the game, this episode will change how you think about risk, trust, and what it means to stay sharp when everything is going your way.

Born Scrappy.

Brought to you by Buddy.

The only all-in-one platform for buying, selling, and managing scrap metal.

Built for scrappies, by scrappies.



https://www.tradebuddy.io/

https://www.linkedin.com/company/tradewithbuddy/



WHO IS STU KAGAN ANYWAYS?

28 years in the metal recycling game and still learning and growing…

I learnt from the best and worked my way up from yard labourer to Executive Director of Trading and Operations for the largest metal recycler in sub-Saharan Africa. Responsible for 4,500 employees, 85 sites, and the overall profitability of a multi-billion dollar operation.

I brought my breadth and depth of knowledge to bear and co-founded the fastest growing, most-loved, and most awarded metal recycling company in New Zealand.

I thought it was time that tech worked for our industry, so I built THE killer scrap app, Buddy - built for scrappies, by scrappies.

Father of two crazy-awesome boys. Husband to Lisa. Kids rugby coach. YPO member. Founder. Lifelong learner. Mentee. Mentor. Committed Stoic. Aspiring cowboy.

COME SAY HI ON LINKEDIN

https://www.linkedin.com/in/stukagan/

https://www.linkedin.com/company/born-scrappy/

https://www.linkedin.com/company/tradewithbuddy

Transcript

Michael Returns

Career Origins

Philipp & Lion

Second Act with Sims

Why Mistakes Matter

Worst Week 1991

How It All Collapsed

Risk and Controls

Greed, Fear, Ego

Too Good Deals

Sucker Deal Setup

China Defaults And Prepay

Trust And Loyalty Lessons

Friendly Versus Friends

First 24 Hours Crisis

Advice To Younger Self

Learning From Mistakes

0:00

The scrap metal recycling industry has always run on hustle, trust, and sharp instincts. This is the podcast for traders and operators who wanna get sharper without losing their scrappy edge. I'm Stu Kagan, bringing you insights and stories from the people shaping the future of our industry. This is Born Scrappy. Michael Lyons, welcome back to Born Scrappy. Now we're at season five, we're excited to have you back on. Thank you, Stu. It's a great pleasure to be with you again. Uh, I'm looking forward to our chat. Michael, if I go back, I think it's three years now, um, we had you on. It was season one, and it was the first three episodes. We didn't choose who went first, second, or third, but it was the three amigos. It feels like a lifetime ago. Indeed, it was. Indeed, it was. And it might feel like a lifetime ago to you, but it's only 1% to me at my age. Yeah, it was, it was, it was Murat, yourself, and Mark Cellier. Indeed. And you'd just been doing the, um, the BIR circuit, if we call it that, and- Challenge show doing that great show during COVID. Yeah. Yeah. The Challenge show we did, yeah. It was... Exactly. It was The Challenge, and it was, um... It was phenomenal. I remember it during COVID when I couldn't travel from New Zealand and being able to, um, dial in and be able to watch that. It was, it was a difficult time, so well-suited name, The Challenge, that's for sure. Indeed. Michael, for those that didn't listen to season one, we've got a lot of viewers since then and maybe not everybody went back to season one. A lot of people know the name Michael Lyons, but talk us through what were some of the positions you held? How did you even get into this industry? And give us an example of some of the big trades you've done in your lifetime. Okay. Well, let me put this in context. Interestingly, Stu, before we start really is, is the title of this particular, uh, uh, episode, uh, which is, uh, Mistakes and Tough Times, which in, in, in my case is probably a metaphor for my career because, uh, uh, as many of your viewers won't know, because of course a lot of them have come into the industry either at the tail end of my career or after I've even retired, so they're probably thinking,"Who is this old fart who's gonna t-talk to them today?" Um, but my career really had two distinct elements to it, which is why it's relevant to some of your questions today. Um, in the first half of my career, I came into the business very young at, um, 17 years old, uh, into the partnership as it was then of Philip Land, which was a, a, a dual, uh, um, activity company. We were ring-dealing members of the London Metal Exchange and also one of the largest, if not the largest trader internationally of non-ferrous scrap around the world, with pretty well every country that didn't have import or export controls we were doing business in. And ultimately, I came to be the owner basically on my own of the company and pioneered the opening up of the, uh, the markets in China in particular. We were the first people into China, and I was doing business there with the state-owned enterprises, including converting copper, which put the first copper on the London Metal Exchange of copper cathode that was produced out of China. This is in, we took going back to the late 1970s, early 1980s, and of course, in South Korea too, we were very active, and India as well. Those were big markets. Japan and Taiwan were the other ones at the time. Um, the volumes in those days, I mean, it was a very different market. You didn't have communications as you do today, which meant it was a very opaque market, which was from a trader's point of view, much, much more attractive than today's conditions, to be quite candid with you. Absolutely. And we were certainly, and I'm not saying this to be boastful, but just to put it in context, we were very much probably the biggest operators. We had enormous control of the marketplace. Even people like the company that you worked with in South Africa, though I think after your time, came through us to go to markets. Um, and it was an enormous activity. We were doing, uh, literally having contracts of 5,000, 10,000 tons of copper scrap a month into Korea and China at the same time. And these were very, very big quantities, which was possible because a lot of it fed through us into the marketplace. But that came to a very sticky end, unfortunately, for a host of reasons, um, some of which will come up in the examples we're talking about here today. Um, it was