The role of a company comedian
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     holycow
Member
Username: holycow
Post Number: 1503
Registered: 08-2004Rating: N/A
Votes: 0
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| | Wednesday, July 27, 2005 - 05:43 pm: |  
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Alan Kohler writes, and we listen... he has something to say about what we can learn from Steve Vizard's "how to get your finger burned by your accountant" comedy of the week...
Link here.
Scrap the short term for a longer look
By Alan Kohler
July 27, 2005
Steve Vizard has shown the world what company directors should not do (that is, use the job as a stock-tipping service), but the question is: what should they be doing?
Serving shareholders, of course - but how? The best answer these days may be to stand up to shareholders more often; to give them what they need rather than what they say they want.
...
Company directors have been aware for years how insidious the pressure is for short-term results at the expense of long-term value.
But with some honourable exceptions, they have failed to resist.
The advent of asset consultants for super fund trustees - who earn their fees by monstering fund managers every quarter - has led to the mass transference of that pressure down to company CEOs.(just check out what kind of money the Big Mac fund managers are demanding from the investors to get a definition of "monstering" greed...)
They are now on a treadmill of short-term EPS growth that is wholly counterproductive. In their efforts to represent shareholders effectively, company directors have tended to stoke the flames of the blowtorch and hold it to the CEO's belly. They feel that, if that's what shareholders want, then that's what they must have.
No, it's not. Michael Chaney notably blew the whistle two weeks ago when he finished up as CEO of Wesfarmers. He warned that directors needed to resist the demands of investors insisting on short-term performance, and he became the first to publicly question the practice of giving profit guidance. "I think it is unwise to be forecasting profits, because there are so many unknowns ahead of you all the time," he said.
It's also unwise because it produces lazy analysts. Charlie Aitken at Southern Cross Equities calls them "guidance counsellors" - people who simply report and comment on company profit updates.(some of them are not just lazy, they are also very greedy)
...
Up to now, directors have been rightly focused on two things: putting governance procedures in place that meet the new elevated regulatory standards, and constructing salary hurdles that promote performance without over-rewarding executives.
Now the focus needs to shift towards protection. Directors need to form a bulwark against the rampant short-termism of the capital market. It's no good just complaining about trustees and asset consultants and that the measurement frequency for fund managers (three to six months) is way out of line with the investment time horizon in the business world (three to six years).
That's true, but it's up to directors to resist and to protect the CEOs from the pressure - first, by not assessing them like fund managers and, second, by educating the market to focus on the long term by banning the short-term "guidance".
Wesfarmers never issues profit guidance and has dropped quarterly reports. Michael Chaney said two weeks ago: "What we have done is run the company as if our shareholders were long-term buy and hold shareholders, like retail shareholders who put the shares in the bottom drawer and hope over time that they give a superior return."
And you know what? That's what they all are. It's only the intermediaries, worried about their businesses, who are obsessed with the short term.
*** pay attention to the last para - the "intermediaries" - I see them to be some kind of parasites. Not all of them but most of them.
HC
"... if you've got a chart, I have an opinion!"
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ann
Member
Username: ann
Post Number: 587
Registered: 04-2004Rating: N/A
Votes: 0
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| | Thursday, July 28, 2005 - 05:53 pm: |
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Hi HC
What/who does he mean by "intermediaries"?
Cheers
Ann
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holycow
Member
Username: holycow
Post Number: 1512
Registered: 08-2004Rating: N/A
Votes: 0
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| | Thursday, July 28, 2005 - 06:20 pm: |
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Ann,
I believe he meant the investment/financial advisors/brokers/banks/(funds?) and other share floggers who stand to gain from rising/dropping share price/market...
Cheers.
HC
"... if you've got a chart, I have an opinion!"
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ann
Member
Username: ann
Post Number: 590
Registered: 04-2004Rating: N/A
Votes: 0
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| | Thursday, July 28, 2005 - 10:04 pm: |
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Thanks for clarifying that for me HC
Cheers
Ann
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holycow
Member
Username: holycow
Post Number: 1520
Registered: 08-2004Rating: N/A
Votes: 0
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| | Saturday, July 30, 2005 - 03:35 pm: |
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...always like Alan Kohler's writing and his cynicism of the financial talibans. Check out his latest here.
...the Vizard affair: it is a long way back now for ASIC and the DPP. In not prosecuting the defendant they may have done the only thing possible in the circumstances but they have managed to damage the public standing of the corporate classes and come out of the affair looking soft and bumbling themselves.
All concerned at ASIC and the DPP's office need to do two things: conduct a full and frank post-mortem of what should have been done differently, both in a legal and PR sense, and they must hound Steve Vizard.
No stone should be left unturned in bringing full justice to this man. It is not just about making an example of him, or "sending a message". He is a crook who has escaped proper justice through fancy legal manoeuvres and he should not get away with it...
On MTAA, ...Australia's best super fund is also about the cheapest.
What an absolute disgrace it is that you can't buy this fund through most, if not all, financial advisers because it does not pay commissions.
You can't get access to any of the top 10 funds through financial advisers for the same reason. They are all industry funds, seven of them advised by NAB subsidiary JANA.
The funds recommended by financial advisers charge an average fee of 2 per cent - at least three times what the MTAA charges - and they all perform worse, and always have.
A financial adviser who does not make industry funds available on his platform or at least have them on his recommended list is robbing his client's future.
The difference in retirement benefit between MTAA's performance and fees and those of the funds further down the list is hundreds of thousands of dollars.
Workers in the motor industry have struck it lucky - they got Michael Delaney. Is it fair that people who happen to work in another industry get less when they retire? Or, worse still, those who listened to a financial adviser and put their savings in a retail fund that charges 2 per cent and produces 5 per cent less in compound returns?
