As I did last year, I would once again like to hand out
some awards for some of the more outrageous goings on in the corporate world in
2017. Enjoy.
The
“Naked and behaving inappropriately CEO” award
This award was taken out by the self-styled “naked CEO”
and former CPA Australia boss Alex
Malley.
As Warren Buffett famously quipped, “You only see who
was swimming naked once the tide goes out.” Well, the tide went out in 2017 for
Alex Malley thanks to the hard work of CPA member Brett Stevenson and Australian Financial Review journalist
Joe Ashton.
I’ll let Joe Ashton provide a synopsis on why I have
given this award to the preposterous Mr Malley:
In
summary: the board appointed Malley as CEO in 2009 without advertising the
position; the constitution was changed repeatedly to extend the term limits of
Malley's key supporters on the board (Richard Petty, Graeme Wade and Kerry
Ryan), to introduce generous board fees for previously unpaid positions and to remove
the basic right of members to appoint and remove the board; having
fundamentally devalued the CPA designation by making it far easier to attain,
Malley then spent (and continued to spend) tens of millions of the
organisation's dollars promoting himself (to the virtual exclusion of any
corporate branding) through a book and eponymous television show, the paid
publication and paid production both advertised to farcical extents; CPA set up
a fully-owned subsidiary, loaned it $20 million
($12 million of which is already drawn), while the leadership paid itself
second salaries (in apparent breach of constitutional remuneration caps) to run
the thing at a multimillion dollar loss; and more recently, CPA dismissed calls
for the disclosure of its remuneration, moved its AGM to Singapore,
bullied and publicly denigrated
members who questioned the organisation's expenditure and direction, fudged
its performance data to claim dubious commercial growth, was forced under corporations
law to release the remuneration, while Malley, on $1.8 million, claimed to be
the subject of an extraordinary vendetta.
Breathtaking, isn’t it? How all of that was legal, I
have no idea.
Malley was sacked on 23 June 2017 and given $4.9
million as a “golden parachute”. How anyone could justify these sorts of
payments to an individual who trashed the CPA brand name and (let’s not forget)
was running a non-profit organisation supposedly for the benefit of members, is
just astonishing. However, it does speak volumes for the apathy of the vast
majority of CPA members (who will all be replaced by algorithms at some point
in the future anyway – don’t take up accounting kids).
The
“Luck of the Irish” award
This award was won by Alan Joyce, CEO of Qantas, Jayne
Hrdlicka, CEO of Jetstar and Gareth
Evans, CEO of Qantas International.
Mr Joyce (with the compliance of his board and
shareholders) managed to pull off something that Penn & Teller, David
Copperfield or Dynamo would have been in awe of. Mr Joyce managed to be
remunerated to the tune of $25 million despite incredibly poor financial
results during his tenure at Qantas (the recent profits being a direct result
of the massive fall in crude oil prices and nothing to do with any great
management on the part of Joyce or anyone else).
On ABC’s The
Business on 11 October 2017, they featured a piece on Qantas and its very poor
financial performance under Alan Joyce. They
showed that the aggregate net result after tax for Qantas during Alan Joyce’s
tenure (2009 to date) was a loss of $155 million.
Vas Kolesnikoff, executive director of ISS proxy
advisers was quoted by ABC online as saying:
Qantas has benefited quite substantially from the fuel
price decline. In 2015, I think it made $500 million and pretty much that was solely
attributable to the benefits of a lower fuel price.
Qantas is an
example of what Vas Kolesnikoff called, the "limitless capacity to
increase remuneration".
Jayne Hrdlicka
received $8.13 million in remuneration and Gareth Evans $8.18 million – I’m not
making this up!
Joyce and his
cohorts have been the beneficiaries of plain dumb luck – nothing else. How three
people could share $41 million
between them for the incredibly poor financial results that Qantas has
delivered over time is just staggering and hugely disappointing for
shareholders and customers.
The
“Are you old enough?” award
New Zealand band Dragon
posed this question all those years ago and in this case we think the answer is
a definite “No”.
This award was won by Kraft Heinz (we sold our shares after we read about this).
Kraft Heinz (KHC) in its wisdom decided to appoint David
Knopf, a 29 year old as CFO. Now, in a small company this may fly, but
seriously, KHC is a $100 billion multi-national. Does anyone seriously think a
29 year old has the requisite experience to adequately discharge the duties of
CFO for a company that size?
Berkshire Hathaway must be thrilled, they have
dropped about $US6 billion on their investment since the peak of 2017.
Someone also pointed out that had they appointed a 29
year old woman to the position, everyone would have been asking who she had
slept with to get the job, but we all know of course that when it’s a man
appointed to such a position at a tender age, he must be brilliant. Call me
cynical, but I just don’t buy it.
PS: My eight year old nephew is looking for a board
position – any chance KHC?
The
“Got anything for the laundry?” award
This award was one by Ian Narev, chief executive of the Commonwealth Bank of Australia
and his board of directors.