extremely traumatic for me. Um, and, um- I would like to put in context what we talk about today. Uh, none of what I say is to in any way try to minimize my role or place responsibility in other people's terms. I was the chief executive and chairman, and as such, the buck stopped with me, and that's the way it was, and also meant in my career exactly that happened. So then the second half of my career when I came back after a s- a few years into the market at the encouragement of some of my friends in the industry was, um, uh, with Sims or Sims Metal Management as it became at that time. And basically, I was chairman of their company that we set up in Hong Kong that basically was responsible for the trading and marketing of all of their non-ferrous scrap and risk management, including hedging, et cetera, et cetera, for some 18 years that I was involved with Sims. I was never an employee. I was always actually, uh, an exclusive consultant, but I was also chairman of one of their major companies from that point of view. And the lessons I'd learnt in the first half of my career that came to such a painful end were, as I always teased them, th- their benefit, as it were, was a result of my misfortune, if you will. Anyway, I hope I put that in some context, uh, for you. That's- Um Michael, that's exactly what I was hoping to hear. I mean, it's the reason why I've reached out to you. I said to you just before we started recording, I've been thinking about while writing my book, so many lessons have come about from mistakes that I've made or I've seen made at terrible markets or tough times, and I thought,"Who can I have on?" Um, and then I was thinking about the experience you have had and the roles that you've had, and even if somebody like you is able to make these sort of mistakes that hopefully we'll go through in this discussion, you know, anybody who's starting out or anybody who's been in this for 10 or 20 years can expect to be making mistakes themselves. Well, a- as you say, everybody makes mistakes. You know, there's an old saw that if you're right 51% of the time, then you're a winner. That, of course, is actually complete bollocks because, of course, you can make-- you can get it right 95% of the time, and the mistake you make is so big it takes the whole thing out. So that's not actually true. But everybody does make mistakes, and as I said to you before we started recording, Stu, perhaps my best service I can provide to your viewers is the fact that as I am basically retired now, I'm not exposed to the risk of fessing up to exactly the things that went on as I understood them to be because I have no skin in the game anymore. It's, it's difficult for people who are obviously still active, and they, they want to be authentic with you, but it's difficult for them. And even in corporate setup as so many of the companies are today, some of their, uh, shareholders or managers or CEOs might get quite cross with them if they were as, uh, authentic as they would like to be. I can Give it to you as it were, as honestly as it's possible to be because it doesn't matter to me anymore. Or as I said to you, I think in common parlance today they'd say,"Well, I'm really based, man." All right, Mike, let's jump into it then. Mike, tell me what was the worst week in your experience? Take me back to the worst week of your career. Describe it for me. What were the days like? What was it like sitting at your desk? Just put us in those emotions. Well, again, as I want to say to you, and I do want to make this clear, that I'm not trying to exonerate any of my actions in the collapse of Philip Lahm because it was at the time a cataclysmic event, obviously, particularly from my point of view, from the industry point of view, not least of all because we were such big players. I remember Metal Bulletin at the time having this quote which I had to live with after, which was, uh,"We thought they were the Bank of England." And, and, and so when we went into liquidation, it had an enormous impact on the market at that time. Uh, interestingly enough, the one group of people it didn't affect was the LME because a lot of people said,"Oh, it must have been speculation." It wasn't speculation at all, and we'll come to the things that were the mistakes. But the short answer, and, and so there-- none, none of the LME people lost any money out of the, the collapse of Philip Lahm, which is a damn good thing because it means I still to this day have a wonderful relationship with the LME and the people there and all the brokers there. So thank goodness for that. But the worst week of my life was a week in early April 1991, when suddenly I got a call, I was overseas at the time, from my, um, CFO at the time telling me that, well, not to put too fine a point, despite the enormous credit lines we had with I think seven or eight international banks, we'd basically run out of money. Um, and it was the beginning-- Well, obviously it was the beginning of an ex- extended period of, of horror from my point of view. That actually lasted several years, to be quite honest with you. But that first week was absolutely devastating because it, it completely destroyed obviously my confidence, my belief in certain people, and obviously worse still, their belief in me. The reputational impact was horrible. You know, never mind the practical impact. I mean, it had an effect on me. Obviously materially, I lost everything at the time, which obviously impacted my life for many years to come. But it, it, it was the, the sheer shock of it because, no, I did not see it coming. See, a lot of people said afterwards, you know, second guessing,"Oh, you must have known," and,"What did you do?" And I mean, that dreadful accusation they had of,"Oh, you must have been hiding money under the floorboards of your house." And it was all complete rubbish. If I was putting money into the company, not taking it out. Again, I want to stress For those very few people that are still around who remember those times, who may have a, a different recollection of the-- in the, in the immortal words of the late Queen Elizabeth II when referring to the comments of, um, the dreadful Prince Harry and that awful woman he's