Showing posts with label Speculator. Show all posts
Showing posts with label Speculator. Show all posts

Tuesday, January 22, 2013

Down With Delaware!

Comment: Forward to the next quarter-century of stakeholder value

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Ian Williams calls for a change in IR focus over the next 25 years

As IR Magazine reports on its Q1 (first quarter-century), the profession it covers surely stares redundancy in the face in Q2, becoming more a case of investor relativity than investor relations.

How do you ‘relate’ to a transitory blip on a trading screen churning at near light speed? And at the other end of the velocity spectrum, how do you deal with an index fund that will yawn at whatever you say and only move when you get on or off a list?

During IR Magazine’s quarter-century, the role of investor relations has seen momentous changes – and I’m not just talking about the obsolescence of the fax, even though a little over a decade ago most IROs thought life was inconceivable without it.

There is a shrinking universe of stock held by ‘interested’ shareholders – people who have bought into a company and what it does, as opposed to those who have just taken an option on a trading opportunity.

Interestingly, though, within that diminishing population of stockholders, the proportion of those who take an active proxy interest in companies appears to be growing.

It’s good to talk

The best IROs see themselves as two-way communicators, telling management what the shareholders want while briefing the latter on the state of the company.

The cold reality, however, is that while, technically, shareholders might pay IR departments’ salaries, it is the CFOs and CEOs who sign the checks. Hardly surprising, then, that even the most conscientious IRO’s agenda should reflect that of the executive team.

Which raises an interesting question: will IROs in future be concentrating on votes, trying to head off challenges to ‘their’ executives from the theoretical owners who are getting increasingly uppity with each passing proxy fight?

There should be some inner ethical wrangling there. IROs tend to be well rounded and aware, almost Renaissance figures in the breadth of their knowledge and the scope of their activities.

Could they sleep easily while spending their waking days defending incompetent and overpaid executives against the concerns of the real owners of the company?

A better employment guarantee for the future of IR is to expand its audience to include those who invest their lives in companies. As shareholders march on corporate castles with torches, tumbrels and pitchforks, arguing whether ‘tis better to bury CEOs at the crossroads with stakes through their hearts or to burn them at the stake, the question that arises is, ‘What about the stakeholders?’

Dumbest idea in the world

For example, it would have been an admirable learning experience for Jack Welch to explain to GE employees his ideas of what constituted good management before he axed 100,000 of them.

If he had had to do so, it might not have taken him until 2009 – a full eight years after he had left the company – to argue in an interview with the Financial Times, with characteristic vigor but less-than-charasteristic philosophy: ‘Shareholder value is a result, not a strategy… Your main constituents are your employees, your customers and your products. On the face of it, shareholder value is the dumbest idea in the world.’

It was, of course, Jack ‘the Ripper’ Welch who 30 years ago invented ‘shareholder value’, which acted as a form of plenary indulgence for getting managements out of Purgatory afterwards.

And for too long IR has overemphasized selling management’s fevered visions to the stockholders and raising the stock price while ignoring the main consequence, which is that the CEO’s emoluments increase regardless of how well the company does – in the case of Welch, even after his retirement.

Accompanying this managerial aggrandizement has always been a pious invocation of executive duty to the shareholders as the sole owners with fiduciary interest in the conduct of a company, even though in reality it has usurped stockholder power and looted companies.

The bitter rearguard battles in courts and Congress to stop or dilute say on pay are eloquent testimony to that, not least because they involved using shareholders’ money to subvert shareholders’ rights.

This model has failed companies and destroyed countries, as Welch seems to have realized now he is no longer a beneficiary. As the Harvard Business Review, publisher of the Legatum Prosperity Index, points out: ‘For Americans, the headline is a simple if unwelcome one: the US is a nation in decline. For the first time, the US does not rank among the top 10 countries in the world in terms of overall prosperity.’

A downward spiral

In every measure of satisfaction distributed across a population, the US has been sliding down the scale, as indeed has its close emulator the UK.