No, it is not fair. It's also a time bomb that will go off when everyone starts retiring and comparing balances.
Yeah! Go Alan! Write something on the Big Mac greedomasters and their greedy grab for $$$. Show them how much Warren Buffett is paid for his record performance all these years. And his deputy Charlie Mungers'. Put these local taliban high priests to shame. Bu most important of all, make sure these goons are taken to task when they FAIL to deliver!
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 1521
Registered: 08-2004Rating: N/A
Votes: 0
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| | Saturday, July 30, 2005 - 03:43 pm: |
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Here's something on ASIC and their big time goof...
...O'SULLIVAN: I agree that there's a risk about the media becoming aware of an investigation before any evidence or proof is available, and that your learned predecessor ran into that a couple of times with the oil companies and so on, but it's often a risk worth taking. In the Vizard case, I don't think the regulators made their position very publicly clear at all. They tried later in the Federal court to do it, but I think the perception generally will be that Vizard, because he was able to afford a very high powered legal battery of skilled lawyers and public relations people, has got a sweetheart deal. The perception is also that ASIC actually contrived to have him get off more lightly than would otherwise have been the case. Not only did he escape criminal proceedings but the ASIC's recommendation for penalties are also lighter than they might have otherwise been. There are cases where regulators have shone in taking the public with them, and I don't think this is one of them.
MACEK: We all have a role to play in ensuring public trust and confidence in the way the market operates - the professionals, the regulators, the media - and the acid test is whether or not collectively we are combining in a way that engenders trust. If the public is of the view that in a high profile case the punishment does not fit the crime, overall trust in the mrkt plce has been undermined and until that is restored, the job is not finished.
...
MAIDEN: What did ASIC do wrong?
RAMSAY: Let me offer a personal view. Firstly, ASIC's media release of 4 July (announcing that Vizard would be charged with civil breaches of director's duties) contained extraordinarily volatile facts. You had a well connected individual who was on the board of one of our most prominent companies as a result of political appointment, and he breached some of our most fundamental laws relating to company directors. Written all over the media release except in black and white, was "insider trading". Look at the facts - taking confidential information and using that to trade in the shares of three companies. Everyone thought, isn't this insider trading? But those words were never mentioned in the media release. So what's missing from the media release is a whole host of things that have dribbled out into the mrkt place in a very unsatisfactory way. One of ASIC's prime objectives is ensuring that companies do not selectively brief analysts, and do not selectively brief the media, but the last two weeks has been selective briefings about the Vizard case because ASIC's been on the back foot.
It took 48 hours to learn about the crucially important role of the Commonwealth Director of Public Prosecutions, which decides whether or not to launch criminal prosecutions. We've seen conflicting statements from ASIC as to what its legal options were, too. ASIC needed to provide helpful information about the legal options, and some insight into the critical considerations that lead to its decision.
As for the penalty, it will not suit the breach. The financial penalty will be modest for someone of Vizard's resources, and a banning order is significantly limited. So the most severe punishment is inflicted by the media - but what if you don't have a high profile reputation? What if you're a small business person and you engage in fundamental breaches of law? Just as serious as Vizard if not more serious, and simply because you're not a Steve Vizard or a prominent company director, the media doesn't pick it up? The message that this sends, the more one thinks about it, is a highly unsatisfactory message.
SAMUEL: Let me say that I think there are four fundamental principles that are required of a regulator in terms of handling these things in the media.
The first is, obviously, to have acted properly in carrying out your responsibilities. Do what's expected of you as a regulator. Two, transparency in what you do. That ensures that you are accountable and it imposes a discipline on you to do the right thing. Third is absolute honesty: never tell a lie. Finally - and this is the conflicting imperative - regulatory propriety.
For obvious reasons I can say very little about the Vizard matter. But I will say that I think ASIC were placed in a very, very difficult position at the beginning of this. They did what any regulator would do: say we have completed an investigation, we have taken the following steps, and we can't comment any more because it's going to court. That's the regulatory propriety angle that limits their ability to be totally transparent in explaining why it is that they've done what they've done. Whether the balance was properly struck between propriety and transparency is for others to assess. I will say that where there is a limit under the law to the ACCC achieving certain objectives, then my view is we ought to disclose that in the media release so that it is quite clear why certain things are happening. And I will also say that we have a similar arrangement with the DPP to ASIC's. Jeff (ASIC Chairman, Jeffrey Lucy) supported the division of roles between ASIC and the DPP in a recent interview in The Age andI think that he was absolutely right, there ought to be a division of roles, for perception reasons, for the division of powers, and also the expertise. What it means is that as investigators and as regulators, it's incumbent on us to produce the level of evidence necessary to conduct a prosecution.When you wrap it up in your pink ribbon and hand it to the DPP, you ought to do so with the knowledge the DPP has certain standards, and it is not going to move towards prosecutions without the appropriate legal evidence.
...
RAMSAY: There's considerable merit in having decisions of a regulator reviewed by an independent body like the DPP. Let me take a practical example: if you look at insider trading, ASIC's brought about 30 cases over 20 plus years, and won only about one third of these.(ok, this rests my case against ASIC. Still a WOFTAM for me) So if ASIC had an insider trading case, you'd think just on the odds well we're going to lose. But that's never the case. It's never the case because the facts will never be precisely like an earlier case. You can't worry too much about statistics on things like conviction rates. They are comforting on some levels but leave you exposed at another level...
...
HC
"... if you've got a chart, I have an opinion!"
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ann
Member
Username: ann
Post Number: 604
Registered: 04-2004Rating: N/A
Votes: 0
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| | Saturday, July 30, 2005 - 03:44 pm: |
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Hi HC,
Well neither you nor Alan, could be accused of mincing your words!!!!
Cheers
Ann
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