with, uh, um, recollections may vary. And that would probably be true if there were any people around today who remember those times, some of whom might still be angry. And, and, and not without reason at the time, no question about that. And as I say, the, the buck stopped with me. But it was awful. It, it's difficult to describe what a nightmare it was, quite frankly. It was so cataclysmic. Can you, Mi- Michael, can you just give us-- in fact, I'm here now actually just interested, how does that actually happen? Because surely it's backed by stock. There's actually material moving. You've got credit lines against purchasers. You're expecting to pull orders. Is it a margin call? What, what happened? Well, no. What, as I said, it was nothing to do with the LME side. Our hedges, in fact, were all in profit in, uh, uh, as it happened. But-- and that was not accidental, by the way. I mean, you might say,"Well, how could your hedges all be in profit?" Well, they were in profit because, as it happens, there were big backwardations in the market at the time. We'd taken the right point of view. That actually came up in this whole thing that came to this, uh, occasion what we have now, with when you sent out the LinkedIn the other day about the big, the big deal that, that didn't come to fruition, and part of that was the hedge in that. Mm-hmm. But let me give you a very short answer, because it's a very complex subject. How did it come about? The short answer is, uh, that basically we were handling, as I say, enormous volumes, far more than practically anybody else. Because whilst there were some big shippers from the US, and we shipped enormous quantity from all over the world, including the US, a lot of the people who today export directly used to go through us. Same in South Africa, of course. And all over the world, I mean, literally, uh, went through us. So we had very, very big credit lines and basically we would actually obviously be basically f- traders in those days. And even today, if they're doing that, if they're real traders, they're fulfilling the role of merchant bankers, basically. They're, they're financing, they're taking the financial position that other people can't take. Certainly. So what actually happened was we got to a point where we simply didn't have any more credit lines to put through the business. And then what we discovered was, and not to make this too complicated, we had two ways of measuring how profitable a company was. One was the direct way of looking at profit and loss in the normal way, and the other was that we'd got involved in... Understand it's the very early days of software, and we had worked with a company which no longer exists, who developed a software program for us, which not to put too fine a point, had faults in it. And as a result of that, it was suggesting that we had profits that weren't actually there. Now, that was part of it. The other part of it, which came out much later, was that certainly one trader was a great disappointment to me, and had been hiding an enormous amount of deals where there had been claims where we'd ended up paying out to the buyers, but not managing to recover it from the suppliers. And we can say that some of that was maybe, um, incompetence and some of it maybe was more than just incompetence. I don't need to- Yes spell it out to you. And, and, and you don't need to be a genius to figure out if you're in the trading business. The margins were much bigger then, by the way, than they are today. Now, the profit margins that people work on today as traders are what we used to pay an agent in commissions who wasn't taking any risk. Um, but basically, even so, you don't need to be having many trades where you haven't input the losses that resulted from claims to finalize deals to suddenly find what you thought were highly profitable transactions, in fact, were running at losses. And so the losses had built up over a period of time that were going quite simply undetected because the software wasn't, A, picking up stuff, and secondly, the traders were making sure, look, y- you know, garbage in, garbage out. If you don't put the stuff in, then you don't know about it. And I don't want to say traders because it really wasn't plural. It was one in particular, at least one, maybe two. Um, and that had an enormous impact, and of course had a lo- a lot of life lessons for me later when with Sims about the kind of controls that I had in place from which they benefited a great deal, quite frankly. But we'll come to that. Well, okay,'cause I wanted to get to that, you know, what kind of lessons you learned, but I'm sure it'll come up at a later stage. Tell me what's a decision you made where at the time you would have bet everything you had that you were doing the right thing, and it turned out to be a serious mistake?'Cause people listening, you know, we often are,"I am 100% sure this will work," and then it goes wrong and we're just like,"How is it even possible? Is there something wrong with me? Am I not as smart as I thought? Should I stop even trying?" Can you give us an example that's happened to you? Well, I think it's interesting you say that because I, I always have maintained, and certainly when I was working with the board at Sims and I had quite close relationships with the board there in terms of risk management, which I became responsible for, where I improved the controls a great deal, that risk itself is not the issue. The biggest problem is recognizing the risks you have. I mean, there's so many times people have said afterwards,"Oh, I never understood or I never realized." Well, the responsibility is to understand your risk. In our business, by definition, you have to take risk. If you didn't have to take risk, every klutz could be doing it, couldn't they? I mean, what differentiates us as traders or even operators is that specialization and the capability to deal with things other people couldn't do and take on the risks that are involved. So the biggest problem that existed and still exists today is recognition going into transactions of quantification of what those risks are and say,"Okay, those are the risks that I'm prepared to take." So the biggest losses, and that doesn't