Is Fundsmith a new improved fund manager or just a different packaging?
This article first appeared in Aimzine, www.aimzine.co.uk .
There’s nothing I like better on a Wednesday evening than sitting down with a glass of red wine to watch The Apprentice. It’s so warming on a cold evening to be able to righteously mock the young candidates undertaking tasks when they make mistakes that we probably all made at that age but had the good fortune to not have broadcast on prime time TV.
A recent task that was especially challenging was to create a launch advert for a new cleaning product. It sounds quite mundane but that was the point. How do you inject new ideas into a product category that frankly has been advertised to death for the last fifty years? A product category in which there are few, if any, real improvements and in which enhancements are typically product variations such as tablets rather than powder, or a fresh scent. One of the teams produced a TV advert which impressively, but I assume unintentionally, managed to combine sexism, cheesiness, ritual humiliation and a 1960’s style all into a 30 second piece http://www.bbc.co.uk/programmes/p00c2bs6 . I doubt it could have been any better (or worse, depending on your view) if it had been an intentional parody of a 1960’s advert. Worryingly, that team won, or as the Sugar daddy put it, “The other team lost”.
In the real world, this month saw the launch of another apparently new variation of a long established product. Terry Smith launched Fundsmith; a new fund management company. Like selling cleaning products, it’s difficult to make any truly new claims about a fund manager so it all comes down to marketing and advertising messages and Mr Smith has those in abundance.
Mr Smith says that the fund management industry is congested with fund managers ranging from the mediocre to the bad who trade too often thereby eroding investor returns, and that many fund managers are bloated with high fee levels.
Therefore, the Fundsmith whiter-than-white approach will be to run a fund which will have a unique investment process, a long term view and lower costs.
The investment process is that the fund will select a relatively small number of global stocks, probably 20 to 30, and will hold them for long periods with lower levels of trading than other funds, and hence lower expenses being incurred in the fund. It all sounds quite sensible and you begin to wonder why other funds don’t do the same thing. Well, one reason could be that if as a fund manager you’re not buying and selling stocks it can look as if you’re not doing much work at all. In which case how do you justify your fat fees? Another reason is that you want investment ideas which often come from brokers, but brokers aren’t going to call you if you never trade with them. The flow of broker commissions from fund managers can be an important factor as to which fund managers the broker will call from his list.
Clearly some fund managers have done well by this approach of selecting global stocks for the long term. The obvious example is Warren Buffett who has held stakes in companies such as Coca Cola, American Express and Wells Fargo for many years, through his investment vehicle Berkshire Hathaway which was formed over 40 years ago. So, perhaps the Fundsmith investment process isn’t actually so new or unique.
Fundsmith’s claim to be taking the long term view should also be questioned. No long-only fund manager would claim to run their fund on a short term view, although the old joke that a long-term investment is a short-term investment gone wrong probably applies more often than many fund managers would care to admit. A long term view is possible if a fund or fund manager has a track record of performing over the long term but for a new fund it can be difficult to hold out if performance is poor in the short term because the widespread ability that investors have these days of comparing fund performance through online tools makes the pressure on underperforming funds all the greater.
Finally the advantage of lower costs is an interesting one. There is the benefit of lower trading expenses mentioned above. On top of that Fundsmith is charging 1% to 1.5% as an annual fee but that’s no lower than any other fund manager. Infact some fund managers investing in exchange traded funds charge as little as 0.6%. Fundsmith has no initial fee on investment into the fund but, whilst this always used to be a big drag on returns and was usually around 5%, for some time now it has been handed back to investors when they invest through an online funds website.
So, all in all it’s difficult to see any compelling reason for investing in Fundsmith funds as opposed to any other. At least with cleaning products, you can hold your white sheets up to the sun and see that the gravy and ketchup stains have been dissolved away but anyone investing in Fundsmith does not have anything tangible on which to make the buying decision. Many of course will be swayed by Mr Smith’s decision to put his money where his mouth is, but then some might say that he has plenty of both of those assets to play with. Even so, an investment of £25 million isn’t pin money even to Terry Smith.
As with washing powder, it may claim to be new and improved and it might well be, but frankly it’s quite difficult to tell the difference between two white sheets, and right now it’s even more difficult to tell the difference between Fundsmith and other fund managers. If you like the idea of investing to the Fundsmith tune then you could always use their selection criteria (on their website) to build your own portfolio of 20-30 companies or even better still wait for their investment reports to be published and then buy into those stocks directly
Ash Mehta is an independent Finance Director consultant working with a portfolio of growing companies, having recently sold Orchard Growth Partners where he was Founder and CEO. He is also part-time Finance Director of Northbridge Industrial Services plc, an AIM-quoted hire company, and he sits on the Executive Committee of the Quoted Companies Alliance, the representative body for smaller quoted companies. The views expressed are his own and do not necessarily represent the views of those organisations. You can read his blog at www.ashmehta.co.uk and comment on this article by emailing ash@ashmehta.co.uk .
Thursday 16 December 2010
Tuesday 16 November 2010
Keeping it in the family
Why investors always need to watch out for related party transactions
This first appeared in Aimzine, an online publication for the AIM community www.aimzine.co.uk
This month I had the pleasure of speaking at an event run by Cityzone which is a network for entrepreneurs, SMEs, investors and advisers. The event was part of their IPO Club which seeks to assist companies in considering their options and preparing for IPO. Introduced by the silky-tongued, boy-band sound-a-like, founder of Cityzone, Ronan Bryan, I gave a presentation which I’ve often given before at PLUS Markets seminars and also to entrepreneurs looking to raise Angel and VC funding; it’s a fairly versatile presentation because the issues it raises are common for companies seeking funding from whatever type of investor.
It seemed a good time to raise these issues because with the credit crunch firmly behind us companies are again looking at their options for growth funding and need to be aware of common gripes that potential investors raise. It is also a good time because one of the key issues the presentation raises is the matter of related-party transactions (RPTs) which have been in the news again (more on that later).
RPTs and shareholders
In private owner-managed companies it is not unusual for there to be RPTs. Of course, if there are no other shareholders it really doesn’t matter to anyone if the owner is running the business out of a property that he himself owns and is paying rent out of the company to himself. If there are other shareholders, then quite rightly they would expect to be told of such an arrangement to ensure that it is a normal commercial transaction at normal commercial rates and also to ensure that the owner cannot hold the company hostage at any time.
IFRS defines a related party as one which is related to the company preparing financial statements by way of joint control, management, ownership or significant influence.
When giving examples in my presentation I always presage the RPT section by saying that obviously these are old examples and of course no one would dream of having any such transactions in their company these days. It’s interesting at that point to see the looks on the faces of entrepreneurs. My co-presenters from the accounting firm BDO and the lawyers, Fasken Martineau, gave me wry smiles reiterating that infact such transactions are still commonplace in companies coming to IPO and even in many companies post-IPO. The point, of course, is that shareholders will put up with RPTs whilst things are good and the founder or CEO or director is critical to the business but soon become unforgiving about them when the business falters.
Clarity example
Such was the case a few years ago when Clarity Commerce Solutions, an AIM-quoted software company, was headed up by its founder Graham York. Amongst the various dubious activities going on in the company at the time was an expense of over £270,000 which had been incurred for the hire of an executive jet. Now we all know the hubris of CEOs having corporate jets, but this seems all the more bizarre for the fact that Clarity at that time only had revenues of around £20m. In this incident though, the facts were even more bizarre because the company which was providing the jet had as a director and principal shareholder none other than Graham York.
This was clearly an extreme and rather gratuitous example but this month a more subtle example of related party transactions was in the news again.
Recent example
A company called Eco City Vehicles plc (“ECV”) gave an update at the beginning of November about some litigation involving Cabvision, an associate company in which ECV holds a 29% stake. ECV is not a party to the Cabvision litigation but it came to the attention of the non executive directors that KPM, a wholly-owned subsidiary of ECV had been making payments, totalling over £500,000, as loans to Cabvision in order to, amongst other things, fund Cabvision’s litigation. Whilst these payments were recorded correctly in ECV’s books they were not disclosed separately in the management accounts circulated to the board, and clearly hadn’t been approved by the board or any assessment undertaken as to whether they are reasonable.
The commercial logic of those loans would be questionable under normal circumstances but in this case, the picture was muddied by the fact that Cabvision is majority owned by relations of three directors of ECV. Fortunately, any loss to ECV’s shareholders would be covered by indemnities given by the directors of ECV when they undertook the reverse takeover that gave rise to ECV. However, that should not reduce the significance of these events and infact the lesson is that the facts behind related party transactions should never be overlooked.
Following a period when corporate governance has generally been improving, we should not lose sight of the fact that companies both on AIM and coming to AIM may have related party transactions. Many of these will be in the normal course of business and of no concern but you should always turn to note 93 (or wherever they’re tucked away) in annual reports to see if there are any related party transactions, and if the description doesn’t tell you all you need to know then it’s worth calling the company to find out more. The chances are that there may well be more to the transaction than meets the eye.
This first appeared in Aimzine, an online publication for the AIM community www.aimzine.co.uk
This month I had the pleasure of speaking at an event run by Cityzone which is a network for entrepreneurs, SMEs, investors and advisers. The event was part of their IPO Club which seeks to assist companies in considering their options and preparing for IPO. Introduced by the silky-tongued, boy-band sound-a-like, founder of Cityzone, Ronan Bryan, I gave a presentation which I’ve often given before at PLUS Markets seminars and also to entrepreneurs looking to raise Angel and VC funding; it’s a fairly versatile presentation because the issues it raises are common for companies seeking funding from whatever type of investor.
It seemed a good time to raise these issues because with the credit crunch firmly behind us companies are again looking at their options for growth funding and need to be aware of common gripes that potential investors raise. It is also a good time because one of the key issues the presentation raises is the matter of related-party transactions (RPTs) which have been in the news again (more on that later).
RPTs and shareholders
In private owner-managed companies it is not unusual for there to be RPTs. Of course, if there are no other shareholders it really doesn’t matter to anyone if the owner is running the business out of a property that he himself owns and is paying rent out of the company to himself. If there are other shareholders, then quite rightly they would expect to be told of such an arrangement to ensure that it is a normal commercial transaction at normal commercial rates and also to ensure that the owner cannot hold the company hostage at any time.
IFRS defines a related party as one which is related to the company preparing financial statements by way of joint control, management, ownership or significant influence.
When giving examples in my presentation I always presage the RPT section by saying that obviously these are old examples and of course no one would dream of having any such transactions in their company these days. It’s interesting at that point to see the looks on the faces of entrepreneurs. My co-presenters from the accounting firm BDO and the lawyers, Fasken Martineau, gave me wry smiles reiterating that infact such transactions are still commonplace in companies coming to IPO and even in many companies post-IPO. The point, of course, is that shareholders will put up with RPTs whilst things are good and the founder or CEO or director is critical to the business but soon become unforgiving about them when the business falters.
Clarity example
Such was the case a few years ago when Clarity Commerce Solutions, an AIM-quoted software company, was headed up by its founder Graham York. Amongst the various dubious activities going on in the company at the time was an expense of over £270,000 which had been incurred for the hire of an executive jet. Now we all know the hubris of CEOs having corporate jets, but this seems all the more bizarre for the fact that Clarity at that time only had revenues of around £20m. In this incident though, the facts were even more bizarre because the company which was providing the jet had as a director and principal shareholder none other than Graham York.
This was clearly an extreme and rather gratuitous example but this month a more subtle example of related party transactions was in the news again.
