Lex’s big promise was that he would bring supply chain finance to the little guy, like his parents’ farm. He would democratize capital and make finance fairer. But that’s not what happened.
There was a legitimate supply chain finance programme at Greensill, and it counted among its clients some major organizations like Boeing, Vodafone, General Mills and the UK National Health Service. This was all funded with money from Global Asset Management or Credit Suisse or Greensill Bank, or sometimes other Greensill funding partners like Italian bank UniCredit or the Japanese banks Mizuho or SMBC. Greensill’s role was to connect the funding partner (usually the big bank or its clients) with the borrower (usually the big corporation). None of this was particularly unusual. It was the kind of traditional supply chain finance that the big banks had been doing for years. The only thing disruptive about it was that Lex was willing to do it at such a low cost that he hardly made any money. But that wasn’t the point. These big names brought volume and credibility, even if serving them meant running at a loss.
These programmes also mostly ran on someone else’s technology. This was one of the biggest misdirections under Greensill. Despite claiming to be a fintech, Lex didn’t really have much in the way of unique technology, and so relied on third parties like Taulia or PrimeRevenue. The fintech branding only really came to the forefront after Lex got a big round of funding from General Atlantic.
The other big misdirection was that Greensill was making finance fairer. Supply chain finance can help small businesses – it can give them some certainty around payment times and it can be an alternative to more expensive forms of financing. But it can also harm small businesses. The programmes that Lex ran had a mixed track record.
In Australia, where Lex had become the dominant provider of supply chain finance, the small business ombudsman launched an investigation in 2019 into a wave of SCF that was sweeping across the country. Several big Australian companies were using SCF programmes, including telecoms company Telstra and the construction giant CIMIC, both Greensill clients.
What followed was a confusing tug of war between the ombudsman, Kate Carnell, and Lex Greensill. Carnell’s office had heard stories about bullying by big companies, who were using SCF to force unfair terms on to their smaller suppliers. They found suppliers were being told that either they signed up to a supply chain finance programme or they wouldn’t be paid for months. In some cases, they might find they would be shut out of the supply chain altogether. In other words, get paid on time, but at a discount, or don’t get paid for months, if at all.
In October 2019, Carnell announced a review into the impact of supply chain financing on small businesses. A position paper published then said that SCF was being used inappropriately by large businesses. Some of them were stretching out their payment terms, telling suppliers they wouldn’t get paid for much longer than previously, and then offering SCF as an alternative. It was bullying.
‘Small businesses have very little bargaining power compared to large entities who have a number of potential suppliers in any marketplace,’ the report said. ‘This impacts their ability to demand fair payment terms for goods supplied and services rendered.’
SCF on new technology platforms had ‘brought an insidious new front to the war small businesses are waging to get paid within a reasonable time frame.’
A few months later, in March 2020, Carnell’s office published their final report. It was critical of several big Australian companies, including Telstra and CIMIC, explicitly accusing them of unfairly forcing smaller suppliers into accepting longer payment terms or SCF discounts.
The report cited a detailed example. It involved a small Australian company that was a supplier to a construction sector business that had recently been bought by CIMIC. Under its new owners, the company stretched its payment terms from thirty days to sixty days. That, according to the report, would have forced the small supplier to take out a costly A$1 million overdraft to cover the delay in cash coming into its coffers. Alternatively, the CIMIC subsidiary offered the small supplier an SCF deal with Greensill to get paid more promptly.
The report bluntly says, ‘The small business owner was left with a choice to use the Greensill SCF offering or go out of business.’
Carnell’s office also said that some SCF providers were unfairly using artificial intelligence techniques to squeeze even more out of the suppliers.
The stinging criticism embarrassed CIMIC, which had become one of Lex’s biggest clients in his home country. The firm responded by slashing its SCF programme. The construction company’s SCF balance fell from $850 million at the end of 2019 to just $140 million a year later. Telstra too was scaling back its SCF exposure. Carnell later acknowledged that the GFG companies of Sanjeev Gupta were also a special focus. She told Australian media that GFG companies were especially slow payers. Greensill’s SCF programmes meant GFG’s suppliers were paid earlier but they got less than they’d invoiced for.
By the time of the report, Lex was on the record saying Carnell’s review had caused him to rethink the business model, and that he wouldn’t be providing SCF to clients that wanted to push out payment terms beyond thirty days.
Carnell’s report cautiously said, ‘We are looking forward to seeing the evidence of significant improvements made by Greensill and the other SCF providers in this regard.’
Despite this, the bad smell around SCF programmes lingered for months in Australia. In May, it blew up again as local media reported a CIMIC subsidiary had pushed out payment terms and offered a Greensill SCF programme as the alternative for suppliers willing to accept a discount. Greensill quickly dropped the client, and earned the praise of Carnell again, which was followed by the usual sort of Greensill press release, this one touting the ombudsman’s praise.
The whole episode was like a naughty child scolded by their parents for misbehaving, then earning faint praise for doing the right thing. Greensill was claiming credit for no longer helping its clients bully suppliers.
IN AUGUST 2020, the Global Supply Chain Finance Forum, an industry lobby group, put out its own report on the industry bullies. The decision to speak out was a sure sign that the problem was significant, although the report predictably claimed that bullying was rare.
Authored by the likes of the International Chamber of Commerce and the European Banking Association, the report clearly sought to put some distance between best practices and the kind of approach taken by some of Greensill’s clients. ‘Reports of suppliers being forced into accepting unfavourable terms are extremely worrying,’ it said. ‘Yet our understanding is that these incidents remain isolated and uncommon. We believe that, while they have attracted significant media coverage, they are not representative of how [SCF] programmes are used by the majority of buyers and sellers in mutually supportive supply chains.’
At Greensill, Lex and Doran had considered putting out a position paper – a piece of ‘thought leadership’ – on SCF that would put their side of the controversy. When it was circulated among executives though, the plan hit a wall. The paper was misleading and full of errors. Roland, who had taken out a patent on a kind of SCF programme twenty years earlier, politely deconstructed it over email. Other executives who were concerned that publishing the document would have been embarrassing breathed a sigh of relief. The paper went nowhere.
IN AUSTRALIA, THE small business ombudsman Kate Carnell was not the only authority to have taken a critical eye to Greensill’s business. In October 2019, the Australian Taxation Office decided that Lex would have to pay tax on about A$58 million in capital gains from the sale of shares in his company. A trust set up in Peter Greensill’s name had sold the shares between 2015 and 2017. Lex wouldn’t normally pay tax in Australia because he was resident in the UK. But the Australian tax authority determined that because the trust was based there, tax should be paid there too. The decision meant Lex was on the hook for an enormous, unexpected back tax bill. It was also personally embarrassing and a source of constant irritation that would bring his temper to the fore. The Greensill Trust appealed, and appealed again, but lost each time. Perhaps Lex wasn’t so smart after all.