The UN Development Programme’s Human Development Index, the World Bank’s index and many others all record the inexorable Anglo-Saxon slide down the rankings. Even on productivity, the US is falling through the ranks.

It is surely no coincidence that all the countries passing the US and the UK in the fast lane share a prejudice that there is more to success than ‘shareholder value’.

The list is interesting. Apart from Canada, Australia and New Zealand, which all have union movements and a social democratic tradition of regulation and worker protection, the other eight countries are European and go beyond that: they provide for employee representation on boards of companies.

This is a far cry from how they do things in Delaware, but it makes sense. These European employees are stakeholders in every sense of the word: their input, investment and interest in the company are far broader than those of a transitory shareholder whose ownership might only be a twitch of electrons in a silicon chip.

Indeed, through pension funds, mutual funds and even direct holdings, many employees are stakeholders in the specific terms that even US corporate law accepts.

It must be true, as Welch told the FT so: ‘The idea that shareholder value is a strategy is insane. It is the product of your combined efforts – from the management to the employees.’

People in IR, the future is at stake! In Q2, there should be no slack for corporate looters!

Friday, January 04, 2008

Up To Our Eyes in CRAP

This is my Speculator Column from the October issue of Investor Relations Magazine, written during the summer when it was a joking matter. No longer!


The continuing tsunami of Chinese cash into the US and global financial system has helped create an insatiable demand for new financial instruments that offer long-term security and returns to mop up the flood of liquidity. The banking sector rose to the challenge with its characteristic ingenuity by inventing 'Collateralized Mortgage Obligations,' the financial equivalent of quantum indeterminacy. Money managers, bankers, and many other investors rapidly seized upon CMO's, before the idea became unfathomably unfashionable this year.

Much has been written about the slicing and dicing, the tranches, the algorithmic acrobatics that the sector undertook to package and resell dubious loans for overpriced properties to under-salaried borrowers. A banker friend of mine in his sixties was delighted to be offered a 30 year fixed interest mortgage on his property. His reaction was the same as a patient of my former doctor who had just tested HIV positive at the age of 86. When our mutual doctor began his set-piece speech warning that he might only have 15 years to live, the aging Lothario promptly responded with a question, 'Promise?'

But quite apart from collateral beneficiaries like my banking friend, the CMO's were a triumph of globalization. For example, German bankers, who would have shown the door to any down at heel inner city resident of Frankfurt who knocked on their door asking for a loan, were eager to assume decades-long responsibility for the loan for a ghetto dweller in New Orleans whose home was a fathom or two below the Mississippi water table. The bonds were being sold globally as long-term instruments when on the ground brokers were fostering continual churning of mortgages among borrowers eager to get lower interest rates.

Although, with the customary lemming-like solidarity of the financial community, investors are now pulling out of CMO's with the same alacrity that they were earlier buying into them, there is still, notwithstanding the fads and fashions of capricious investment bankers, a need for stable long-term financial instruments. Standing on the shoulders of others, like most geniuses, I would like to offer a refinement of the CMO's. I propose 'Collateralized Recently-owned Auto Promises,' or CRAP's, as people will inevitably call them.

All across the United States people take out bank loans and get credit from car dealers to buy used cars. This represents collateral every bit as sound as the flakey modular homes in dubious sub-prime hotspots. There are risks in selling instruments backed by collateral of uncertain worth, and on debtors of uncertain risk, but no one seemed to notice when the CMO's were introduced. And so we think that the CRAP will go down well in view of the insatiable historical appetite for such products. Consider what people swallowed with the CMO.

The program is also virtuous from a macro-economic point of view. Along with construction, the auto industry is the gyroscope of the US economy. Just as the demand for new homes is predicated on people being able to sell their existing properties, the US auto industry depends up the buying and selling of previously owned cars. After homes, cars are the single most expensive consumer product that Americans buy, so it is essential for the economic welfare of the nation that there should be ample liquidity in the used car business, while meeting the demand for high-paying paper for brokers and investment managers to palm off on their clients.