just apply to scrap traders, it applies throughout commodity trading, are the people who, you know, and there's been some vast examples in the commodity industry, in particular the metals industry, uh, amongst the big players, the mega players in the commodity space rather than merely the scrap space, you know, I won't name names, where there've been some enormous losses. And what was it? They didn't quantify, didn't understand the risks properly. The cases are never normally about mistakes in, in a judgment about doing a trade. It's understanding what the risks involved were and keeping on top of those risks, making sure that you monitor what's going on. I mean, if there's one thing I'd have to say that really in the end it came down to with me as far as Philip Son goes, I took my eye off the ball. Now, there were all sorts of reasons for that, most to do with ego, getting too big, trying to do too many things at once. But the fact of the matter is you have to have proper controls. You see, traders are great, but there are two sides to traders. They're self-delusion artists. They have to be in order to be able to convince other people. When you go into a deal, you've gotta be able to convince the other person, so you've gotta believe in that deal, even if it's bullshit. But the second part of it is never believe your own bullshit. Problem is people do end up doing that, and that's when they get into big trouble. So, um, I can't think of deals in the way that you talk about it, of going into a deal saying,"Oh, this cannot go wrong." I've never, to my best recollection, looked at a deal as a trader and said,"It cannot go wrong," because there's always an element That you don't have control over. But you have to look at that risk and say,"In the scheme of things, is this worth taking?" I was a great believer in young people as traders long before other people did when the industry was full of old farts running around and if you were very young. Because I was very young, I saw the other side of it. When I came into it, when I was, like, 20 years old, I was dealing with people all 40 or 50 years old. And when they first met me, for that matter, I couldn't believe they were dealing with a kid that age. So I believe in giving chances. All this to say to people, give your traders enough rope to hang themselves, but not hang you, too. So you've gotta give people a chance to be able to do stuff, but you mustn't give them too much. You must know what your controls are. So I've never gone into a deal, I don't think, saying,"Oh, this can't go wrong," because they can. I think that's, just that alone is so brilliant because I, I can think of myself having said it. I can think of being told it 1,000 times from a trader who, who was reporting in to me of like,"There's no risk on this deal. There's no risk. We, we've got no risk on this." And if you think about it, rather say,"Here is the risk, and this is how we're going to mitigate it." Because especially when you're younger coming in, you think it's impressive to say,"No, w- we've got no risk." Rather go through how you have mitigated that risk, because that is way more impressive than the bullshit of saying that there is no risk. Well, you know, as you know as well as I do, Stu, that anybody will tell you that trading and markets are all about greed and fear. Those are the two elements- Mm that motivate markets, right? And- Absolutely I think the one that we're most prone to is, which is what you're talking about, is the greed one. The fear comes later when we get it wrong. But the greed bit, and that is what one does have to be guard against. Because maybe we should go down your list here of things, but I mean, classic examples there are cases where you see an opportunity. I think this came up even in our last interview, which is if something seems too good to be true, it probably is. But it's amazing how we convince ourselves through greed it's gonna be all right on the night, even when- Yeah everything should be saying,"Hey, wait a minute. This can't be this easy. You know, why am I so clever and the rest of them so dumb?" You wanna start from the point of view of always assuming that the other people out there are just as smart as you, if not smarter. Michael, you said believing our own bullshit, and that is so important. It's like, yes, when you're a trader, you have to be a bullshit artist. You have to be able to sell people on things because, like you say, you're working on greed and fear. You've gotta be able to utilize those factors to get the best deal done. But at the same time, you have to be true to yourself, and you have to just be aware of- Yeah, I'm pushing this now because I'm trying to get the highest price possible, you know? But at the same time, I mustn't believe this and report that back, right? Well, you don't report it back to your senior- When you start reporting back to your senior... Yeah. It's very difficult, Stu. Y- as I say, there are these two conflicting, uh, aspects. The one being that you'll only be convincing if you believe in it yourself whilst you're doing it. Mm-hmm. At the same time, not actually when you reflect on it. And I'm not suggesting-- This is not talking about conning people into things. It's, it, it, it's- Oh, absolutely. Sure I, I'm talking about specifically in terms of, for example, when you're negotiating, that you convince yourself you will not do it unless you get this price or receive this price or pay this price. Um, because if you go into it thinking,"Oh, well, I'm actually prepared to do this," that's what you're gonna end up giving them because that's the way it works. Um, but you mustn't confuse that with essentially sitting there and, uh, basically, you know,"I rule the world," you know,"I'm God, I can do it. Nobody can beat me." Y- I mean, that's where it goes wrong for an awful lot of people, that, that they get to that point. And it, it, it's something that can happen over a period of time. And, you know, success breeds this, uh, carapace, if you will, of believing you're infallible. But you've got to guard against that every bloody day. Well, I mean, this is exactly what I wanted to go to now, which was I, I believe that your ego is the biggest