Recent example
A company called Eco City Vehicles plc (“ECV”) gave an update at the beginning of November about some litigation involving Cabvision, an associate company in which ECV holds a 29% stake. ECV is not a party to the Cabvision litigation but it came to the attention of the non executive directors that KPM, a wholly-owned subsidiary of ECV had been making payments, totalling over £500,000, as loans to Cabvision in order to, amongst other things, fund Cabvision’s litigation. Whilst these payments were recorded correctly in ECV’s books they were not disclosed separately in the management accounts circulated to the board, and clearly hadn’t been approved by the board or any assessment undertaken as to whether they are reasonable.
The commercial logic of those loans would be questionable under normal circumstances but in this case, the picture was muddied by the fact that Cabvision is majority owned by relations of three directors of ECV. Fortunately, any loss to ECV’s shareholders would be covered by indemnities given by the directors of ECV when they undertook the reverse takeover that gave rise to ECV. However, that should not reduce the significance of these events and infact the lesson is that the facts behind related party transactions should never be overlooked.
Following a period when corporate governance has generally been improving, we should not lose sight of the fact that companies both on AIM and coming to AIM may have related party transactions. Many of these will be in the normal course of business and of no concern but you should always turn to note 93 (or wherever they’re tucked away) in annual reports to see if there are any related party transactions, and if the description doesn’t tell you all you need to know then it’s worth calling the company to find out more. The chances are that there may well be more to the transaction than meets the eye.
Thursday 11 November 2010
Quote of the year - strong contender
Can a fund manager really be this ridiculous?
Well, the year is nearly over and there have been some good quotes bandied around this year but a latecomer has appeared courtesy of an anonymous fund manager.
Now, we know that fund managers are always being ridiculed by the press. Commentators accuse them of having a herd mentality by following each other into certain shares for fear of being left out of the “next big thing”. Others accuse them of actually destroying the value of investors by their poor selection of shares and making things worse by creaming off a few percent of the funds every year for themselves, whether the fund has a good year or bad year.
Perhaps, we should lay off the attacks because on the basis of this contender for quote of the year, some of them appear to be able to ridicule themselves without our support.
During the last 12 months there have been very few companies coming to IPO and the main reason for this has been that fund managers have been nervous about valuations of companies coming to market and haven’t wanted to invest their surplus cash. So, no fund manager support, no IPO for the company. “Simples” as a meerkat would say. Well, not if you’re this particular fund manager, who said;
“There are serious questions to be asked, [such as] why a company which was so reliant on just two people was allowed to list in the first place.”
The answer to this “serious question” is because fund managers (like the contributor of this quote who is a large shareholder) supported it, despite the fact that the risk factors section in the IPO document specifically mentioned the reliance on two employees.
The irony of all this, as the price has fallen from 220p at IPO last December to 115p today, is that the company he is referring to is Gartmore, a well known errr…. fund manager. Ouch!
Monday 1 November 2010
Play the game - profits aren't everything
Why you need a balanced management team which doesn’t agree about everything
It may come as a surprise to you that a Finance Director should be saying that profits aren’t everything.
It may make more sense if I tell you that I am a supporter of Arsenal Football Club. So for shareholders the recent announcement by Arsenal of a profit of £56m in the last year is good news. For fans however whilst it’s nice to know that we can crow at the financial imprudence of other teams and their owners, at the end of the day this profit isn’t the ultimate measure of a football club.
In a corporate world where other metrics are increasingly the norm whether they relate to corporate and social responsibility, or health and safety, or corporate governance, our ultimate measure has to be winning leagues and cups and on that measure Arsenal have fallen short for the last five seasons. Although we have a manager who has brought trophies home during his 14 year tenure, many fans are beginning to question his current approach.
What’s this got to do with a balanced management team?
Well, the problem seems to be that the manager, Arsene Wenger, is behaving like a CEO when infact he is not the CEO. As manager of the team, his responsibilities are wider than just the team but what fans want is for him to fight his corner to build the best team to win trophies. Instead, what we have is someone who prefers to talk about the club paying down debt on its stadium move a few years ago and his prudence in not overpaying for players. Despite having an MSc in Economics what he should be doing is having heated debates with the CEO about why he needs to pay, say, £10m for a new goalkeeper.
In any organisation, all members of the management team, should share in the overall goals of the business but they should also fight their corner for their areas; businesses need that competitive tension. With Arsenal, it is almost as if you have an Operations Director who won’t ask for more delivery capability to improve results which will ultimately lead to increased or better sustained profits. The danger becomes that the short term profitability generated today means that, after many years trophy-less, future profits (in the form of ticket sales and sponsorships etc.) are jeopardised.
Although Mr Wenger makes a big deal of all the good young talent he has nurtured, if the clubs continues to fail in winning anything then that talent could well move on to other clubs. That will probably be a profitable sideline but the core business is surely that the team that wins trophies; not acting as an academy for other clubs. That is surely not in the long term interests of fans or shareholders.
And as a Finance Director, I like short term profit but I prefer long-term sustainable profits.
Thursday 28 October 2010
Find out my rubbish hobby - as heard on Absolute Radio
Find out what rubbish childhood "hobby" I had (16:26 in podcast) as heard on the Frank Skinner show on Absolute Radio.
Podcast - Recorded 23 October 2010... absoluteradio.co.uk
http://www.absoluteradio.co.uk/podcasts/Frank-Skinner-on-Absolute-Radio/2010-10-23
Frank, Emily and Gareth chat about the top comedy earners, collecting weird things and halloween fancy dress.
Podcast - Recorded 23 October 2010... absoluteradio.co.uk
http://www.absoluteradio.co.uk/podcasts/Frank-Skinner-on-Absolute-Radio/2010-10-23
Frank, Emily and Gareth chat about the top comedy earners, collecting weird things and halloween fancy dress.
Wednesday 20 October 2010
Presenting at Cass Business School...
...and why an IPO is a bit like getting married.
Off to Cass Business School yesterday to present at the Cityzone IPO Club sponsored by law firm Fasken Martineau and accountancy firm BDO.
The presentation I gave was one I use frequently as it talks about what companies need to do from a finance perspective to prepare not just for IPO but for any fundraising, and what they need to do to make a success of their IPO.
This includes not having related party transactions. Crudely put this means not siphoning money out of the company. Many entrepreneurs run their businesses from property they own in their own right rather than it being owned by the business. That’s all very well if you don’t have external investors but if you do they will want to see that it’s at a market rent and not a ruse by which the entrepreneur can take shareholders cash out of the business. The property example is a common and simple one but there are many other more exotic arrangements (like company jets) which I’ll describe another time. Other areas companies usually have to clean up their act is in ownership of key assets. Again, many entrepreneurs will try to keep the key assets, eg patents, trademarks etc. out of the company so as not to jeopardise them but also because they feel the assets are personal to them. And finally, these days we have to have a few slides on corporate governance, and the importance of good control, reporting, non executive directors etc..
I went to a rather average university and never got round to going to business school. I would have liked to but could never fit it amongst work and life, in so I’m always a little overawed by any good academic institution like Cass Business school. A friend of mine recently became a professor and whilst I’m not one for titles, if I had a title other than Mr then it would have to be Prof. It sounds so like you didn’t really want it; that it was foist upon you for your greatness, unlike say Sir or Lord which most people who receive it were probably very desperate for it. Alas, to get the Prof title you need to need to follow the academic route, which frankly was never my cup of tea, or should I say as in academia, my glass of port.
The Cityzone IPO Club is run by the silky-tongued, boy-band sound-a-like, founder of Cityzone, Ronan Bryan, who manages the room deftly and with quiet confidence and the usual Celtic charm. He makes a group of professional advisers and entrepreneurs feel like it’s just a get together of friends, and the interaction amongst the group is quite stimulating.
I go on to talk about how to get the most out of going through the costly, and time-consuming process of an IPO. Many companies see it as an end point, in the same way as some men see marriage as an end point, but looking optimistically it’s actually the start of something potentially beautiful, and like marriage it doesn’t just create happiness by itself. Being a quoted company, like being in a successful marriage, requires hard work, and getting through the tough times. A lesson that many entreprenuers often forget.
Off to Cass Business School yesterday to present at the Cityzone IPO Club sponsored by law firm Fasken Martineau and accountancy firm BDO.
The presentation I gave was one I use frequently as it talks about what companies need to do from a finance perspective to prepare not just for IPO but for any fundraising, and what they need to do to make a success of their IPO.
This includes not having related party transactions. Crudely put this means not siphoning money out of the company. Many entrepreneurs run their businesses from property they own in their own right rather than it being owned by the business. That’s all very well if you don’t have external investors but if you do they will want to see that it’s at a market rent and not a ruse by which the entrepreneur can take shareholders cash out of the business. The property example is a common and simple one but there are many other more exotic arrangements (like company jets) which I’ll describe another time. Other areas companies usually have to clean up their act is in ownership of key assets. Again, many entrepreneurs will try to keep the key assets, eg patents, trademarks etc. out of the company so as not to jeopardise them but also because they feel the assets are personal to them. And finally, these days we have to have a few slides on corporate governance, and the importance of good control, reporting, non executive directors etc..
I went to a rather average university and never got round to going to business school. I would have liked to but could never fit it amongst work and life, in so I’m always a little overawed by any good academic institution like Cass Business school. A friend of mine recently became a professor and whilst I’m not one for titles, if I had a title other than Mr then it would have to be Prof. It sounds so like you didn’t really want it; that it was foist upon you for your greatness, unlike say Sir or Lord which most people who receive it were probably very desperate for it. Alas, to get the Prof title you need to need to follow the academic route, which frankly was never my cup of tea, or should I say as in academia, my glass of port.
The Cityzone IPO Club is run by the silky-tongued, boy-band sound-a-like, founder of Cityzone, Ronan Bryan, who manages the room deftly and with quiet confidence and the usual Celtic charm. He makes a group of professional advisers and entrepreneurs feel like it’s just a get together of friends, and the interaction amongst the group is quite stimulating.
I go on to talk about how to get the most out of going through the costly, and time-consuming process of an IPO. Many companies see it as an end point, in the same way as some men see marriage as an end point, but looking optimistically it’s actually the start of something potentially beautiful, and like marriage it doesn’t just create happiness by itself. Being a quoted company, like being in a successful marriage, requires hard work, and getting through the tough times. A lesson that many entreprenuers often forget.
Monday 4 October 2010
OMG - Serious gadget lust - The new Blackberry Torch
Yes, it arrived on Saturday morning. Rather unceremoniously in a green and yellow plastic bag handed over by a brusque postal worker to whom it was just another package (and actually I don’t blame him; difficult to show much passion in his trade).
But underneath that synthetic cocoon of bar codes and caution labels lay the object of my gadget lust. A lust built up over many months since the people at RIM first discussed the possibility of the best of Blackberry, with a touch screen but also a proper keypad, and, gasp, a brand new operating system.
I tore the plastic, and feverishly lifted the lid off the strengthened box. And there it was. Lying peacefully in the box like Frankenstein on his bed, waiting to come to life to, Frankenstein-like, slowly take over my life. I had tried to manage my lust for this monster of a product. I flirted with the iPhone but couldn’t commit to actually buying one. When I ordered my new Blackberry Torch I had wondered whether I’d made the right decision and whether I might become a leper in a sea of my Apple-laden gadget-freak friends.
But now here it was. I lifted it, stroked its unblemished screen, flipped down the keypad and I just knew I’d made the right decision.
So, that’s enough gadget-porn. What’s it actually like?