There is an obvious synergy here. The skills that enabled these highly paid and motivated bankers to sell CMO's are precisely those that are traditionally associated with the second-hand car salesperson: a robust emphasis on the up-side of the transaction with a scorn for pessimistic downside details.

There is a lot of scope for creative selling of Collateralized Recently-owned Auto Promises, and I have little doubt that before long everyone will have forgotten how they turned up their noses at CMO's and we will all be up to our eyes in CRAP.

Monday, June 25, 2007

Hot Money - Responsible Investing in a Warmer World

My latest Speculator column in IR magazine
advises corporate and national responsibility - invade Antarctica

Hot Money

Ian Williams

It is very short sighted of some large oil companies to pretend that global warming is not happening – the way to make money is to embrace the concept, and exploit the consequences.

Where some people see crisis, we speculators see opportunity. Global Warming offers big openings for canny investors who refuse to let dogma blind them to genuine opportunities for big bucks. 'Nuclear Winter" was only a possibility, and it was difficult to cope with, business-wise. No one really rushed out to buy bomb-shelters or Geiger counters because, rightly or wrongly, they had decided that nuclear war was not that likely.

But all these scientists and analysts, and even most governments, now tell us that Global Warming is a certainty, and we all know that investment thrives on certainty.

Just think through the consequences. The hotter it gets, the more demand there will be for refrigeration and air-conditioners, which will create more demand for electricity which uses yet more coal and gas to fuel the power stations. Now is surely the time to buy into mines and utilities, not to mention appliances, like air-conditioners, and fans.

Indeed, as the world heats up, think of the possibilities for cold soft drink and bottled water sales! They even help create their own markets. The ships and planes and trains and trucks needed to ship bulky fluids will be making the world hotter, and customers thirstier, all the time. What is more, can there be a better way to sequestrate carbon dioxide emissions than to pump them into fizzy drinks? The utilities will pay bottlers to take the CO2!

Climate change is also a great opportunity for some global hedging. As one part of the world suffers a Dioxide Drought, and wants humidifiers, other parts will be suffering from Dioxide Drowning, and will want pumps and dehumidifiers. Indeed the wetter it gets, more people will want and need SUV's to traverse the washed out roads and shorelines. Some will take to the air to avoid the discomfort of land travel as temperatures rise. Those cars and planes need gas, lots of it. Buy oil, auto and aerospace companies. (A side bet on inflatable dinghies may not be a bad idea either. No house within fifty miles of the present shoreline should be without one!)

Buying aerospace is an extra good deal because global warming pessimists warn of increasing security threats: populations from the Third World are on the move and countries in the developed world are competing for scarce resources. Defense spending can only go up.

But the real prize is on the back burner, as it were. Antarctica is up for grabs. We have to think long term. As it gets hotter here and the ice melts there, this huge and hitherto wasted continent becomes a desirable cool residential place to live with several lifetimes' supply of clean glacial water, both for fortunate inhabitants and for sale to the hotter places nearer the equator.

But that is only the beginning. As the world's oil supplies run out, the melting of the ice sheet around the South Pole makes accessible the world's last untouched major reserves of oil and coal. Talk about intelligent design! This can only be Providence in action. Just as global hydrocarbon supplies show signs of failing, there we are. Bingo! A whole new continent just bursting with carbon to burn as the ice cap melts.

At present, all territorial claims to Penguinistan are suspended until 2048, but good old Texan ingenuity and creative approach to international law can surely overcome that. It's not even as though there are any natives there to cause problems, although, come to think of it, we have looked everywhere else for Osama Bin Laden and have not found him, so perhaps we should be sending a task force to go look…

Friday, June 01, 2007

Clame to Fame

Coincidentally, my first piece for Hustler Magazine - a how to desert to Canada guide for GI's is on Larry Flynt's website - as well as the top shelves of your magazine seller where it includes a nonprovocative picture of yours truly!