enemy for any trader. And I often saw, and I must have experienced it myself, was that the biggest mistakes I made usually came straight after some really successful incident or trade, because for whatever reason, and now I'm untouchable. I say me, whether it's me or the traders who reported to me, we were untouchable after just landing something massive. And that's where blinkers come off and you think,"Let's go," and you run gung ho, and somebody on the other side absolutely plays you, and you get done in a deal. Um, I saw that often. Absolutely right. Absolutely right. Yeah. I mean, is that... You've been around a lot longer than me. Is that, is that normal? Well, I mean, I mean, I, I, yeah, I, I think of, um, one particular case that kept coming up over a period of time, a trap that I did not fall into as it happened. I can't remember how many years ago it was, but, uh, somebody was claiming to have these vast quantity of shell cases in a cave in somewhere in the Middle East. And it kept coming, and the quantity was, like, ridicul- Well, I mean, we, you know, at Philip Nam, we dealt in enormous quantities of shell cases in the old days'cause there were lots of wars going on then, you know, Vietnam War and other things, you know. And we would be doing literally thousands of tons of shell cases Two styles incidentally, the 70/30, the regular ones, and the Russian stuff with silicon in which was never to be mixed with the other or it would absolutely screw up people's sheet production. Um, going particularly- Did you- into Korea but into India as well and things like that did you guys come up with the-- did you come up with lake lace? The, these three terms? Was that during your time? Well, yeah, absolutely. I mean, you know, the shell cases were, were lace and the, uh, cartridge cases which were inferior material, essentially because they were smaller arms stuff was lake. Um, but yes, they, they, I mean, and, and we used to s- ship enormous, but particularly to Korea, that was the biggest market. Uh, and to India as well. We actually had the hilarious situation at one point that we were buying, and I hardly believe this now, we were buying shells from the Pakistan Ordnance factory in, uh, Islamabad. We had to ship the stuff via Dubai and it was going to India. Goodness. Wow. Uh, this was wicked stuff. I remember big quantities too. Um, you know, you'd never get away with that stuff today, would you? Um, but what I was saying was that, you know, there were these ridiculous quantities of, of these shells. It was nonsense. It was absolutely nonsense. But some people, you know, if the deal's big enough, they'll think,"Oh, I must go and check it out or maybe I can do it." And somebody would show them there's more quantity and then tell them they're gonna sell them 10,000 times. But you're absolutely right. The biggest sucker punch was, and this was intended by dirty operators, would be to do a small deal that went absolutely fine, in which they let you make a very nice profit, and then they'd come up with a much bigger deal where you're gonna be thoroughly shafted. And at that point, you know, your antenna were not picking it up because you were thinking,"Oh, I'm so good. I've got this right. This, oh, this is great." And you said,"Well, you know, it went fine before, it must be fine now." So, you know, one piece of advice to people even today is, you know, if you start dealing with new people, start slowly and build up really slowly. Don't go from one small deal to a mega deal on the second deal, because that's usually a sucker's deal right there. Payment up front. Yeah. Second deal payment up front because it was really urgent. He had a problem with the border. You know, some whatever customs he couldn't... He needs, he needs the money- Yeah up front all of a sudden. But the margins are huge, boss. I swear we need to pay this guy. Um. Yeah, well- That's where it all goes wrong I, I, I have to say that in, in fairness, I would never, ever pay for goods in which I didn't have title to. Um, if you haven't- Yeah got title. I mean, to pay, to pay. All right, you might pay early, but only if you've got title. If people actually pay for stuff they haven't got title to, they are looking for- It's happening every day, Michael awful trouble. And it don't matter, don't matter how big a profit you think you're gonna make on paper. And maybe sometimes people get away with it, but I wouldn't do it. But, uh, you know- Michael, you spoke about, um, how margins are smaller now The margins are smaller. People are paying upfront 50% or whatever it needs to be with no title. Uh, that's the world. The traders are cutting each other, you know, left, right, and center. Well, this is interesting. When you say people are paying upfront, depends at what point in the structure you're talking about. See, a lot of this goes back again to history. In the early 2000s when China first started doing big business, no longer a state-owned enterprise, but when it became private business, there were some hellacious, um, losses incurred by people. I was already with Sims at that point, uh, where there was default either because the market's collapsing or because of interference or purges by the authorities in China for people who had been up to no good with them avoiding VAT and various things. And there were at least three periods where that happened. Uh, and w- we as Sims, I, I certainly was the first person to bring in, and we had the muscle to do it because we were the biggest people selling into China at the time, to say that we would only ship to people if we got a prepayment of between 20% and 40%, depending on who it was. And we're talking about the consumers here. We're talking about big consumers because, uh, basically our risks in non-performance was having to reship elsewhere. You know, people lost enormous sums of money. And at the time, I was actually responsible for the membership side of BIR, and people were up in arms saying,"We've gotta throw these people out," and this, that, and the other. I said,"Whoa, whoa, wait a minute. Wait a minute. You've got to first of all go through due process. You can't just say somebody didn't perform without actually, uh, having, uh, either