I previously had a Blackberry Storm, the touch screen BB with the slightly annoying clicky action. The Torch is much more like an Apple with similar touch screen features but also introduces some new features such as when you hold your finger over a contact a number of action options appear so you can call, text, edit the contact. On the front screen you also have an activity button which will pull up your recent emails, appointments and missed calls. Also, all activity for a contact is registered against that contact meaning you can find a trail of interaction with that contact. The browser which on the Torch was painfully slow is incredibly fast especially when used over a Wifi and the phone intelligently uses Wifi wherever possible reducing your data usage over the phone network.
The big advantage Apple claims for its iPhone is the apps directory and whilst the Blackberry has an apps store it is woeful in comparison. However, that’s not why most users will have chosen a Blackberry. The BB will allow you to post to Twitter and other social networks and play inane games and get various information but if you feel a need for a Carling app which can mimic you pouring some beer down your gullet then this isn’t for you.
If however you want push email then the smoothness and ease of the email functionality of the BB is hard to beat and this new operating systems multitasks effortlessly between email and browser and media. Best of all, the set up took just 30 minutes by which time all of my contacts and media had been transferred from my Storm to the Torch, and infact most of that 30 minutes was downloading and installing the new version of BB Desktop which is required by the Torch.
All in all the Blackberry Torch is an excellent phone and one which I think will make the 24 months to my next phone fly by. The problem with lust though, and especially gadget lust, is that you never know when it’s going to pop up again, and frankly I will find it hard to be faithful to a lump of metal and plastic, however beautiful and effective it might seem now, if a newer sexier model appears.
But underneath that synthetic cocoon of bar codes and caution labels lay the object of my gadget lust. A lust built up over many months since the people at RIM first discussed the possibility of the best of Blackberry, with a touch screen but also a proper keypad, and, gasp, a brand new operating system.
I tore the plastic, and feverishly lifted the lid off the strengthened box. And there it was. Lying peacefully in the box like Frankenstein on his bed, waiting to come to life to, Frankenstein-like, slowly take over my life. I had tried to manage my lust for this monster of a product. I flirted with the iPhone but couldn’t commit to actually buying one. When I ordered my new Blackberry Torch I had wondered whether I’d made the right decision and whether I might become a leper in a sea of my Apple-laden gadget-freak friends.
But now here it was. I lifted it, stroked its unblemished screen, flipped down the keypad and I just knew I’d made the right decision.
So, that’s enough gadget-porn. What’s it actually like?
I previously had a Blackberry Storm, the touch screen BB with the slightly annoying clicky action. The Torch is much more like an Apple with similar touch screen features but also introduces some new features such as when you hold your finger over a contact a number of action options appear so you can call, text, edit the contact. On the front screen you also have an activity button which will pull up your recent emails, appointments and missed calls. Also, all activity for a contact is registered against that contact meaning you can find a trail of interaction with that contact. The browser which on the Torch was painfully slow is incredibly fast especially when used over a Wifi and the phone intelligently uses Wifi wherever possible reducing your data usage over the phone network.
The big advantage Apple claims for its iPhone is the apps directory and whilst the Blackberry has an apps store it is woeful in comparison. However, that’s not why most users will have chosen a Blackberry. The BB will allow you to post to Twitter and other social networks and play inane games and get various information but if you feel a need for a Carling app which can mimic you pouring some beer down your gullet then this isn’t for you.
If however you want push email then the smoothness and ease of the email functionality of the BB is hard to beat and this new operating systems multitasks effortlessly between email and browser and media. Best of all, the set up took just 30 minutes by which time all of my contacts and media had been transferred from my Storm to the Torch, and infact most of that 30 minutes was downloading and installing the new version of BB Desktop which is required by the Torch.
All in all the Blackberry Torch is an excellent phone and one which I think will make the 24 months to my next phone fly by. The problem with lust though, and especially gadget lust, is that you never know when it’s going to pop up again, and frankly I will find it hard to be faithful to a lump of metal and plastic, however beautiful and effective it might seem now, if a newer sexier model appears.
Monday 27 September 2010
The extra mile suppliers try to avoid
On behalf of one of my clients, I’ve been in commercial negotiations recently with a software vendor. We’ve been through a rigorous selection process to choose the software. We’ve prodded them, we’ve kicked the tyres on the software and we’ve almost got the T-shirt. All was going well and everyone was happy. Doesn’t sound like buying a software program does it?
Then I reiterated to the salesman, once again, that this project was critical to the client and we could not tolerate any slippage in the timelines as that would have severe repercussions to the client’s business. The salesman looked at me, eyeball to eyeball, very sincerely as salesman do, and said....
….“Don’t worry. We’ll go the extra mile to make sure there’s no slippage.”
I don’t know about you but when someone tells me not to worry, I worry. His response was about as comforting as Corporal Jones in Dads Army shouting “Don’t panic”.
And anyway what did he mean? What was this extra mile? Why was it an extra mile? Was it a mile that he wouldn’t have travelled if I hadn’t specifically pushed him to commit to travelling it? Needless to say, things went downhill rapidly from there.
Reflecting on it later, I realised that he was only doing what many businesses increasingly do which is the bare minimum to satisfy the customer. It seems that whilst corporate hyperbole is in overdrive and companies keep telling us how passionate they are about serving customers, this has been an inverse relationship with actually satisfying the customer. Fortunately the British public is getting better at complaining and demanding its rights from suppliers. But actually all we want as customers is that companies do what they say they will do efficiently, honestly and in a timely manner. If they did that they could save millions of pounds of branding, marketing and advertising spend telling us about their passion for software or hair care or pet food.
But I can’t see that happening any time soon so for the time being I will continue to ask suppliers to go the extra mile and to be on the safe side I will also worry. But, suppliers out there, please don’t tell me not to worry. To paraphrase Basil Fawlty, I don’t pay you to tell me not to worry.
Then I reiterated to the salesman, once again, that this project was critical to the client and we could not tolerate any slippage in the timelines as that would have severe repercussions to the client’s business. The salesman looked at me, eyeball to eyeball, very sincerely as salesman do, and said....
….“Don’t worry. We’ll go the extra mile to make sure there’s no slippage.”
I don’t know about you but when someone tells me not to worry, I worry. His response was about as comforting as Corporal Jones in Dads Army shouting “Don’t panic”.
And anyway what did he mean? What was this extra mile? Why was it an extra mile? Was it a mile that he wouldn’t have travelled if I hadn’t specifically pushed him to commit to travelling it? Needless to say, things went downhill rapidly from there.
Reflecting on it later, I realised that he was only doing what many businesses increasingly do which is the bare minimum to satisfy the customer. It seems that whilst corporate hyperbole is in overdrive and companies keep telling us how passionate they are about serving customers, this has been an inverse relationship with actually satisfying the customer. Fortunately the British public is getting better at complaining and demanding its rights from suppliers. But actually all we want as customers is that companies do what they say they will do efficiently, honestly and in a timely manner. If they did that they could save millions of pounds of branding, marketing and advertising spend telling us about their passion for software or hair care or pet food.
But I can’t see that happening any time soon so for the time being I will continue to ask suppliers to go the extra mile and to be on the safe side I will also worry. But, suppliers out there, please don’t tell me not to worry. To paraphrase Basil Fawlty, I don’t pay you to tell me not to worry.
Monday 20 September 2010
Is Economics the new "Opium for the masses"?
The Pope was not just in town last week but just down the road from us at St Marys University College in Twickenham. The turnout according to the local press was good and mirrored the crowds seen in other parts of the country but I wonder if the press speculation about low turnouts was just good media management by the Church; setting low expectations which can then be surpassed. OK admittedly they haven’t exactly been successful in their management of the child abuse issues but managing a Papal visit must be more in their comfort zones mustn’t it?
Despite the efforts of Time Out promoting a Gay/Lesbian gathering at St Marys to protest against his views on education, faith and discrimination the event passed off without incident. Well, Twickenham isn’t exactly known for its public disorder. If a town can regularly accommodate 80,000 rugby fans without any serious disorder then an elderly man in a converted ice cream van being heckled by some Kylie Minogue fans isn’t much of a danger.
Meanwhile, I set off to Kingston to hear the views of the Chief Economist of Lloyds Banking Group, Trevor Williams. I’m not sure why I got up so early but for some reason I was just drawn in by the prospect; so it seems were the 100+ small business owners who were there at 7.30am for proceedings to commence.
This strikes me as odd because over the last two years most economists haven’t exactly impressed with their failure to warn about the credit crunch and infact you’d think as a profession they’d be only marginally less reviled by the public than those priests playing down the horrors of child abuse.
And yet the failures economists failed to predict are the reason that in many cases we want to hear their views even more. It’s almost as if we are so traumatised by events that we are clinging on in hope of any solution. I have to admit I don’t always understand what economists are on about but at the end of any economics seminar I always feel better, more wholesome even and almost cleansed. I know it’s probably good for me even if in the absence of comprehension on my part I have to rely on there having being passive osmosis of the information into my grey matter.
Economics is now headline news and will be for sometime to come; indeed many hitherto low key journalists like the irrepressible Robert Peston have made their names from the credit crunch. (As an aside, a contact of mine who worked with Peston in his early days as a cub reporter told me that “he was always a bit of a one”).
It was Karl Marx who said that religion was the “Opium for the masses” but judging by the public interest in GDP growth, interest rates and double dips I wonder if that mantle now falls to the subject of economics. What else can explain its fascination amongst the general public and look at how effective it has been in subduing an socialist uprising? Everyone just accepts that thing are bad and that we have to endure the pain.
Like religion, economics towers over most of us whilst many of us can take it or leave it but are nevertheless fascinated by it and hope that when we need it the men (almost invariably) who practice it will deliver the goods. But alas, whether you are a believer, atheist or agnostic on the religion front you have to accept that with economics it’s up to humankind to find the answers. Not even the ancient civilisations of Rome or Greece felt the need for a God of Economics.
Despite the efforts of Time Out promoting a Gay/Lesbian gathering at St Marys to protest against his views on education, faith and discrimination the event passed off without incident. Well, Twickenham isn’t exactly known for its public disorder. If a town can regularly accommodate 80,000 rugby fans without any serious disorder then an elderly man in a converted ice cream van being heckled by some Kylie Minogue fans isn’t much of a danger.
Meanwhile, I set off to Kingston to hear the views of the Chief Economist of Lloyds Banking Group, Trevor Williams. I’m not sure why I got up so early but for some reason I was just drawn in by the prospect; so it seems were the 100+ small business owners who were there at 7.30am for proceedings to commence.
This strikes me as odd because over the last two years most economists haven’t exactly impressed with their failure to warn about the credit crunch and infact you’d think as a profession they’d be only marginally less reviled by the public than those priests playing down the horrors of child abuse.
And yet the failures economists failed to predict are the reason that in many cases we want to hear their views even more. It’s almost as if we are so traumatised by events that we are clinging on in hope of any solution. I have to admit I don’t always understand what economists are on about but at the end of any economics seminar I always feel better, more wholesome even and almost cleansed. I know it’s probably good for me even if in the absence of comprehension on my part I have to rely on there having being passive osmosis of the information into my grey matter.
Economics is now headline news and will be for sometime to come; indeed many hitherto low key journalists like the irrepressible Robert Peston have made their names from the credit crunch. (As an aside, a contact of mine who worked with Peston in his early days as a cub reporter told me that “he was always a bit of a one”).
It was Karl Marx who said that religion was the “Opium for the masses” but judging by the public interest in GDP growth, interest rates and double dips I wonder if that mantle now falls to the subject of economics. What else can explain its fascination amongst the general public and look at how effective it has been in subduing an socialist uprising? Everyone just accepts that thing are bad and that we have to endure the pain.