Clame to fame

My May "Speculator" column in Investor Relations magazine May, 2007

As President Bush may notice, having a ‘W’ in your name is not always an advantage, finds Ian Williams

At school, the surname ‘Williams’ was an advantage because that initial ‘W’ put me right at the back of the class, away from teachers’ prying eyes. But an alphabetically ordered ballot paper puts me right at the bottom, so most voters only come across it when they have exhausted their votes higher up. After the one time I ran for public office – and lost – I swore that for any future attempt I would change my name to Aaron A Aardvark.

In the old days adulterous couples allegedly signed the hotel register as Mr and Mrs John Smith, to the embarrassment of the occasionally real John Smith who booked in on more legitimate business. My name is getting like that: Ian and Williams are two of the most common names in the English-speaking world, and whole new generations of them are entering the electronically tangible workforce every day.

Google’s half a million or so hits on ‘Ian Williams’ include a film director, a blogger, a Florida football player, a champion British sailor, a racehorse trainer, a rock guitarist, a writer for electronics trade magazines, a risqué film director, a detective, a Welsh rugby player, and so on.

I have one namesake who comes from my hometown and is now in Asia working for Nbc, and I get strange looks sometimes when I pop up at venues where people have just heard my namesake live in Tehran on their TV screen.

It does not help that, in my promiscuous productivity, quite a lot of these Ian Williams are actually me in varying byline avatars, from the Baptist Times to Hustler – and IR magazine, of course.

Debt collection agencies keep making threatening phone calls aimed at yet another Ian Williams, who has at some point lived somewhere near me in mid-town Manhattan and who has skipped on several credit cards.

I am still wrestling with the problem of how to preserve whatever professional equity I have in my name. If a well-known cholesterol vendor can trademark the name of a Scottish clan, why can’t I? After all, three out of the top four hits on Google are me. Another Ian Williams journalist broke the strike at the Murdoch presses in London many years ago and people suggested I change my name when the UK journalists’ union fined him £1,000 ($1,973). But I felt that if he had brought our name into disrepute, he should adopt a new one, not me.

As prolific Williams parents all over the world call their sons Ian, the consolation is that I am beginning to feel a quasi-familial relationship with this growing family, united only by having a Scottish first name attached to a surname with a vestigial connection to North Wales. In fact, I propose to call it a ‘clame’, a group united only by having a cloned name.

In an atomized world where blood family relations get more and more stretched, there is a certain comfort in watching the varied progress of members of my clame – none of whom has any claim on me. Except my second son, who we named...Ian. He will have to start with a pen name.

Tuesday, April 17, 2007

Electronic Memory Holes

Recent Speculator column in Investor Relations Magazine.