arbitration or litigation against these people. You can't just assume you don't like them and say that, you know, oh, they didn't perform." But on the other hand, I understand it now, Stu, that's all changed and basically nobody will make prepayments anymore. And maybe that's not necessary anymore. May- maybe there haven't been the defaults anymore. But the defaults that took place in during the great financial crash, I'm proud to say that one of the things I did do for Sims was even though we're the biggest people, we got back every penny. I let certain people actually pay over a period, repay over a period. I made judgment calls, and we made the right judgment call. We got every penny back, and we were one of the few people that actually did that. But if you didn't at that point, you could get into terrible problems. Now- Yeah even if the market didn't change, by having to go somewhere else, it could really be a problem. So- Yeah. But as I say, the margins are, are, uh, seem to me to be incredibly small these days. Margins are small, Michael. I still see in America all the time people paying upfront, so Uh, I promise you it is happening. It's scary, but, uh- Well, the, well, the US market- it's, it's sometimes the cost to do new business Well, the domestic market is a very different market in the US, of course. That, that, that whole new- Oh, no, not domestic. I'm talking about export. I'm talking about export- Oh, are you? in the US. Oh, okay. Yeah, yeah. People need to pay to get into the market. So somebody's been trading with somebody for many years, um, somebody pops in with a better price, the risk is there, and then the buyer will pay sometimes 50%, 20% deposit, and, uh, it's happening. And, uh, look, I think people do their due diligence as well, and using a platform like Buddy is obviously helpful because- Right we've done their due diligence for them. But I've seen it happening on the platform, I've seen it happening off the platform. It, it's normal now for people to try and get in. But that's what we say, it's, they're cutting margins'cause there's so much competition, and now they're even also at a level of, well, to get your business, like I'll give you some money up front. But we, we digress. Let's, uh, let's stick to- Yeah. Right, right, right, right mistakes'cause maybe in a few years' time we'll talk about a few of those. Right. Tell me, let's talk about people. Michael, you've been surrounded by people all this time. This isn't a solo game. You've had buyers around you, traders, partners, consumers, everybody. When it comes to making people decisions, when is there a time that you got this most wrong? Was it a wrong hire? Did you trust the wrong person? Was it the wrong partner? You know, which one stings the most when I say that to you? Okay. Uh, well, I, I, I, I'm question, uh, and again, I wanna stress, I'm not trying to exonerate myself from the ultimate responsibility from Clapton Philip Alan, no question about that. Um, but I would say without any question that the greatest disappointment I've ever had has been with people, um, in particular in the case of Philip Alan was certainly one particular trader in whom I placed far too much trust. And I have to say that I was warned by others that I was placing too much trust there. Problem is, it was difficult not to believe that some of that was not necessarily motivated by the best of intentions. In other words, it was, uh, uh, competitiveness, jealousies, you know, certainly between traders, for example, favoritism, this sort of thing. It's very difficult, but certainly there's no question the most cataclysmic aspect was certainly one trader who let me down accordingly. Again, as I say, the buck stopped with me. I should not have placed that trust. But I've always believed, and that's why it's very difficult, this whole issue of relationship. You know, these days it's very popular to talk about relationships and what an important part of our business it is. No question. I talked about this three years ago, whenever it was, in, uh, last episode I was in, the relationship being a key factor in our business. No question it is. And that's why it's so painful when you're let down by people. Now, maybe there are people who think that I've let them down. I'm... And I've no doubt But there have been occasions, you know, where I have not been my best self. No, no question about that. I said this at the time of my, um, basically retirement from the board of, of the BIR that, you know, I probably learned more and owe more to my detractors than to my supporters. You might say,"Well, what's it about now?" You know, my detractors may have had many reasons. They just didn't like me, or they were jealous, or they, they didn't think I deserved whatever recognition I had. But the fact of the matter is, you learn far more from your detractors, because if there's something they can use to create that criticism, it's because there's something you're not doing right. But having said all of that, there's no question that I've always believed in loyalty, in friendship. Friendship is about loyalty. Everybody can be friendly with you when everything's going right, and God knows if you're successful, you discover people who are all over you, and I saw that twice over. You know, when Philip and alarm were very successful, all sorts of people being all over me, and then suddenly forgetting my name when it all went wrong, until I started being an important factor at Sims, and then suddenly they all remembered,"Oh, yeah, I might..." But, you know, the people that matter are the evergreens, and they're a very small... You know, there's a, the expression, if you can count your true friends on one hand, you've got a lot of friends. But the people who are there for you in the bad times, that's what tells me. So I've always believed in loyalty, perhaps, and, and, and too much, I suppose, from a commercial point of view. Yes, in private life have that, but I certainly would say, to answer your question, that my greatest disappointment, my greatest weakness, was in conveying loyalty to people who didn't end up providing that reciprocation of it. And that didn't just happen at Philip and alarm. Obviously, the