Like religion, economics towers over most of us whilst many of us can take it or leave it but are nevertheless fascinated by it and hope that when we need it the men (almost invariably) who practice it will deliver the goods. But alas, whether you are a believer, atheist or agnostic on the religion front you have to accept that with economics it’s up to humankind to find the answers. Not even the ancient civilisations of Rome or Greece felt the need for a God of Economics.
Tuesday 7 September 2010
It's our party and we'll cry if we want to
Are we destined to be the organisers whilst others are the winners and is it a crying matter?
This article was first published in Aimzine www.aimzine.co.uk
After the intense effort for the fundraising and acquisition at Northbridge during June and July, it was nice to relax a little in August. We took off to Turkey to enjoy a resort with numerous swimming pools, tennis courts, and a bit of peace and quiet. Frisky, chirping crickets aside it was fairly peaceful. The rowdy England-shirted football supporters with scary tattoos we have encountered occasionally in resorts past were nowhere to be seen, partly because I suspect they thought that an England shirt was no appropriate attire for a football-lover, and partly because the majority of the people in the resort were German and Russian; none of which you particularly want to get into a football skirmish with.
To the delight of my children, I was dragged up on stage during the entertainment; the main purpose of which, that evening, seemed to be to humiliate the very people who had paid a not-inconsiderable amount of hard-earned cash to be there. In my case the humiliation involved the presenter asking guests to speak English and I was asked to say certain words such as water. How humiliating could that be I hear you say? Well the point was that when I pronounced the word as “war-ter” the presenter and his accomplices fell about laughing saying that I could not possibly be English because if I were I would pronounce it as “war-er”. I shall spare you the gory details of the non-stop hilarity and mirth that ensued for the rest of the show. Suffice to say that it’s a sorry state of affairs when “foreigners” (and I don’t mean “foreigners” in a Daily Express sort of way of course) not only speak better English than British people, but also feel that they can rebuke us for it.
It got me thinking that perhaps here was the ultimate example of something invented here (well not invented exactly but developed) that was now done better by others overseas. Is it the case that we can add the speaking of the English language to a myriad of other activities invented (or at least codified) here that are now done better by foreigners?
Quarter final specialists
It’s generally accepted, even by the French, that Wimbledon is the best tennis tournament in the world, and it’s not difficult to argue that the Premier League is the best football league. It even looks as if Lord Coe and Boris Johnson will contrive to make the 2012 Olympics a success.
So why can’t a Brit win Wimbledon? Why is the England football team destined to peak around the quarter finals of the World Cup? Infact why are we destined to be in the quarter-final (ie. the top eight) of almost everything, but never the winners? I don’t mean just sport. Let’s take for example GDP (6th), exports (9th), ease of doing business (5th), income per capita (8th) and so on.
The only activities we seem to go beyond the quarter finals in regularly are those where there are so few competitors that you reach the quarter finals simply by the fact of playing, such as cricket. Apologies to all Italians out there – I know that you have a cricket team but playing in Division 4 of the World Cricket League really doesn’t count in practical terms.
Anyone over 45 years old will remember a song by Barbara Gaskin (and if you’re over 55 then you may remember the original version by Leslie Gore) in which she sang “It’s my party and I’ll cry if I want to” and that seems to be quite an apt phrase for the country, because she also went on to bemoan that she had lost her Johnny. The question is that whilst we are good at organising the party, have we as a nation lost our winning Johnny and if so is it a crying matter?
That got me thinking about AIM and whether it also reflects this tendency. Has the LSE created an excellent platform only for overseas companies to be the winners on, and should we cry about it?
Not getting our share of the pie
Looking at the data it was interesting to see that although overseas companies account for only 38% of the number of companies, they represent 59% by value of the total market capitalisation of AIM. That’s not entirely unexpected as investors supporting IPOs often want to see overseas companies which are larger than a typical British company coming to market, to mitigate for the perceived additional risk in an overseas company. However, the 59% figure did surprise me because what started out as a junior market to provide a route for growing British companies has become a powerful marketing story that the LSE has used to increase its visibility in overseas markets. Over the years the LSE has run roadshows in many countries including India, China, Germany, United States, Sweden and Norway. This marketing has been a success if you judge it by the overseas companies quoted on AIM and is undoubtedly good not just for the LSE but also for London’s reputation as a financial centre.
As well as promoting AIM to overseas companies the LSE has also made advances in extending the AIM brand overseas. Following its 2007 acquisition of Borsa Italiana the LSE launched AIM Italia which now provides a quote to ten companies. Also, in May 2009 Tokyo AIM, a joint venture between the LSE and Tokyo Stock Exchange obtained its license, though whilst a number of so called J-Nomads have been approved the market still awaits its first AIM-quoted companies.
Does it matter that AIM London is increasingly becoming an overseas company market or should we be pleased that this is another British market leader in the making? Well if it brings business to the UK then it can’t be a bad thing as long as investors are happy to provide the funds for such companies to obtain their quote. On the other hand, we have seen over the last two years that the strategic options for growth companies in the UK have been limited, partly by reduced bank lending, partly by the growth of the equity gap ie. the disappearance of funds for second round growth capital, and now by the planned downsizing of regional development agencies. Are the options for smaller British companies limited further by AIM effectively outgrowing those companies and moving away from what it was originally intended to do? If so is there another way to assist growing British companies?
Regional Stock Exchanges
A discussion that has gathered momentum over the last twelve months is the re-establishment of regional stock exchanges. This movement has grown from the regions but has also garnered support from some politicians and in July the Business Secretary Vince Cable launched a consultation paper for views on whether regional stock exchanges could be made to work successfully.
Supporters of this idea claim that such stock exchanges will allow investors to reconnect with local companies, as well as giving entrepreneurs the ability to raise funding from investors with which they have some connection rather than investors a long distance away. However, even ardent supporters accept that the regional exchanges would not be bricks and mortar entities, but virtual in nature.
But these supporters overlook investor trends over the last 10 years. The use of the internet has made share dealing a frequent activity for many investors. Moreover the increased number of overseas companies on AIM and also the globalisation of many apparently British companies means that investors seem to have no fear about investing in companies in which they have little chance of seeing the operations and may only see the management once a year at the AGM. With AIM already suffering from limited liquidity, fragmenting that liquidity by having regional exchanges can’t be in anyone’s interest.
Supporters also overlook a recent example of a regional stock exchange which was funded by public money through Advantage West Midlands. Investbx launched in Birmingham in 2007 with the aim of creating a market for companies in the region. Three years later it has just three companies on its market. This might be down to the credit crunch and economic downturn but I expect that part of it is that investors just don’t see a need for it. It also perhaps illustrates that allowing the private sector to make decisions on innovations such as new stock exchanges might lead to better decision making than leaving it to public funds to drive such decision making.
So, yes let’s recognise that in the UK we might have lost our winning Johnny but we have little to cry about as we are actually quite good at creating and organising things. However, as for regional stock exchanges let’s not get carried away and expect that we can make a success out of ideas that are fundamentally flawed because they address no specific need.
(c) Ash Mehta 2010
This article was first published in Aimzine www.aimzine.co.uk
After the intense effort for the fundraising and acquisition at Northbridge during June and July, it was nice to relax a little in August. We took off to Turkey to enjoy a resort with numerous swimming pools, tennis courts, and a bit of peace and quiet. Frisky, chirping crickets aside it was fairly peaceful. The rowdy England-shirted football supporters with scary tattoos we have encountered occasionally in resorts past were nowhere to be seen, partly because I suspect they thought that an England shirt was no appropriate attire for a football-lover, and partly because the majority of the people in the resort were German and Russian; none of which you particularly want to get into a football skirmish with.
To the delight of my children, I was dragged up on stage during the entertainment; the main purpose of which, that evening, seemed to be to humiliate the very people who had paid a not-inconsiderable amount of hard-earned cash to be there. In my case the humiliation involved the presenter asking guests to speak English and I was asked to say certain words such as water. How humiliating could that be I hear you say? Well the point was that when I pronounced the word as “war-ter” the presenter and his accomplices fell about laughing saying that I could not possibly be English because if I were I would pronounce it as “war-er”. I shall spare you the gory details of the non-stop hilarity and mirth that ensued for the rest of the show. Suffice to say that it’s a sorry state of affairs when “foreigners” (and I don’t mean “foreigners” in a Daily Express sort of way of course) not only speak better English than British people, but also feel that they can rebuke us for it.
It got me thinking that perhaps here was the ultimate example of something invented here (well not invented exactly but developed) that was now done better by others overseas. Is it the case that we can add the speaking of the English language to a myriad of other activities invented (or at least codified) here that are now done better by foreigners?
Quarter final specialists
It’s generally accepted, even by the French, that Wimbledon is the best tennis tournament in the world, and it’s not difficult to argue that the Premier League is the best football league. It even looks as if Lord Coe and Boris Johnson will contrive to make the 2012 Olympics a success.
So why can’t a Brit win Wimbledon? Why is the England football team destined to peak around the quarter finals of the World Cup? Infact why are we destined to be in the quarter-final (ie. the top eight) of almost everything, but never the winners? I don’t mean just sport. Let’s take for example GDP (6th), exports (9th), ease of doing business (5th), income per capita (8th) and so on.
The only activities we seem to go beyond the quarter finals in regularly are those where there are so few competitors that you reach the quarter finals simply by the fact of playing, such as cricket. Apologies to all Italians out there – I know that you have a cricket team but playing in Division 4 of the World Cricket League really doesn’t count in practical terms.
Anyone over 45 years old will remember a song by Barbara Gaskin (and if you’re over 55 then you may remember the original version by Leslie Gore) in which she sang “It’s my party and I’ll cry if I want to” and that seems to be quite an apt phrase for the country, because she also went on to bemoan that she had lost her Johnny. The question is that whilst we are good at organising the party, have we as a nation lost our winning Johnny and if so is it a crying matter?
That got me thinking about AIM and whether it also reflects this tendency. Has the LSE created an excellent platform only for overseas companies to be the winners on, and should we cry about it?
Not getting our share of the pie
Looking at the data it was interesting to see that although overseas companies account for only 38% of the number of companies, they represent 59% by value of the total market capitalisation of AIM. That’s not entirely unexpected as investors supporting IPOs often want to see overseas companies which are larger than a typical British company coming to market, to mitigate for the perceived additional risk in an overseas company. However, the 59% figure did surprise me because what started out as a junior market to provide a route for growing British companies has become a powerful marketing story that the LSE has used to increase its visibility in overseas markets. Over the years the LSE has run roadshows in many countries including India, China, Germany, United States, Sweden and Norway. This marketing has been a success if you judge it by the overseas companies quoted on AIM and is undoubtedly good not just for the LSE but also for London’s reputation as a financial centre.
As well as promoting AIM to overseas companies the LSE has also made advances in extending the AIM brand overseas. Following its 2007 acquisition of Borsa Italiana the LSE launched AIM Italia which now provides a quote to ten companies. Also, in May 2009 Tokyo AIM, a joint venture between the LSE and Tokyo Stock Exchange obtained its license, though whilst a number of so called J-Nomads have been approved the market still awaits its first AIM-quoted companies.
Does it matter that AIM London is increasingly becoming an overseas company market or should we be pleased that this is another British market leader in the making? Well if it brings business to the UK then it can’t be a bad thing as long as investors are happy to provide the funds for such companies to obtain their quote. On the other hand, we have seen over the last two years that the strategic options for growth companies in the UK have been limited, partly by reduced bank lending, partly by the growth of the equity gap ie. the disappearance of funds for second round growth capital, and now by the planned downsizing of regional development agencies. Are the options for smaller British companies limited further by AIM effectively outgrowing those companies and moving away from what it was originally intended to do? If so is there another way to assist growing British companies?
