Watch out for disharmony

By Peter V O'Brien

Friday 25th October 2002

Recent weird statements from directors and executives of some listed companies and shambolic infighting in their organisations should warn investors to reject groups displaying internal disharmony.

The Stock Exchange daily memo is the main authoritative source of what happens. Some companies go further with direct letters to shareholders.

Australian financial services group AMP was an example. Chief executive Andrew Mohl sent a "CEO message to AMP shareholders and customers" this month. It seemed designed to salvage the company's savaged reputation after the debacle of its UK AMP Pearl operation.

Mr Mohl should be congratulated on the candid comments in his missive but, as an AMP shareholder noted in a communication to me, one was incomprehensible. The "message" outlined Mr Mohl's "five-point reform plan for the business" and his first two related to reviewing basic operations and "limiting our growth ambitions in the near term."

Fair enough, as was the third: "We intend to increase the transparency and quality of our disclosure ... My own remuneration package will be fully discussed as soon as it is settled. It will not include options and will be subject to approval by shareholders at the next annual general meeting."

It was about time someone at AMP said that, given the market's confusion about some of the company's statements before Mr Mohl took the hot seat.

The fifth point could be dismissed as puff: "Finally, and most importantly, we will lead AMP with passion, commitment and absolute integrity."

Mr Mohl knows all companies should be led with commitment and integrity, but a cool, hardnosed approach is preferable to "passion."

The last usually leads to misjudgments, consequent foul-ups and (sometimes) to burnout and early graves for the company's chief.

Mr Mohl's fourth reform should have been rewritten before the (presumably) spin doctors' draft was approved: "Fourthly, we will tackle some of the embedded behaviours in our business that inevitably develop in a longstanding company."

A handwritten note from The National Business Review's communicator sits alongside that statement: "Only some?"

The point was valid. All embedded behaviours should be tackled, not only in AMP but in every company, particularly in Mr Mohl's close rivals, the Australian banks that also control most of New Zealand's finance sector.

The unanswered, intriguing, question was how Mr Mohl defined "embedded behaviours." Perhaps he used the term as a euphemism for "embedded people" because, in any bureaucracy whether public or private, people embed behaviour.

***

Back to New Zealand. We saw the continuing nonsense at Lyttelton Port Co. Investors should be wary of companies with local authority-controlled majority shareholders and several directors who are the local authority's elected politicians.

Many of the latter are worthy people in a social-political sense but their knowledge of a specific industry's dynamics and its financial peculiarities is often zilch.

A port company is similar to an airport company. Efficient transport logistics are vital, as are maximum utilisation of property assets and industry-specific technical plant and equipment. It would be interesting to see the qualifications of city councillors in New Zealand to contribute to such a company's decisions.

Assuming there is a public desire for local authorities to control ownership of infrastructure assets, the organisations would serve all interests best as passive investors: keep an eye on things, act when they go awry but stay out of board and operational matters unless essential.

The dispute between Lyttelton Port ex-chairman Brent Layton and the company's effective controller, Christchurch City Council, and board members was seen in the market as having more to do with left-of-centre local politicians' involvement in industrial relations than objective corporate governance.

***

Last week's Shoeshine column dealt effectively with the "dynamic duo" at IT Capital and the convulsed statements they issued "explaining" how their deals came unstuck.

AMP's Mr Mohl could have been victim of the spin-doctors' actions when he released his message but most of it seemed a valid attempt to deal with his several audiences.

Chief executives should write their own statements, get them checked for grammar, style and facts and then publish.

Keep the variously-titled spin doctors out of it. Your intelligent shareholders and potential investors will praise you.

Comments from our readers

No comments yet