impact at Philip and alarm was absolutely massive financially. Sure. But I'm not gonna say it didn't happen. Well, the corporate culture is not one that I ever liked. I'll be quite honest about that. And of course, you know, my second career was within a corporate culture, albeit I wasn't actually part of the corporate side, which had its own resentments toward me. But Michael- Yeah. Sorry. Go on. Sure. Of course they did. But, but Michael, it, it happens in corporates and it happens in privately run businesses. I've been on both sides of them. I've had the exact examples that you're talking about. You know, um, as soon as you get into a leadership role, you have people that befriend you, and when you move or you're not useful to them anymore, you find that very quickly changes. So what I wanna ask you then is, if you were able to go back in time and look at that friendship that you had, or what felt like a friendship or some form of loyalty with the person that was actually, um, mistreating their position, what would you do differently? So, and the reason why I ask this is, there's people listening now that they're socializing with somebody who works for them, and they've become good friends and There's a gut feeling that maybe this person isn't right, maybe this person isn't doing right for the company. What should they be doing? How do they take blinkers off? How do they open up their eyes? Well, first of all, trust your instincts. If your instincts tell you something isn't right, it probably isn't. Um, that's very easy to say, and that's one aspect. The other, I suppose, and this is where it gets really difficult and why actually, in the end, I've, I've found business to be a very... I don't want to say demeaning, that's the wrong word, but certainly it erodes one's values in a sense. And God knows I'm a capitalist, don't get me wrong. So this is not coming from some... The last thing anybody accused me of is being woke. But, but the fact of the matter is that it's a mistake basically to not understand that you've got to differentiate between being friendly with somebody and a friendship. And basically, if you're in business, there are competing factors there, and that's both with the people you deal with and the people you work with, where there are agendas, inevitable agendas, and therefore you've got to contextualize your emotion from that point of view, um, or, or not be in it. And it's as simple as that. And, and people, people make a mistake from that point of view. So, you know, there's an old saying, you know, you buy love, you earn respect, and I think people often delude themselves about this, the sycophancy that can take place, and see things for what they are. As I say, it, it's very difficult because, you know, you don't want to go through life being so cynical. Everybody you're interacting with in business, you're thinking,"What are they really after?" But you can't give too much of yourself away in business, or if you do, be prepared to be disappointed. I mean, I can think of a couple of people I really regarded as friends in my second career, I'll put it politely like that, uh, who I regarded as being very good friends. And, um, to be fair, I think all that they did at the end was to recognize that their agendas meant that when it came to a certain point, that those interests trumped their relationship. I wouldn't have seen it that way, and I'm not trying to, uh, make out I'm a better person than them. Maybe I'm a more, more naive person than them. But I think friendship is such an important value. So I say, make a distinction between friendships really outside business and being friendly with people, which is something you do in business, and they're definitely two different things. And I have one pal who is a pal to this day, who I won't mention who it is Because I always say the reason we've always been such good friends is because we never did a pound of business together. Oh, that's right. That's good. And that was a- Makes sense that was a choice on both our parts. So there it was through business, but we were able to be friends because we were in the same business, but we didn't do business together. But we knew each other well enough to know we shouldn't. Yeah. No, I love that. Tell me, Michael, let's run through what the first 24 hours of an experience like this feels like and what you go through. So not a theoretical answer, but what actually happens, and choose any incident that you wish, but in the 24 hours of maybe it's on the Philip Alliance, when you get that phone call, you know, who are you phoning? Um, you know, who do you not call? What do you say to the team? How can people learn from what you did or what you didn't do- Well, yeah. Of course- when they go through something this, this was a massacre. Well, obviously, a- and here, you know, I have to make a distinction from your viewer's point of view here, that when you're running a company, even if you're a trader, I mean, I'm innately by background a trader. That's what I grew up with. Trading was what my first forte was. The fact that I then ran trading companies then changes your role. And whilst you might get involved in very big deals, and I did both at Philip Alliance, if they were really big, I would get involved. But basically, I had a trading team who reported to me. So in that first 24 hours, and Philip Alliance was obviously the case I'm gonna take, um, my first reaction on being informed by the CEO of the situation was obviously was to get in contact with the banks because one had to talk with them and see what one could do. And interestingly enough, memory best serves me, there were eight banks. Interesting thing was seven out of the eight were prepared to support us with new ideas that had to get through the situation. And the eighth one was the oldest bank we'd bank with in our partnership days, going back 60, 70 years. I don't mind saying now, but it wasn't the same bank then. NatWest. And they wouldn't back us. And they had been the longest serving ones, and they wouldn't back us. And the other banks said,"Well, it's gotta be all of us." And I understood that, so. But the first 24 hours did three things. One was to talk to the banks. The