Regional Stock Exchanges
A discussion that has gathered momentum over the last twelve months is the re-establishment of regional stock exchanges. This movement has grown from the regions but has also garnered support from some politicians and in July the Business Secretary Vince Cable launched a consultation paper for views on whether regional stock exchanges could be made to work successfully.
Supporters of this idea claim that such stock exchanges will allow investors to reconnect with local companies, as well as giving entrepreneurs the ability to raise funding from investors with which they have some connection rather than investors a long distance away. However, even ardent supporters accept that the regional exchanges would not be bricks and mortar entities, but virtual in nature.
But these supporters overlook investor trends over the last 10 years. The use of the internet has made share dealing a frequent activity for many investors. Moreover the increased number of overseas companies on AIM and also the globalisation of many apparently British companies means that investors seem to have no fear about investing in companies in which they have little chance of seeing the operations and may only see the management once a year at the AGM. With AIM already suffering from limited liquidity, fragmenting that liquidity by having regional exchanges can’t be in anyone’s interest.
Supporters also overlook a recent example of a regional stock exchange which was funded by public money through Advantage West Midlands. Investbx launched in Birmingham in 2007 with the aim of creating a market for companies in the region. Three years later it has just three companies on its market. This might be down to the credit crunch and economic downturn but I expect that part of it is that investors just don’t see a need for it. It also perhaps illustrates that allowing the private sector to make decisions on innovations such as new stock exchanges might lead to better decision making than leaving it to public funds to drive such decision making.
So, yes let’s recognise that in the UK we might have lost our winning Johnny but we have little to cry about as we are actually quite good at creating and organising things. However, as for regional stock exchanges let’s not get carried away and expect that we can make a success out of ideas that are fundamentally flawed because they address no specific need.
(c) Ash Mehta 2010
Saturday 21 August 2010
I'm Mandy Fly Me
In which I finally realise why I can't be rude to cabin crew.
Like many people when I pay good money I expect good service. Unlike many people though when I don’t get it I do make a fuss.
When my wife and I were newly married, I shocked my mother-in-law by making a fuss in a restaurant over our drinks not being up to scratch. My M-i-L remarked that she had never seen me like that as I was usually so laid back. It was in a Turkish restaurant and perhaps I had been agitated by the over exposure of not particularly appealing abdomen during the belly dancing act or perhaps by the service being exposed as inadequate. So if a restaurant, the whole purpose of which is to provide its customers with an enjoyable experience, can't provide good service then what hope is there for other businesses?
When I go to a DIY store I'm not expecting, nor do I in the least bit care for, a particularly good service. I just want some picture hooks, for example, which will allow me to hang up a picture in the house thereby earning me the right to watch the afternoon football without interruption from my wife.
As for the camaraderie I might share with the shop assistant as he and I venture down the aisles on a joint mission to find the exact specification of picture hook, or the bon homie of the checkout assistant as I'm charged far too much for a tiny piece of metal, frankly I can usually do without it, (more on that topic in future blogs when I explain why I'm not against self-service checkouts.) What I want is the right item, fairly priced and quickly sold. When I'm being served food though my expectations are very different. Except that is when I eat on an airplane. But why would that be?
I thought it might be because I have some sympathy for cabin crew who must have to deal with some rather odious passengers expecting Michelin service on a Tupperware budget. Then I thought perhaps it’s because for many cabin crew the rewards don’t actually come from the work involved in the job, nor particularly from the pay from the job but from the perks associated with the job. It must be difficult to be motivated day-to-day when the rewards for a job are two or three steps detached from the daily grind, but to be honest I never really thought about that either.
Then I recently heard again (on a plane of all places) the great 1976 classic “I’m Mandy Fly Me” by 10cc (probably the best thing to ever come out of Stockport), in which Lol Creme sings about the stewardess rescuing him from the plane crash as sharks are approaching, and giving him the kiss of life. That’s it! Of course. The reason why I can’t be rude to cabin crew is that we all might die a horrible death together. Now, I’m not suggesting that if I’m nice to the crew they might prefer to give me the kiss of life as opposed to any other passenger, and even if they did I’m not banking on it being like the scene from Dr. No No No No as in the song. Perhaps standards have changed since 1976 and I shouldn’t expect such excellent service from cabin crew.
But it is difficult to be rude to someone if in a matter of minutes your plane might be heading sharply down to the ocean and you have to hurriedly prepare to become tinned shark food.
Like many people when I pay good money I expect good service. Unlike many people though when I don’t get it I do make a fuss.
When my wife and I were newly married, I shocked my mother-in-law by making a fuss in a restaurant over our drinks not being up to scratch. My M-i-L remarked that she had never seen me like that as I was usually so laid back. It was in a Turkish restaurant and perhaps I had been agitated by the over exposure of not particularly appealing abdomen during the belly dancing act or perhaps by the service being exposed as inadequate. So if a restaurant, the whole purpose of which is to provide its customers with an enjoyable experience, can't provide good service then what hope is there for other businesses?
When I go to a DIY store I'm not expecting, nor do I in the least bit care for, a particularly good service. I just want some picture hooks, for example, which will allow me to hang up a picture in the house thereby earning me the right to watch the afternoon football without interruption from my wife.
As for the camaraderie I might share with the shop assistant as he and I venture down the aisles on a joint mission to find the exact specification of picture hook, or the bon homie of the checkout assistant as I'm charged far too much for a tiny piece of metal, frankly I can usually do without it, (more on that topic in future blogs when I explain why I'm not against self-service checkouts.) What I want is the right item, fairly priced and quickly sold. When I'm being served food though my expectations are very different. Except that is when I eat on an airplane. But why would that be?
I thought it might be because I have some sympathy for cabin crew who must have to deal with some rather odious passengers expecting Michelin service on a Tupperware budget. Then I thought perhaps it’s because for many cabin crew the rewards don’t actually come from the work involved in the job, nor particularly from the pay from the job but from the perks associated with the job. It must be difficult to be motivated day-to-day when the rewards for a job are two or three steps detached from the daily grind, but to be honest I never really thought about that either.
Then I recently heard again (on a plane of all places) the great 1976 classic “I’m Mandy Fly Me” by 10cc (probably the best thing to ever come out of Stockport), in which Lol Creme sings about the stewardess rescuing him from the plane crash as sharks are approaching, and giving him the kiss of life. That’s it! Of course. The reason why I can’t be rude to cabin crew is that we all might die a horrible death together. Now, I’m not suggesting that if I’m nice to the crew they might prefer to give me the kiss of life as opposed to any other passenger, and even if they did I’m not banking on it being like the scene from Dr. No No No No as in the song. Perhaps standards have changed since 1976 and I shouldn’t expect such excellent service from cabin crew.
But it is difficult to be rude to someone if in a matter of minutes your plane might be heading sharply down to the ocean and you have to hurriedly prepare to become tinned shark food.
Saturday 7 August 2010
The Big Society: Cheryl Cole for Government?
Enjoyable lunch recently with business contacts at Locanda Locatelli; some business talk and some general chat about the state of the country and whether we have a broken society, whether there is enough engagement by the public into the community and whether Mrs. Thatcher set the ball rolling for a more self-centred view of an individual's role in the community. Some general agreement that Blair did little to change the trend initiated by Mrs.T, so its interesting to note David Cameron's emphasis on Big Society and engagement by the public.
Sounds good to me and the example often cited is the Swedish model of running schools where groups of parents can band together to set up a new school. What more could we want in the UK? Unfortunately I suspect that model only works when accompanied by a pre-existing community psyche. I can't believe that in pushy-parent Britain such schools would have the same ideals. What's more, with the trend towards outsourcing, huge companies like Capita and Serco are already sniffing around the opportunities for providing outsourcing services to these Big Society schools. Surely, their involvement doesn’t help the impression that these are going to be cuddly parent-led community schools?
The discussion then moves on to public engagement during the last general election and the excitement caused by the creation of a coalition government. Of my two lunch guests, one grew up in the UK but now lives in Dubai. He frets about British citizens overseas not being allowed to vote (as is the case after 15 years abroad). My other guest is Danish and even having lived in the UK for many years and being married to a British national, he is not entitled to vote in the general election which seeing as pays taxes here leaves him feeling cheated. The beautifully British compromise to this disenfranchisement is that he is entitled to vote in elections that have no great relevance and change little in our daily lives; yes, he can vote in local elections and European elections.
I suggest to him things aren't all bad as he can surely vote in the X-Factor contest. And let’s admit that if we review the stats this has a much higher level of public engagement than even the general election. Is that what it is going to take to get the Big Society working? If so, perhaps David Cameron needs to bring Cheryl Cole into the government.
Sounds good to me and the example often cited is the Swedish model of running schools where groups of parents can band together to set up a new school. What more could we want in the UK? Unfortunately I suspect that model only works when accompanied by a pre-existing community psyche. I can't believe that in pushy-parent Britain such schools would have the same ideals. What's more, with the trend towards outsourcing, huge companies like Capita and Serco are already sniffing around the opportunities for providing outsourcing services to these Big Society schools. Surely, their involvement doesn’t help the impression that these are going to be cuddly parent-led community schools?
The discussion then moves on to public engagement during the last general election and the excitement caused by the creation of a coalition government. Of my two lunch guests, one grew up in the UK but now lives in Dubai. He frets about British citizens overseas not being allowed to vote (as is the case after 15 years abroad). My other guest is Danish and even having lived in the UK for many years and being married to a British national, he is not entitled to vote in the general election which seeing as pays taxes here leaves him feeling cheated. The beautifully British compromise to this disenfranchisement is that he is entitled to vote in elections that have no great relevance and change little in our daily lives; yes, he can vote in local elections and European elections.
I suggest to him things aren't all bad as he can surely vote in the X-Factor contest. And let’s admit that if we review the stats this has a much higher level of public engagement than even the general election. Is that what it is going to take to get the Big Society working? If so, perhaps David Cameron needs to bring Cheryl Cole into the government.
Squids in from stock picking
Who can you trust to manage your pension?
Another World Cup over and we can now thankfully go back to four more years of misery and bitterness about England s latest catastrophic attempt to recapture the trophy since whenever it was. For the neutral spectator though there were moments of excitement from the prominence of hitherto low key performers such as Thomas Mueller, Asamoah Gyan, Diego Forlan and of course Paul the Octopus, who accurately predicted the results of a number of games during the tournament.
A strong individual performance on the World Cup stage doubtless increases the value of the performer and those individuals can probably look forward to tempting offers from suitors keen to benefit from their skills. All of them of course except Paul the Octopus, which is a shame as there are probably no end of fund management groups who could benefit from Paul s predictive skills.
But let's face it, that s a ridiculous suggestion. When funds produce a poor performance in a period, the managers will usually talk about performance over the long term. Unfortunately, Paul despite his predictive skills probably hasn't foreseen that he can t have a long term perspective on anything. Infact his outlook is distinctly short term and probably involves being sliced and deep fried in batter to satisfy the momentary whim of some peckish office worker.
I know what you re going to say. Here he goes again criticising fund managers. He s obsessed. Well I can assure you I'm not obsessed, and I definitely do not have any obsessive compulsive type disorder. I ve checked. Many, many, many times infact. And the only reason I wash my hands so often is that when you travel frequently on the Waterloo and City line all you can think about for the rest of the day is the rapidly multiplying fauna growing quietly on the palms of your hands where you ve touched the travelator handrail or, heaven forbid, another person. Thank goodness that more and more buildings are providing alcohol gels at Reception.
