The Market Would Be Brilliant Without All Those Pesky Shareholders

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MELBOURNE AUSTRALIA 15 January 2007 – Most of the time we prefer to be amused by things rather than be angered by them.  We aren’t always successful, but it does seem so much easier to laugh at the ridiculousness of some things rather than become furious.

The Alinta (ASX: AAN) farce is one such example.  But Alinta isn’t the first, and to coin a cliché, will not be the last instance where management and the board view the company as their own fiefdom to do with, or should that be, to play with according to their own desires.

The HIH Insurance debacle was probably the most obvious example in recent domestic corporate history.  Ray Williams ran the publicly listed company in exactly the same way as when it was a private unlisted company.  The fact that he was no longer the owner of the business had little impact on the way he abused his position to the detriment of policy holders and other share holders.

Internationally Enron is another classic example.  There was a film and a book released about the collapse of Enron called ‘The Smartest Guys In The Room’ which told of fraud and deception on a massive scale.  Again, it was senior management acting in a renegade way without any sense of obligation towards shareholders, employees, nor anyone else.

There are surely plenty of other examples of management that appear happy to take shareholders money when it comes to selling off part of the business but then proceed to treat them with contempt once they have pocketed the cash.

There are other examples in corporate Australia.  Rupert Murdoch and his family are no longer majority owners of News Corporation (ASX: NWS).  Yet that didn’t stop them initiating a ‘poison-pill’ facility that would have massively diluted all shareholders if the rival Liberty Media Group (NASDAQ: LINTA) took more than a 20% stake in the company.  Management didn’t even bother putting it to a vote at the AGM even though it would have impacted all shareholders.  It was merely a tactic to prevent the Murdoch clan from losing their influence over the company.

Shareholders are nothing more than a nuisance to an egotistical chief executive officer that has grand delusions of ruling the world.

It is most apparent at annual general meetings.  The senior management and board of directors sit regally at the front of the room, like an omnipotent monarch or Judge, reading from a script, boring the audience senseless with their banal powerpoint presentations.  Then at the end they begrudgingly accede to answer a few questions from some of the company’s owners.

At the start of the AGM, or at the beginning of the Annual Report, the Chairman will invariably patronise the crowd by telling them that “your company” has performed good/well/average/bad during the previous twelve months.  From then on their only interest is wrapping things up as quickly as possible in order to get back to Toorak/Point Piper, or wherever else it is they reside.

It may be impractical, but wouldn’t it be more logical for the Board to sitting is the submissive position while it is the share holders, the owners of the business, that sit in judgement on the company directors and management?  Somewhere along the line the roles have been reversed.

At the moment they are lucky.  They can afford to be cocky.  The stock market has raced ahead during the last four years, so the majority of shareholders will be content to sit on their ample capital gains without stirring up too much trouble.  It may be unfair to say it, but given the economic environment of recent times it would probably take a monumentally incompetent management team to not have done well.

It is a well known maxim that company management and boards feel the ability to act more brazenly when the stock price is doing well.  However, when things start to turn the other way it is then that shareholders become more vociferous, and it is then that stories such as Enron and HIH begin to rear their heads.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
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