Paper brought to book
March, 2007

Ian Williams worries about rewriting history
Books breed at night, with a surreptitious rustle of pages; there is no other explanation for their proliferation. But the days of excess paper may be short-lived. In the old days, backup meant laboriously interleaving the carbon paper in the typewriter and making sure you filed the copies away very carefully. Now, after reading a document in hard copy, you most likely throw it away. It’s easier to print a new copy when you need it than to waste space and time on filing cabinets.
Books have also become easier to print. My first tome, The Alms Trade, has been out of print for 15 years. But a publisher now wants to do a just-in-time edition: people who order online will get an individually printed trade paperback. The publisher is already anticipating e-books, however, so customers will just pay to download text the way they do now for music.
So far, though, the various e-book formats don’t meet the standards of flexible usage required by bathroom, bedroom and on-train readers. But it can’t be long before, instead of weighing down a suitcase with a heavy selection of tomes for beach reading and delays at airports, we can pack one handy electronic device the size of a book, but lighter, thinner and capable of carrying half the Library of Congress.
Certainly, we are close to dropping paper from the newspaper industry. Morning papers increasingly look dated; most of the stories are online the day before. A handily portable ‘flexi-sheet’ that gets updated during the day with customized news and features, which I could read everywhere from cab to work cubicle, would be very attractive.
But there is one drawback, for which we need to refer to George Orwell’s 1984, in which the hero Winston Smith’s job is continually rewriting the articles in the newspaper archives to reshape history according to the current political line.
I often write for online publications, and I think of Winston each time I spot a mistake and call the editor. A few strokes of the keyboard and the online article is rewritten as if the mistake had never happened. It’s almost spooky. Just think of the future paperless world of knowledge.
A CEO wants to backdate options? Simply adjust the minutes of the meeting and hey presto! The past is altered on the electronic file.We said someone had WMDs and went to war but it turned out we were wrong? Simply adjust the record, either to add WMDs or to change the rationale for war.
Paper may not be as durable as inscribed marble slabs, but at least there are usually multiple copies, not all of which can be recalled and altered. With the penetration of the web, however, is it inconceivable that Microsoft, Time Warner or the Department of Homeland Security could enter and edit documents in your electronic library? Will your collected works of Shakespeare have Othello, Shylock and shrewish Kate edited out for political correctness? Will earnings estimates be revised so companies always meet their targets?
That is why I suspect the SEC and the judicial system will insist on printed paper documents for some time to come – and I will stick with my paper library.

Monday, February 19, 2007

Driving Performance

- a conservative conspiracy in Detroit
My latest "Speculator Column" from
Investor Relations magazine

The New Year is not just a time for making Resolutions on the lines "Aggh, I'll never mix rum and champagne again." It is also a time to look back so that we can inform our future through the lessons of the past.

As the old year shuffled off two of the free market's biggest proponents resurfaced when British Prime Minister Margaret Thatcher praised her recently dead chum Augusto Pinochet, self appointed President of Chile.

These two were of course the grand panjandrums of privatization, Pinochet famously privatized the Chilean pension system and Thatcher, in the oft-repeated erroneous words of the New York Times, "privatized the loss making state industries."
But Pinochet's military and police resolutely refused to have their own pension schemes privatized, which, since they were running the country which could have been taken as a wink and nudge by the wise. And most of the state owned industries that Thatcher sold were making huge profits, which is why everyone was so eager to buy them. In those days, BP, originally nationalized by that firebrand socialist Winston Churchill, not only made big money for the British Treasury, it did so without blowing up Texas and leaking on Alaska.

The afterlives of the biggest projects of Thatcher and Pinochet also returned for a quick haunt at the end of the year.

First, the New York Times had an editorial warning that the Chile's pension schemes were facing disaster, because half or more of them could not promise their prospective pensioners even the minimum living standards.

Across the Atlantic, the UK's staunchly conservative Daily Telegraph lamented how business investment in Britain was at risk because of the poor state of British utilities: electricity, gas, telephone and water connections were inefficient, businessmen complained. The Telegraph did not mention that these were the first industries that Mrs T had privatized, nor that they were now celebrating their first quarter century of profit-taking lack of infrastructural investment.

But she was never the free market ideologue that was claimed. Rather she was a ruthless and accomplished politician who was trying to lock in her party's victory. By selling deeply discounted shares in state industries to consumers, and selling off municipal housing to its tenants, she raised a pot of capital that let her hold off on tax increases-and, she hoped, created a whole constituency of anti-socialist working class voters.

Selling off the state industries was a move to break the power of the unions, because, not only were they a source of opposition, which she never took kindly to, but because they bankrolled the Labour Party, which she wanted to cripple.

Of course, in the US, the strongest unions in the private sector are the autoworkers, who fund the Democrats. One can only speculate, but is it possible that long term GOP coddling of the big three in Detroit has a similar agenda inspired by Thatcher's example?