Importance of Fund Managers
So, I m not obsessive but everywhere I look various news stories lead back to the importance of fund managers; not just their importance to the City but their importance in all of our lives.
For example, this month the self-styled Public Sector Pensions Commission, which is funded by the Institute of Directors and a number of think-tanks (no relation to Paul the Octopus and his water-filled think-tank), including the Institute of Economic Affairs and Policy Exchange, issued a report (1) discussing the issue of public sector pensions. In the short term they propose some minor tinkering including public sector employees paying an extra 2% of salary, but their long term proposal includes the switch for public sector employees into funded defined contribution schemes.
Difficult to argue with when people are living longer and the liabilities for the taxpayer are unlimited and unfunded, and of course the IoD represents companies which would rather pay less tax. But if there are to be funded schemes then who will run them? Of course it will be existing fund management groups, to whom a higher percentage of the population will then look for delivering strong performances to fund their pensions.
As far as delivering strong performance is concerned, another interesting publication this month was a report called Exploiting Uncertainty in Investment Markets by Create Research (2) but funded by Citi Group. If you can get past the rose-tinted view of the fund management industry and the business school style of writing with phrases such as "The credit crisis is in the rear view mirror" then it is well worth a read. The report predicts that the share of indexed funds out of total global assets will rise from around 15% to 25%. That means that funds which are currently actively managed may move to a passive index model. One fund manager was unsurprised, being quoted as saying that "Most of our clients no longer subscribe to the idea that active managers deliver excess returns". As well as reducing volatility for the investor this passive approach should also reduce fees. But will it? It s been a fairly open secret in the City that many funds claiming to be active are largely passive (so called closet trackers) but by claiming to be active they can charge higher fees to their investors, supposedly for the expertise they provide in cleverly picking the right stocks.
Closet Trackers
To back this up, in June 2010, the Financial Times, using data provided by Morningstar, the business news and data provider, used a metric and identified 19 funds that were highlighted as potential closet trackers. The list included funds run by well known names such as Standard Life, Royal London and Santander. Some of the funds were found to have a very close correlation with the FTSE All-Share over three and five years despite having charges almost double those of a typical passive fund. The loser, of course, is the investor, although if you are invested unknowingly in one of these funds through your pension you are none the wiser, and you rely on your pension trustees to not be hoodwinked by such funds.
It's no wonder then that more and more people choose to manage their own investments; the SIPP industry for example has grown rapidly in the last few years, driven by the public s growing distrust of professional investors and also by the ease of online SIPP accounts. Infact, half a million of us choose to use SIPPs for our pension provision and those SIPP accounts contain over £50 billion of assets.
When we consider how successful some fund managers are at stock picking let s not mention the proverbial monkey throwing darts at a dart board because that anecdote always upsets fund managers. But perhaps we are all better off if funds just invest passively? And, frankly if a monkey is so talented that he can throw darts and select stocks for high alpha then he deserves a fund manager's salary.
In search of better performance
Stories of monkeys or school children or pensioners running active funds that perform better than fund managers appear frequently. We all think we can pick stocks better than the professionals in the same way that we could all manage the England football team better than the incumbent England manager. The sad truth, however, is that most of us probably can't. Even if most private investors withdrew their Ocado applications last week realising they were investing in a company which not only has never made a profit but also which without the fundraising was heading towards insolvency faster than a shopping trolley towards a display of stacked baked bean tins, it may be that the fund managers who did invest know better. Time will tell.
So if we're better off not entrusting the UK s pensions management to individuals like me who manage our pension portfolio on a wet Sunday afternoon, we had better ensure that the Government and its agencies make the fund management industry work more effectively, efficiently and fairly. That isn t going to be easy but its probably preferable to trying to find our very own cephalopod mollusc with paranormal powers to choose our stocks.
(1) http://www.public-sector-pensions-commission.org.uk/wp-content/themes/pspc/images/Public-Sector-Pensions-Commission-Report.pdf
(2) http://www.create-research.co.uk/pubRes/pubResearch.html
(c) Ash Mehta 2010
This article first appeared in Aimzine, www.aimzine.co.uk
Another World Cup over and we can now thankfully go back to four more years of misery and bitterness about England s latest catastrophic attempt to recapture the trophy since whenever it was. For the neutral spectator though there were moments of excitement from the prominence of hitherto low key performers such as Thomas Mueller, Asamoah Gyan, Diego Forlan and of course Paul the Octopus, who accurately predicted the results of a number of games during the tournament.
A strong individual performance on the World Cup stage doubtless increases the value of the performer and those individuals can probably look forward to tempting offers from suitors keen to benefit from their skills. All of them of course except Paul the Octopus, which is a shame as there are probably no end of fund management groups who could benefit from Paul s predictive skills.
But let's face it, that s a ridiculous suggestion. When funds produce a poor performance in a period, the managers will usually talk about performance over the long term. Unfortunately, Paul despite his predictive skills probably hasn't foreseen that he can t have a long term perspective on anything. Infact his outlook is distinctly short term and probably involves being sliced and deep fried in batter to satisfy the momentary whim of some peckish office worker.
I know what you re going to say. Here he goes again criticising fund managers. He s obsessed. Well I can assure you I'm not obsessed, and I definitely do not have any obsessive compulsive type disorder. I ve checked. Many, many, many times infact. And the only reason I wash my hands so often is that when you travel frequently on the Waterloo and City line all you can think about for the rest of the day is the rapidly multiplying fauna growing quietly on the palms of your hands where you ve touched the travelator handrail or, heaven forbid, another person. Thank goodness that more and more buildings are providing alcohol gels at Reception.
Importance of Fund Managers
So, I m not obsessive but everywhere I look various news stories lead back to the importance of fund managers; not just their importance to the City but their importance in all of our lives.
For example, this month the self-styled Public Sector Pensions Commission, which is funded by the Institute of Directors and a number of think-tanks (no relation to Paul the Octopus and his water-filled think-tank), including the Institute of Economic Affairs and Policy Exchange, issued a report (1) discussing the issue of public sector pensions. In the short term they propose some minor tinkering including public sector employees paying an extra 2% of salary, but their long term proposal includes the switch for public sector employees into funded defined contribution schemes.
Difficult to argue with when people are living longer and the liabilities for the taxpayer are unlimited and unfunded, and of course the IoD represents companies which would rather pay less tax. But if there are to be funded schemes then who will run them? Of course it will be existing fund management groups, to whom a higher percentage of the population will then look for delivering strong performances to fund their pensions.
As far as delivering strong performance is concerned, another interesting publication this month was a report called Exploiting Uncertainty in Investment Markets by Create Research (2) but funded by Citi Group. If you can get past the rose-tinted view of the fund management industry and the business school style of writing with phrases such as "The credit crisis is in the rear view mirror" then it is well worth a read. The report predicts that the share of indexed funds out of total global assets will rise from around 15% to 25%. That means that funds which are currently actively managed may move to a passive index model. One fund manager was unsurprised, being quoted as saying that "Most of our clients no longer subscribe to the idea that active managers deliver excess returns". As well as reducing volatility for the investor this passive approach should also reduce fees. But will it? It s been a fairly open secret in the City that many funds claiming to be active are largely passive (so called closet trackers) but by claiming to be active they can charge higher fees to their investors, supposedly for the expertise they provide in cleverly picking the right stocks.
Closet Trackers
To back this up, in June 2010, the Financial Times, using data provided by Morningstar, the business news and data provider, used a metric and identified 19 funds that were highlighted as potential closet trackers. The list included funds run by well known names such as Standard Life, Royal London and Santander. Some of the funds were found to have a very close correlation with the FTSE All-Share over three and five years despite having charges almost double those of a typical passive fund. The loser, of course, is the investor, although if you are invested unknowingly in one of these funds through your pension you are none the wiser, and you rely on your pension trustees to not be hoodwinked by such funds.
It's no wonder then that more and more people choose to manage their own investments; the SIPP industry for example has grown rapidly in the last few years, driven by the public s growing distrust of professional investors and also by the ease of online SIPP accounts. Infact, half a million of us choose to use SIPPs for our pension provision and those SIPP accounts contain over £50 billion of assets.
When we consider how successful some fund managers are at stock picking let s not mention the proverbial monkey throwing darts at a dart board because that anecdote always upsets fund managers. But perhaps we are all better off if funds just invest passively? And, frankly if a monkey is so talented that he can throw darts and select stocks for high alpha then he deserves a fund manager's salary.
In search of better performance
Stories of monkeys or school children or pensioners running active funds that perform better than fund managers appear frequently. We all think we can pick stocks better than the professionals in the same way that we could all manage the England football team better than the incumbent England manager. The sad truth, however, is that most of us probably can't. Even if most private investors withdrew their Ocado applications last week realising they were investing in a company which not only has never made a profit but also which without the fundraising was heading towards insolvency faster than a shopping trolley towards a display of stacked baked bean tins, it may be that the fund managers who did invest know better. Time will tell.
So if we're better off not entrusting the UK s pensions management to individuals like me who manage our pension portfolio on a wet Sunday afternoon, we had better ensure that the Government and its agencies make the fund management industry work more effectively, efficiently and fairly. That isn t going to be easy but its probably preferable to trying to find our very own cephalopod mollusc with paranormal powers to choose our stocks.
(1) http://www.public-sector-pensions-commission.org.uk/wp-content/themes/pspc/images/Public-Sector-Pensions-Commission-Report.pdf
(2) http://www.create-research.co.uk/pubRes/pubResearch.html
(c) Ash Mehta 2010
This article first appeared in Aimzine, www.aimzine.co.uk
Tuesday 1 June 2010
Vote? I think I'll outsource that
Do fund managers have a duty to decide for themselves how to vote?
Well thank goodness its June and two major events are over. Firstly the eruption of that volcano with the long name beginning with E which I won t write because it isn t in my spell-check. I sympathise with people who were stranded far from home for long periods of time but I would like to point out the disruption to my working day of listening to people talking about Ash being a nuisance. If I had one Icelandic Krona for every such comment I think I would be very wealthy now, in Icelandic Krona at least (how much is that in Great British Pounds?).
Secondly, the general election. Like many in the business community I m pleased it s all over because with spending cuts announced and a budget imminent from the new government we should now have a period, coalition permitting, of some economic certainty; however unpleasant the certainty might be. One thing that surprised me about the election period was that there was relatively little mudslinging and few shenanigans despite the last government being the most unpopular for some time.
Passing on Responsibility
The most eye-catching shenanigans were reports of the alleged fraudulent abuse of postal voting in some parts of the country. There were accusations that in some households there were as many as eight people registered to vote and that this must be due to fraudulent registrations. Channel 4 News covered this story very well and went into the house of a local councillor in south east London implicated in the affair. She showed them eight beds and eight toothbrushes which seemed to indicate that there were indeed eight voters in the house.
But this story got me thinking; so what if some people were voting on behalf of others? Perhaps those other people were happy with this. Perhaps some people just couldn t be bothered to read the parties manifestos (and let s face it how many of us did?), but still felt they ought to participate in the democratic process. What if those people passed the responsibility on to other more knowledgeable people whom they trusted to evaluate the manifestos and accepted advice on how to vote in the best way for the country and themselves. Would there be anything wrong with that? Is it bringing the democratic process into disrepute? Is it morally and ethically suspect? Do we have a duty to decide for ourselves how we vote?
AGM Time
May, of course, is also the month of AGMs for many companies. Whilst few companies get a good turnout of shareholders, it s always interesting to see how the proxy votes have been cast for resolutions at an AGM, especially where there is something potentially controversial.