Last year they won the “Why do financial targets matter?”
award for their disdain of shareholders, but this year they went one
better.
The Australian Transactions Reports and Analysis Centre
(AUSTRAC) alleged the Commonwealth Bank failed to comply with anti-money
laundering and terrorism financing laws on more than 53,000 occasions. The
maximum penalty for each of the contraventions is up to $18 million.
Ian Narev and his board allowed a potential $625
million to effectively be laundered through his bank through the use of intelligent
deposit machines between November 2012 and September 2015. Much of this was the
proceeds of drug deals laundered through accounts set up by foreign nationals
on visas and then immediately transferred elsewhere.
Ian Narev was forced to announce his resignation in the
light of this scandal, but it’s high time that ASIC and other regulatory bodies
stopped fining corporations for breaches of the law and started jailing their
executives instead.
Executives
do not fear fines, they see it as a cost of doing business
and of course, the fine is paid by the innocent shareholders and customers of
the corporation, not by the people who breached the law. However, executives do very much fear going to jail
and the time has come to make an example of these recalcitrant individuals.
The Commonwealth Bank has also possibly breached US
laws and the consequences for that could be interesting.
The
“Caribbean Renaissance” award (sponsored by a Cigarette
Company near you)
This award was won by James Simons, founder of Renaissance Technologies (and I do admire
you enormously Jim, but this is very worthy of an award).
The International Consortium of Investigative
Journalists (ICIJ) made public through the “Paradise Papers” how Jim managed to
completely hide billions from the US tax authorities in a Bermudan Trust. The Guardian takes up the story:
The
Lord Jim Trust was established for Simons by a family friend. It originally
held about $100,000 in cash and company shares.
Simons’
trust made major investments in Renaissance’s stable of successful hedge funds.
According to a 2010 court filing, the trust “derived substantial profits every
year from its investments and has made very few distributions” back to Simons.
It could essentially be left to collect vast profits on these investments,
growing exponentially for years without facing deductions for the benefit of
the public purse.
Confidential
accounting documents prepared by attorneys for Simons in 2009 projected how the
trust would grow if it had continued to accumulate wealth in the same way. They
said it would exceed $8bn by the end of 2010, and forecast that it would reach
$15bn by the end of 2017 and that on 31 December 2030, the fund would stand at
approximately $35bn.
Simons and his
family faced a dilemma, however, because of rules intended to deter wealthy
Americans from holding money offshore. Under a so-called throwback tax, the
longer an offshore trust is left collecting gains and interest, the higher the
US tax rate imposed when funds are brought onshore. Attorneys warned Simons
there could come a time when the taxes owed exceeded 100% of the fund’s value.
So the Simons
family developed a plan. Four new “sub-trusts” were created in Bermuda – one
each for Simons and his children Elizabeth, 57, Nathaniel, 51, and Audrey, 31 –
to split ownership of the money in the Lord Jim Trust. Simons took about half
the total and each child received one-sixth.
You really have to wonder what they do at Renaissance
Technologies to generate this sort of wealth.
The
“Bitcon” award (for bubble payment systems masquerading as currencies)
This award was one by Bitcoin, the preferred payment system of cyber criminals the world
over.
Paul Donovan at UBS Wealth Management wrote a very good
article on why Bitcoin (or any crypto currency) will never actually become a
legitimate currency. All those dabbling in this massive bubble should read the
following carefully:
1. Governments are not likely to accept crypto-currencies that they do not control to settle taxes;
2. If you do not have the ability to use crypto-currencies for the largest single transaction in the economy (tax), then it will never be a majority medium of exchange;
3. The fatal issue for crypto-currencies is that the supply of them can only ever go up. There is unlimited upside to the supply of crypto currencies;
4. The introduction of a technically superior crypto currency will see a move out of the “older” crypto currencies. Just like Netscape Navigator was once a technically superior internet browser or Alta Vista was a technically superior search engine, once something better comes along, the inferior versions just collapse. And because you cannot reduce the supply of a crypto currency, that drop in demand would not be matched by a drop in supply, and, therefore, if demand goes down but supply doesn’t, we all know what happens to value. It’s basic economics;
5. If the price of Bitcoin rises against your home currency and you cash in, you’re liable to capital-gains tax on the appreciation of the currency. If the value of your home currency rises 20% against the US dollar (or some other currency), then you’re not liable to capital-gains tax on that appreciation;
6. The massive volatility in Bitcoin and every other crypto currency ensures that it cannot be viably used as a medium of exchange over the long-term; and
7. It’s far harder to protect crypto currencies from theft than it is real currencies. Real currencies are backed by governments and banks, crypto currencies are backed by nothing. There is now a huge industry in the theft of crypto currencies.
Every time a new technology comes along, there is a
mania that accompanies it. We are now witnessing a full-blown mania in Bitcoin
with many people who understand nothing about currencies, the underlying
technology or the nature of financial bubbles taking part.
There are lots of people out there who are going to
lose large amounts of money in crypto currencies (many of which are just
scams), but if you think you know better – go ahead.
