Here are some awards I would like to hand out for some
of the more ridiculous things I have seen in the corporate world during 2016.
There are many more awards that I could have given, but
these were some that I felt rather strongly about.
The
“In case I go insane” award
This award was won by Hamish Douglass, co-founder and chief executive of the Magellan
Financial Group.
He won this for an utterly ridiculous idea he thought
up and tried to put to shareholders. Douglass tried to get a proposal up that
would give him and (or) his family a $10 million payment (paid for by
shareholders) in the event of his "unsound mind, incapacity or death"!
Wow!
The Australian Shareholders Association had this to say
about the Douglass proposal:
"We
feel it is ridiculous for the company to commit to the cost of the cover in
circumstances where it will not receive any benefit in the event that the
insured events materialise".
Douglass is apparently worth the astonishing (and
somewhat unbelievable) amount of $505 million according to Business Review Weekly and it is appalling that he thought up such
an idea and tried to get his shareholders to pay for it. And he calls himself a
Warren Buffett fan – as if!
Fortunately, the backlash was so severe, that Hamish
had to scuttle the whole thing. But this little episode revealed an awful lot
about Mr Douglass.
The
“Why do financial targets matter?” award
This award was one by Ian Narev, chief executive of the Commonwealth Bank of Australia
and his board of directors.
They won this award for trying to change the bank’s
bonus plan in order to give a 50% weighting to non-financial targets which
includes such things as: diversity, inclusion, sustainability and culture".
None of these things should ever be tied to remuneration.
What this says to all shareholders is: We can’t achieve
financial targets anymore but we would still like to be paid horrendous amounts
of money (at your expense), so please can we change the targets so that we can
still pocket millions in bonuses?
No, you can’t. We as shareholders (and as a society)
are sick of this kind of thing. The election of Donald Trump as the next US
President is testimony to how people are feeling on these sorts of issues and it’s
a huge wake-up call for the corporate and political world.
Fortunately, the above proposal was given a “first
strike” at the Commonwealth Bank AGM and the Narev proposal was withdrawn.
Westpac, ANZ and National Australia Bank - take note.
The
“Cheap Seats” award
Following on from the above award, I would like to give
an honourable mention to John Brogden,
managing director of the Australian Institute of Company Directors.
Brogden is a former leader of the NSW Liberal Party
with a somewhat chequered past. Brogden made the following comments concerning
proxy advisors:
"Sometimes
I think these guys sit in the cheap seats and throw out criticism without
really understanding what is needed for a successful corporation. It is more
than just dollars, it's corporate culture, it's customer satisfaction,
innovation, investment in the future, there are any number of different things
and the risk of relying on the financial numbers alone is you drive a very
short-term culture."
Now on the face of it the above comment may seem fairly
innocuous, but there is an underlying insidiousness about referring to “guys in
the cheap seats”.
Let me explain it to you John. Proxy advisors are there
to assist shareholders, remember them? They are the guys for whom your members work.
They are there to keep your guys honest, to advise us when Hamish Douglass
wants to give himself $10 million or when Ian Narev wants to move away from
financial targets for bonuses – things that generally hurt our financial
interests as a group.
Proxy advisors represent people who have many, many
billions invested, they do not sit in the cheap seats, and you are displaying
your ignorance by making such statements.
The
“Masters of Insanity” award
This award was won by Grant O’Brien, former chief executive of Woolworths.
Grant’s insane adventure with the Masters hardware chain
has probably cost Woolworths shareholders anywhere between $5-$10 billion in
lost market capitalisation (representing the direct loss from Masters plus
management taking its collective eye off the ball and allowing Coles and Aldi
to grab market share).
In 2014, Grant O’Brien’s remuneration was just under
$5.3 million. I want that, and all the other money paid to him (many millions)
refunded to shareholders.
When you are taking the sort of money that Grant
O’Brien did take, mistakes of this magnitude are simply unforgivable.
The
“Keep doing what you’ve always done and expect different results” award
This award was won by the Reserve Bank of Australia (RBA). The bank has continued to lower
interest rates (to stupid levels) in order to stimulate economic growth and
inflation, none of which has worked. What it has done is inflate an almighty residential
property bubble that (as I’ve said before) has the potential to destabilize the
entire Australian banking system.
Our banks are heavily dependent on foreign borrowings
to finance their mortgage books and with the increase in foreign bond rates in
recent times, the banks are going to start having to lift rates independent of
the RBA in order to continue a viable existence.
There are an awful lot of people in Sydney and
Melbourne who are potentially going to be foreclosed on in the next few years.
Watch this space.
The
“Lights are off, but everyone is at home” award
This award was won by Jay Weatherill, Premier of South Australia and his Energy Minister,
come Treasurer (and former cab driver), Tom
Koutsantonis.
South Australia has suffered through three major
blackouts in the last six months. The entire state was blacked out in late
September, causing many millions of dollars in costs to Olympic Dam (BHP),
Prominent Hill (Oz Minerals), Nyrstar and Arrium (to mention just a few, as
well as the chaos that was caused for the entire population of the state).
Jay and “Kouts” blamed everyone except the policies of
their own government for these blackouts (which everyone knows has been caused
by SA’s unfortunate “experiment” with renewable power).
This experiment has made traditional coal generation
basically uneconomic due to the customer paid subsidies of renewables (yes, you
the customer are paying for all of it) and it has led to the shut-down of a
plant in Port Augusta. It has also completely destabilised the pricing of
electricity in South Australia with wild fluctuations now a regular occurrence.
And guess what? When an entire state is blacked out, you can’t restart without
base load power from non-renewables!
The end result of all this is that no major companies
are going to want to operate a business in South Australia if they can possibly
avoid it, and who could blame them?
Despite all this, we have the Victorians wanting to
replicate the South Australian experience. Hey, maybe if all states follow
South Australia’s lead, we might have a day when the entire nation is blacked
out! Black Friday anyone? Never put anything past our dim witted politicians.