Unfortunately, its not unknown for lazy institutional shareholders to just put a tick in the For column assuming that this is the default that the company wants and I heard that in one case this caused a problem because a dissident shareholder was inadvertently voted onto the board of a company due to shareholders not reading the notice of AGM properly.
So, in light of Lord Myners pleading post credit crunch that institutional shareholders should engage with companies they invest in and not become absentee landlords , how seriously do institutional shareholders take their voting responsibilities? Talking to various advisers in the City, it seems to be generally accepted that institutional shareholders don t devote a great deal of time on deciding how to vote and actually executing their votes. This can be especially troublesome when there is a corporate transaction to get passed at a general meeting of a company. The company would often like to show a high level of support from shareholders for a transaction but brokers often worry that those supportive shareholders will not get their act together to submit their votes.
PAFs
Over the last month or two many Finance Directors of public companies will have received questionnaires from proxy advisory firms ( PAFs ) requesting further information relating to resolutions to be tabled at forthcoming AGMS. Whilst these firms provide a wide range of services including risk management, automated voting and financial research, a core offering is analysing Annual Reports and AGM resolutions of public companies and issuing advisory notes to their fund manager clients. PAFs now form a rapidly growing business and the largest, RiskMetrics, services 2,400 clients worldwide and recently reported revenues of $77 million for the first quarter of 2010.
PAFs are now becoming increasingly vocal about governance matters and arguably providing a useful voice in the governance debate. Only last week RiskMetrics issued a critical note of the Prudential s proposed acquisition of AIA, the Asian business of AIG, and urged its clients to vote against the deal.
Over the last year, other companies have been the subject of proxy advisory firms ire; Marks and Spencer, BT and Tesco are amongst those to have come under the spotlight for their remuneration excesses. Infact, in 2009 RiskMetrics recommended voting against the re-election of 20% of the directors in the companies it covers worldwide.
But is this growing influence by PAFs a problem? Surely not, as the Association of British Insurers has been undertaking such a role for some time, issuing red, amber, blue and green "tops" to alert members to corporate governance issues in annual reports. Supporters would argue that this analysis is increasing the sum of all knowledge and allowing shareholders to make informed decisions about how to vote. In fact the industry is even increasing the range of topics covered. Recently, Glass Lewis, a US proxy advisory firm, began to include environmental and social data to its research service; a response to client demand in recognition of the fact that this is a growing area of risk for many companies and hence a factor in shareholder returns.
Important Issues
Another trend over recent years has been that in many financial institutions the people actually voting for or against resolutions in companies now form departments of their own, staffed by corporate governance experts, totally separate from the fund managers holding the investment. This whole area gives rise to what I believe are some very important issues.
Should we question whether this separation is healthy and does the additional layering of a third party in the form of PAFs make it any less (or more) healthy?
Does it mean that these corporate governance departments vote on a tick-box basis without really understanding the specific circumstances of each company their colleagues in fund management are invested in.
Should boards of public companies be concerned that at the recommendation of one advisory firm they could face a massive block vote due to investors blindly following advice from advisory firms?
What does the intermediary role of PAFs mean for the engagement by investors with companies they invest in? Is it potentially undermining the increased engagement sought by regulators and governments?
Should we expect our pension fund and investment managers to be forming their own opinions on the acceptability of transgressions by companies, taking them in the full context of company performance and history rather than on a purely standalone governance basis?
Moreover do fund managers have the skills to play this role and do their bosses allow them to perform it?
I don't know the answers to these questions but as we slowly emerge from the banking crisis these are probably matters we need to be asking if we are to avert a crisis in this sector. It may sound like a relative backwater in the financial world but then so did ratings agencies before the credit crunch.
Finally, let s accept that in any business there will be competition and the PAF industry is no different. As a PAF how do you differentiate yourself from your competitors? Do you become more strident? Do you seek conflict to demonstrate your strength and gain headlines and publicity for your own business needs?
All publications like to promote their power and influence. After the 1992 general election which unexpectedly produced a fourth successive Conservative victory, The Sun proudly proclaimed, in true Kelvin Mackenzie style, It's The Sun Wot Won It . How many people actually outsourced their voting decision to The Sun, we will never know. If PAFs become too powerful and there is more outsourcing of proxy voting then will the shareholder engagement which Lord Myners has been encouraging for effective challenge to boards of public companies be lost for ever?
If so, that could have serious ramifications for the City and make a few fraudulent postal votes in general elections seem fairly trivial.
(c) Ash Mehta
This article first appeared in Aimzine, www.aimzine.co.uk .
Well thank goodness its June and two major events are over. Firstly the eruption of that volcano with the long name beginning with E which I won t write because it isn t in my spell-check. I sympathise with people who were stranded far from home for long periods of time but I would like to point out the disruption to my working day of listening to people talking about Ash being a nuisance. If I had one Icelandic Krona for every such comment I think I would be very wealthy now, in Icelandic Krona at least (how much is that in Great British Pounds?).
Secondly, the general election. Like many in the business community I m pleased it s all over because with spending cuts announced and a budget imminent from the new government we should now have a period, coalition permitting, of some economic certainty; however unpleasant the certainty might be. One thing that surprised me about the election period was that there was relatively little mudslinging and few shenanigans despite the last government being the most unpopular for some time.
Passing on Responsibility
The most eye-catching shenanigans were reports of the alleged fraudulent abuse of postal voting in some parts of the country. There were accusations that in some households there were as many as eight people registered to vote and that this must be due to fraudulent registrations. Channel 4 News covered this story very well and went into the house of a local councillor in south east London implicated in the affair. She showed them eight beds and eight toothbrushes which seemed to indicate that there were indeed eight voters in the house.
But this story got me thinking; so what if some people were voting on behalf of others? Perhaps those other people were happy with this. Perhaps some people just couldn t be bothered to read the parties manifestos (and let s face it how many of us did?), but still felt they ought to participate in the democratic process. What if those people passed the responsibility on to other more knowledgeable people whom they trusted to evaluate the manifestos and accepted advice on how to vote in the best way for the country and themselves. Would there be anything wrong with that? Is it bringing the democratic process into disrepute? Is it morally and ethically suspect? Do we have a duty to decide for ourselves how we vote?
AGM Time
May, of course, is also the month of AGMs for many companies. Whilst few companies get a good turnout of shareholders, it s always interesting to see how the proxy votes have been cast for resolutions at an AGM, especially where there is something potentially controversial.
Unfortunately, its not unknown for lazy institutional shareholders to just put a tick in the For column assuming that this is the default that the company wants and I heard that in one case this caused a problem because a dissident shareholder was inadvertently voted onto the board of a company due to shareholders not reading the notice of AGM properly.
So, in light of Lord Myners pleading post credit crunch that institutional shareholders should engage with companies they invest in and not become absentee landlords , how seriously do institutional shareholders take their voting responsibilities? Talking to various advisers in the City, it seems to be generally accepted that institutional shareholders don t devote a great deal of time on deciding how to vote and actually executing their votes. This can be especially troublesome when there is a corporate transaction to get passed at a general meeting of a company. The company would often like to show a high level of support from shareholders for a transaction but brokers often worry that those supportive shareholders will not get their act together to submit their votes.
PAFs
Over the last month or two many Finance Directors of public companies will have received questionnaires from proxy advisory firms ( PAFs ) requesting further information relating to resolutions to be tabled at forthcoming AGMS. Whilst these firms provide a wide range of services including risk management, automated voting and financial research, a core offering is analysing Annual Reports and AGM resolutions of public companies and issuing advisory notes to their fund manager clients. PAFs now form a rapidly growing business and the largest, RiskMetrics, services 2,400 clients worldwide and recently reported revenues of $77 million for the first quarter of 2010.
PAFs are now becoming increasingly vocal about governance matters and arguably providing a useful voice in the governance debate. Only last week RiskMetrics issued a critical note of the Prudential s proposed acquisition of AIA, the Asian business of AIG, and urged its clients to vote against the deal.
Over the last year, other companies have been the subject of proxy advisory firms ire; Marks and Spencer, BT and Tesco are amongst those to have come under the spotlight for their remuneration excesses. Infact, in 2009 RiskMetrics recommended voting against the re-election of 20% of the directors in the companies it covers worldwide.
But is this growing influence by PAFs a problem? Surely not, as the Association of British Insurers has been undertaking such a role for some time, issuing red, amber, blue and green "tops" to alert members to corporate governance issues in annual reports. Supporters would argue that this analysis is increasing the sum of all knowledge and allowing shareholders to make informed decisions about how to vote. In fact the industry is even increasing the range of topics covered. Recently, Glass Lewis, a US proxy advisory firm, began to include environmental and social data to its research service; a response to client demand in recognition of the fact that this is a growing area of risk for many companies and hence a factor in shareholder returns.
Important Issues
Another trend over recent years has been that in many financial institutions the people actually voting for or against resolutions in companies now form departments of their own, staffed by corporate governance experts, totally separate from the fund managers holding the investment. This whole area gives rise to what I believe are some very important issues.
Should we question whether this separation is healthy and does the additional layering of a third party in the form of PAFs make it any less (or more) healthy?
Does it mean that these corporate governance departments vote on a tick-box basis without really understanding the specific circumstances of each company their colleagues in fund management are invested in.
Should boards of public companies be concerned that at the recommendation of one advisory firm they could face a massive block vote due to investors blindly following advice from advisory firms?
What does the intermediary role of PAFs mean for the engagement by investors with companies they invest in? Is it potentially undermining the increased engagement sought by regulators and governments?
Should we expect our pension fund and investment managers to be forming their own opinions on the acceptability of transgressions by companies, taking them in the full context of company performance and history rather than on a purely standalone governance basis?
Moreover do fund managers have the skills to play this role and do their bosses allow them to perform it?
I don't know the answers to these questions but as we slowly emerge from the banking crisis these are probably matters we need to be asking if we are to avert a crisis in this sector. It may sound like a relative backwater in the financial world but then so did ratings agencies before the credit crunch.
Finally, let s accept that in any business there will be competition and the PAF industry is no different. As a PAF how do you differentiate yourself from your competitors? Do you become more strident? Do you seek conflict to demonstrate your strength and gain headlines and publicity for your own business needs?
All publications like to promote their power and influence. After the 1992 general election which unexpectedly produced a fourth successive Conservative victory, The Sun proudly proclaimed, in true Kelvin Mackenzie style, It's The Sun Wot Won It . How many people actually outsourced their voting decision to The Sun, we will never know. If PAFs become too powerful and there is more outsourcing of proxy voting then will the shareholder engagement which Lord Myners has been encouraging for effective challenge to boards of public companies be lost for ever?
If so, that could have serious ramifications for the City and make a few fraudulent postal votes in general elections seem fairly trivial.
(c) Ash Mehta
This article first appeared in Aimzine, www.aimzine.co.uk .
Friday 23 April 2010
AIM – Not enough liquidity, but plenty at Grocers Hall
Off to Grocers Hall in the City for the Growth Company Awards where we sip champagne in a beautiful red velvet room adorned by paintings of well known grocers of shopping days past, including er…. Lord Carrington. I’m not sure what his connection is; perhaps like me he worked at Sainsbury’s while he was a student (though somehow I doubt it).
The Awards are sponsored by Sharemark, promoting its leading alternative share-trading platform which allows small businesses to raise liquidity (even for businesses already quoted on another exchange). These events can become a bit indistinguishable from each other especially after plenty of liquidity of the bubbly kind and so it was good to see that Gavin Oldham, the founder and CEO of Share plc, Sharemark’s parent company, was the headline speaker to kick the evening off.