second was to talk to our lawyers because they didn't want to be crossing the line of trading insolvently because that had legal implications. We had to be very careful about that. Uh, and third was basically talking to the team. And it was difficult because, you know, one talked to my fellow directors as they were then, who were members of the trading team. But it, it's a very fine line because we couldn't obviously tell everybody in the company, because obviously we're trying to get through it. And you know, you're only as good as your reputation. In the trading business, if it gets out- That you're in problems, that's the end of it. And I've seen examples of that in very, very big cases, you know, much bigger than, you know, in the commodity business. Seen big examples o- of this where once the confidence goes, you're out of business basically. Mm. Because you're only as good as- Well, people are- you know, trust and reputation I mean, you're the bank, you're the bank for people, as you said earlier. You're literally playing a financial role. If people feel they can't trust you with their money or to get paid, you're out of business. Well, it's an ironic thing, you know. This is the old line, isn't it, about banks, you know. They give you an umbrella when it's sunny, but take it away when it's raining, you know. Uh, I mean, and banks have always played a very curious role in the commodity business, uh, in the sense that it's cy- cyclical. I mean, and when I say commodity business, by extrapolation obviously I'm talking about the scrap business too, and certainly at the high end of, of scrap trading. That, uh, I saw during the time I was involved, both at Triborough and Simmons, and I was involved with the banks very much in the case of Simmons as well, um, that, um, they go in and out of fashion. So they all pile in, and they all want to be in the commodity business, and then suddenly they all want to get out the commodity business. They're all closing, you know, departments. I think that's happening at the moment as I understand it actually in certain cases, again for the 55th time. Um, so yes, it's very, very difficult. If I go back to this terrible line again, as I say, of we thought they were the Bank of England, because we had such a reputation, such a standing such, from, from our many years in business. And we weren't trying to mislead people. It was genuine. We were responsible people. But, you know, this too big to fail, well, obviously we weren't anywhere in that category. But the answer is nobody's too big to fail. We discovered that, didn't we, when Lehman and all that stuff went on, you know? Financial crisis. Nobody is too big to fail, and you have to figure that out in terms of your relationship. But you're only as good as the confidence that people have in you in the marketplace. Mm-hmm. So that was a very big problem. Michael, if you could go back to your 25-year-old self or 30-year-old self, um, and I want to close out with this because we're- Yeah gonna run out of time. What would you tell yourself then? And it can't be like, you know,"The bank's gonna sh- shut us down." It's what are the life lessons that you wish you could tell yourself now? Don't get distracted. Keep your eye on the ball. It's so easy, and particularly with success, to take on too much, to trust too many people, to not have the proper checks and balances to be able to ensure that you've got as reasonable degree of control over those risks And what those risks are. And that's something that you probably only learn as you get older. And the younger that you can get that into your heads and into the heads of the young people you have in your business, the biggest favor you'll be doing them and yourself. I wish I'd understood that better. Um, in my case, I was still very young when First National went down. I was still only about 40. So, you know- Mm that was still very young, and I definitely took my after fall. As I say, the people who benefited with that was years later with Sims, where the controls I had were enormously great. But that's what I'd say. Would, would you have listened? Uh. At that age, if some- would you have actually listened? Um, probably not. Or not... No, I would've listened, but would I have really have understood? You know, it's a bit like kids only understand how dangerous electricity is when they poke their fingers in the electric plug point. Um, in a sense, sadly, we really only ever do learn by experience. What I hope I've contributed a little to today in our discussion is providing a little bit of insight into people who haven't gone through some of the pain I have, so they avoid a bit of that. But, you know, the last word I'll say on this, both since I've been a consultant or even earlier days, so many people have asked me for advice, but most people don't want advice. What they actually want is validation of the opinions they already hold. See, if you're validating what they already believe, they'll listen to you like mad. The moment you're telling things that they might think aren't quite right, they stop listening, unfortunately. Totally. So be a good listener. That's what I'd say. I totally agree. That's a great way to end, Michael. I think what really hits home, to close this out, is I think the main point of this whole masterclass was you learn through mistakes, so they're normal, and they're actually good for you. So yes, we can learn from things that Michael has told us now on this show, but just know that every time you're going through a tough time and things feel dire and the world's gonna end, that's a learning opportunity. Make sure you actually learn, though, from them. Well, yeah, you could say you profit as much from your mistakes you do from the bottom line where you profit monetarily because those are the things that enable you to make money on the next deals. Absolutely. Michael, this has been great. This is why I called you on for a second time. I think in a couple season's time, we'll have you on a third time. Thanks so much for joining us, Michael. That's it for this episode of Born Scrappy. If you have any questions, stories, or topics you want us to dig into, send them my way. Until then, keep it scrappy.