By giving huge tax breaks to Detroit to build gas-guzzling SUV's, they have been locked immovably into heavy capital investment in truck-beds that have all the commercial future of a dinosaur squinting at a plummeting meteor. Any analyst can see where fuel prices were going, but Congress has held back on any stringent MPG restrictions. Foreign car makers, where the unions do not have a stranglehold, are coming into the US and making smaller, more efficient and sellable vehicles.

Could the misguiding coddling of Detroit be intended to lead to the US auto industry to auto destruct, taking with it the UAW funding for the Democrats?

Not for reproduction without permission from Cross Border Publications

Tuesday, January 02, 2007

Out of the Closet

A version of this appeared in Investor Relations Magazine, December 2006 issue

Notes From The Throne,
Ian Williams brings the secrets of leadership out of the closet.

Five hundred years ago, Sir John Harrington, said 'Treason doth rarely prosper…for if it prosper, none dare call it treason.' He could almost have epitomized brown-nosing since at one point he won back the favor of Good Queen Bess by introducing her to his invention, the water closet.

With the oleaginous toadyism that lubricates most organizations, there indeed are few who care to challenge whoever is on the throne, whether it is the President of the US or the CEO of a major corporation. But they will all be quick to cheer whoever stabs them in the back to take their place.

So, despite all the respectful prose about them while in office, how can modern CEO's ensure their place in history when they leave, let alone when they've gone to that big boardroom in the sky?

A slave crowded into the chariot of Roman Commanders during their Triumphal parades whispering into their ears, 'Remember, you are only mortal.' The slave who drew the short straw for this assignment probably ended up in the arena shortly after, since the ego of Roman commanders exceeded even that of modern captains of industry.

Although modern executives can send hundreds of thousands to the unemployment lines to the cheers of Wall St, those generals in the Forum were serious, they could really execute, and sent similar numbers to their messy deaths without a twitch of their togas.

For all these centuries, Rome was considered the apogee of civilization, and its leaders heroes for all ages. Yet the Empire practiced brutal military aggression against its neighbors. Resistance provoked Roman orators into paroxysms of patriotic rhetoric, about the savagery of these natives resisting civilization as the invading legions killed and enslaved their people – or kept them for mass crucifixions or to feed the lions in the Coliseum.

Two millennia later, official history remembers the Emperor Trajan as one of the best of the Caesars. But his column in Rome shows his troops sacking cities and carrying away wagonloads of loot from his unprovoked annexation of what is now Romania. Julius Caesar, who ethnically cleansed much of Gaul, is a household name.

In contrast, most of the super-CEOs that now haunt the business pages will totally disappear from consciousness within a few years of their retirement. So how can a modern day Wall St Lord of the Universe preserve his or her name for posterity?

Well obviously, many of them pass the first test for posthumous fame – which by imperial precedent is tendency to preen themselves on doing harm to others, while enriching themselves.

On the other hand, can you imagine a Ken Lay Column, for example, erected in the centre of Houston, showing his success in looting companies, destroying livelihoods, and bribing legislators? It would not really cut the historical mustard.

My answer is a reform of corporate governance: every board should have a compulsory cynic on board to cut executives down to size. I am prepared to offer my services for a modest fee, with (preferably not backdated) options, tied to how much I can reduce executive compensation.

And I would also advise them that the secret of immortality is ostentatious philanthropy.
Ford, Rockefeller, Carnegie, were unscrupulous strikebreaking financial finaglers, but giving away their wealth to eponymous foundations has preserved their names for a century or so.

Of current magnates, who will remember a decade hence the chainsaw gangs who have vivisected thriving enterprises in search of bloated options? I would hazard that one name likely to survive is Bill Gates. If he had just been the CEO of Microsoft, his memory would have been flushed down one of Sir John Harrington's inventions like a crashing Windows system. But I would predict that thanks to his endowment, the Gates Foundation will be around when people will hazard that 'Microsoft' is a term for a detumescent organ.

Which, like Roman history, is unfair really. Warren Buffet modestly left his fortune to a foundation named after someone else. Now that should make the history books.