Mr Oldham always has something memorable to say, based on his many years in the City and having set up not only Share plc but also Barclays Stockbrokers. He is a fierce advocate of private shareholder rights and not afraid to point his finger at the City when he feels it appropriate, and that was what he did this evening. He had taken part in a breakfast seminar with a dozen CEOs of AIM companies and all were questioning the benefit of staying on the market; not surprising when you consider that 257 companies delisted from AIM last year.
The thrust of his talk was that too often companies are taken down the IPO route onto AIM or PLUS but that thereafter they get little support from advisers in making the most of their listing, and become “stranded”. The problem is often that too few companies focus on liquidity or get support from advisers on managing liquidity. This in turn is usually due to the IPO process almost invariably being satisfied by a placing to institutional shareholders and having too few retail shareholders on board. He suggested that City brokers should get retail brokers involved so the company has more private shareholders on its share register. These are the people who provide liquidity through frequent trading whereas institutional shareholders tend to hold their shares and not trade frequently and sometimes the shares stagnate due to minimal trading.
You can’t fault Mr Oldham’s logic but equally looking at this commercially from a City brokers point of view, it’s much easier to just talk to a few institutions and get the placing done rather than deal with tens or hundreds of private shareholders. Of course, Mr Oldham would point out that Share plc can handle this nightmare for City brokers, but this is too rational an argument; the City, despite its dynamic image, is actually quite slow at changing its ways whatever those ways are. Hence, Mr Oldham’s rallying call that this area requires a change of attitude from corporate advisers.
An excellent evening overall, and a good point made by Mr Oldham, but I was left wondering why something called the Growth Company Awards only has two of its nine awards for growth companies and the remainder for City advisers. Surely shome misthtake as they say after too much fizzy liquidity.
The Awards are sponsored by Sharemark, promoting its leading alternative share-trading platform which allows small businesses to raise liquidity (even for businesses already quoted on another exchange). These events can become a bit indistinguishable from each other especially after plenty of liquidity of the bubbly kind and so it was good to see that Gavin Oldham, the founder and CEO of Share plc, Sharemark’s parent company, was the headline speaker to kick the evening off.
Mr Oldham always has something memorable to say, based on his many years in the City and having set up not only Share plc but also Barclays Stockbrokers. He is a fierce advocate of private shareholder rights and not afraid to point his finger at the City when he feels it appropriate, and that was what he did this evening. He had taken part in a breakfast seminar with a dozen CEOs of AIM companies and all were questioning the benefit of staying on the market; not surprising when you consider that 257 companies delisted from AIM last year.
The thrust of his talk was that too often companies are taken down the IPO route onto AIM or PLUS but that thereafter they get little support from advisers in making the most of their listing, and become “stranded”. The problem is often that too few companies focus on liquidity or get support from advisers on managing liquidity. This in turn is usually due to the IPO process almost invariably being satisfied by a placing to institutional shareholders and having too few retail shareholders on board. He suggested that City brokers should get retail brokers involved so the company has more private shareholders on its share register. These are the people who provide liquidity through frequent trading whereas institutional shareholders tend to hold their shares and not trade frequently and sometimes the shares stagnate due to minimal trading.
You can’t fault Mr Oldham’s logic but equally looking at this commercially from a City brokers point of view, it’s much easier to just talk to a few institutions and get the placing done rather than deal with tens or hundreds of private shareholders. Of course, Mr Oldham would point out that Share plc can handle this nightmare for City brokers, but this is too rational an argument; the City, despite its dynamic image, is actually quite slow at changing its ways whatever those ways are. Hence, Mr Oldham’s rallying call that this area requires a change of attitude from corporate advisers.
An excellent evening overall, and a good point made by Mr Oldham, but I was left wondering why something called the Growth Company Awards only has two of its nine awards for growth companies and the remainder for City advisers. Surely shome misthtake as they say after too much fizzy liquidity.
Thursday 18 February 2010
"M&S – You wouldn’t run your own company like this. Why do boards allow it?"
“If we don’t learn from history we’ll repeat the same mistakes.”
That’s an annoying phrase but in the case of Marks & Spencer it seems very appropriate.
You can’t have failed to notice that M&S has appointed a new chief executive and terms have finally been agreed with him. Marc Bolland will start on 1 May and will be paid a base salary of £975,000. Not excessive you might think except that there are six other components to his remuneration package which could mean that he receives £14.8m in his first year. This is quite a staggering amount for someone who until he joined Morrisons, had never worked in retail and who at Morrisons hasn’t had any experience of non-food retailing, which makes up the bulk of M&S revenues.
So, how did the board of M&S get to a situation where they have had the same CEO and then Executive Chairman for six years but haven’t got around to grooming one of their 75,000 employees to take over? If they had, they might find that they didn’t need to pay £15m to Stuart Rose’s successor. What does it also say about Sir Stuart Rose that he hasn’t been developing his executive team for the top job?
In any Chief Executive role, whether M&S or running your own small business, leadership skills are usually the most important characteristic of success. Every CEO should have as one of their objectives that they develop their successor and infact in good companies there will be two or even three potential successors who are then motivated to perform strongly with the hope of getting the top job. In smaller owner-managed businesses of course, the good Chief Executive develops the management team so as to make the company less reliant on him/herself which in turn makes the business more saleable at some point in the future.
In a business like M&S which has a board of directors of the great and good, how could the succession issue never have been addressed in all that time? Especially as M&S had been here before; Stuart Rose himself had been parachuted in during 2004 replacing internally-sourced CEO Roger Holmes, who clearly wasn’t the man for the job but had got the role anyway. Poor Mr Holmes was probably the least bad person for the CEO role at that time and might have muddled through had it not been for the hostile bid from Philip Green, at which point everyone recognised that he wasn’t the right person for the job after all. Stuart Rose came to the rescue having been snubbed for the CEO role previously as the M&S board obviously thought they had it covered when they didn’t.
What does this say about how large company boards operate? Well, its not an encouraging sign especially after the debacles of poor board performance at other companies over the last year or two such as Northern Rock and RBS. What does it mean for owner-managed businesses in Enterprise Britain? Probably too much to go into detail in this column but it raises questions you should ask about how effective your board is and whether your board members add value and have accountability (yes even the non-execs!) and whether you are building a strong management team and developing your high-flyers. Because if these things aren’t happening then sooner or later, like M&S shareholders, you may end up paying a hefty price to compensate for those failings.
That’s an annoying phrase but in the case of Marks & Spencer it seems very appropriate.
You can’t have failed to notice that M&S has appointed a new chief executive and terms have finally been agreed with him. Marc Bolland will start on 1 May and will be paid a base salary of £975,000. Not excessive you might think except that there are six other components to his remuneration package which could mean that he receives £14.8m in his first year. This is quite a staggering amount for someone who until he joined Morrisons, had never worked in retail and who at Morrisons hasn’t had any experience of non-food retailing, which makes up the bulk of M&S revenues.
So, how did the board of M&S get to a situation where they have had the same CEO and then Executive Chairman for six years but haven’t got around to grooming one of their 75,000 employees to take over? If they had, they might find that they didn’t need to pay £15m to Stuart Rose’s successor. What does it also say about Sir Stuart Rose that he hasn’t been developing his executive team for the top job?
In any Chief Executive role, whether M&S or running your own small business, leadership skills are usually the most important characteristic of success. Every CEO should have as one of their objectives that they develop their successor and infact in good companies there will be two or even three potential successors who are then motivated to perform strongly with the hope of getting the top job. In smaller owner-managed businesses of course, the good Chief Executive develops the management team so as to make the company less reliant on him/herself which in turn makes the business more saleable at some point in the future.
In a business like M&S which has a board of directors of the great and good, how could the succession issue never have been addressed in all that time? Especially as M&S had been here before; Stuart Rose himself had been parachuted in during 2004 replacing internally-sourced CEO Roger Holmes, who clearly wasn’t the man for the job but had got the role anyway. Poor Mr Holmes was probably the least bad person for the CEO role at that time and might have muddled through had it not been for the hostile bid from Philip Green, at which point everyone recognised that he wasn’t the right person for the job after all. Stuart Rose came to the rescue having been snubbed for the CEO role previously as the M&S board obviously thought they had it covered when they didn’t.
What does this say about how large company boards operate? Well, its not an encouraging sign especially after the debacles of poor board performance at other companies over the last year or two such as Northern Rock and RBS. What does it mean for owner-managed businesses in Enterprise Britain? Probably too much to go into detail in this column but it raises questions you should ask about how effective your board is and whether your board members add value and have accountability (yes even the non-execs!) and whether you are building a strong management team and developing your high-flyers. Because if these things aren’t happening then sooner or later, like M&S shareholders, you may end up paying a hefty price to compensate for those failings.
Monday 1 February 2010
Focus, focus, focus
I was delighted to be at the Royal Courts of Justice last week for the Grant Thornton Quoted Company Awards. An unusual venue for a corporate event but a good use of the facilities that every FD would approve of as the building would probably be sitting empty after 4pm every day, instead of which the taxpayer benefits from 700 people celebrating success.
As you might know, these events are usually hosted by a newsreader type such as Sophie Raworth or Emily Maitliss so imagine our surprise when after the blaring introductory music on to the stage walks none other than Karren Brady just days after becoming MD of West Ham United; a job which you might think would take up at least 23 hours of every day.
This seemed a bit strange but perhaps it was just something to fill her time between clubs.
However, I do get a bit suspicious when business people spend more time raising their profile in the media than actually running their businesses. The worst example of this in recent years has been Lord Bilimoria who having grown Cobra Beer to become an established brand obviously felt he could afford to lose focus and engage in television programmes and conference speaking.
This isn’t a bad thing if it brings in more business for your company but I can’t believe people drank more Cobra because they saw Lord B speaking at an entrepreneurs conference. There may be no connection between Lord B spending more time away from the business and the business going into pre-pack administration leaving his creditors £75m out of pocket, but it doesn’t look good, or do his credibility any favours.
By coincidence, reading the Sunday Times yesterday the Fame and Fortune column was about, you guessed it, Karren Brady and it turns out her non-football business which includes speaking events, newspaper columns, and books is worth £82m!
If true, that doesn’t sound like a business person who has lost focus, but let’s hope that she makes West Ham as successful, at least off the pitch if not on it.
As you might know, these events are usually hosted by a newsreader type such as Sophie Raworth or Emily Maitliss so imagine our surprise when after the blaring introductory music on to the stage walks none other than Karren Brady just days after becoming MD of West Ham United; a job which you might think would take up at least 23 hours of every day.
This seemed a bit strange but perhaps it was just something to fill her time between clubs.
However, I do get a bit suspicious when business people spend more time raising their profile in the media than actually running their businesses. The worst example of this in recent years has been Lord Bilimoria who having grown Cobra Beer to become an established brand obviously felt he could afford to lose focus and engage in television programmes and conference speaking.
This isn’t a bad thing if it brings in more business for your company but I can’t believe people drank more Cobra because they saw Lord B speaking at an entrepreneurs conference. There may be no connection between Lord B spending more time away from the business and the business going into pre-pack administration leaving his creditors £75m out of pocket, but it doesn’t look good, or do his credibility any favours.
By coincidence, reading the Sunday Times yesterday the Fame and Fortune column was about, you guessed it, Karren Brady and it turns out her non-football business which includes speaking events, newspaper columns, and books is worth £82m!
If true, that doesn’t sound like a business person who has lost focus, but let’s hope that she makes West Ham as successful, at least off the pitch if not on it.
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