SOME years ago, probably about 1996 if my memory serves me correctly, Wesfarmers was taking a beating in the press.
SOME years ago, probably about 1996 if my memory serves me correctly, Wesfarmers was taking a beating in the press.
Its share price was languishing, down below $7, I think, and Michael Chaney’s strategy was being criticised because the tough internal hurdle rates he had set were making an acquisition seemingly impossible.
The main cause of angst was market observers who felt Wesfarmers needed growth.
Their preference was growth by acquisition, the fastest way to get scale which, in turn, brings rewards such as appearing in indices reserved for big companies, as well as cost saving synergies that leave analysts plenty of room to make speculative predictions.
It seemed, at the time, though, that Wesfarmers was always the bridesmaid and never the bride.
The company missed out on several takeover or privatisation opportunities.
To many at the time this indicated some sort of weakness in the strategic plan of the company.
Well, history has shown Wesfarmers’ management to be smarter than those who only had a small, if any, interest in the success of the company.
Wesfarmers bided its time and, when the market had exhausted itself paying too much to too little, had cash in its pockets and few rivals to bid against.
I say all this because I am hearing echoes of 1996 in the commentary about WA oil company, Woodside.
During the past year Woodside has made two major bids and failed.
The effort of such bids was too costly or too time consuming, say some.
These people reckon Woodside should get on with organic growth.
Yet what Woodside has done is entirely appropriate.
By getting involved in the mergers and acquisitions process it has developed in-house expertise and experience, shown it is serious without being cavalier and, importantly, ensured its rivals had to pay top dollar for the assets.
When you buy a house, you don’t go to your first auction and jump enthusiastically into the bidding – not if you want value, that is.
Surely you check out the market and study the trends and wait for the opportunity that best suits your needs and your budget.
If the market is over-valued, you wait for sanity to prevail, as it always does during the next stage of the cycle.
That is the smart way to make money.
Reward for commitment
LAST week I had the pleasure of attending a WA Chinese Chamber of Commerce forum to hear Dr Haruhisa Handa, the eccentric billionaire benefactor to many local causes who calls Perth his second home.
While his delivery is certainly unique, Dr Handa has become famous in Japan for his self-help books – that success alone indicates to me that he has ideas people agree with and have found helpful.
His talk last week focused on doing business the Japanese way, something which was a guaranteed crowd puller two decades ago when his nation was turning Western management theory on its head.
These days Japan has economic problems and far fewer people are interested in how business runs in that country.
However, despite the myriad concerns economists have about Japan, it is probably still the second most important national economy in the world, the home of some of the world’s most successful companies both in terms of sales and innovation, and it remains very rich.
All this on top of the fact that barely more than half a century ago its economic fabric was destroyed by losing a global war.
Anyway, the point of this commentary was not to focus on Japan but to highlight a point raised by Dr Handa – that of employee involvement in the company.
He said that one of the major differences between Japan and US companies was the importance of the employee.
Because managers looked to the very long-term wellbeing of their companies, employees were a more important part of the equation and would generally receive their bonuses before a small share of the remaining profits were distributed to stockholders.
As the debate rages about executive remuneration, I couldn’t help dwell on this.
As far as I am concerned, the argument about excessive executive salaries and any suggestion that governments step in to limit them is ridiculous.
The shareholders are the ones to blame for this; they agreed to pay silly sums without tying them adequately to results that were in the company’s long-term interest.
Putting hope in one person is risky. Business is a team game, and the team members are the employees.
Rewarding employees adequately (not just the CEO) is an important element of creating a great team, and one of the best ways to ensure the long-term commitment of the best staff is to make them shareholders.
I had a discussion this week with a newly arrived senior executive of a listed company, one that has gone seriously backwards during the past year (that won’t narrow it down too much). Without giving the game away, I was amazed to hear how the board was baulking at his proposal to be rewarded for performance with shares.
It’s a pity a few boards didn’t think like that during the past five years when the market was hot and they were writing up new contracts for their CEOs – but surely it is in the tough stages of a company’s life (start-up, big growth, bear markets, etc) when equity becomes a very relevant form of reward.
Not only does it reduce the cash needed to reward the individual, it also can be structured to keep them there when the market turns and rivals are after success stories to hire.
This all brings me to one of the expressions used by Mark Barnaba when he told an audience at a WA Business News Success and Leadership breakfast about how they decided, at the founding of Poynton and Partners, that equity was vital to its success.
Mr Barnaba suggested staff equity was a bit like bacon and eggs – the chicken has an interest but the pig is committed.
Malcolm closes his case
FINALLY, a fond farewell to our back page columnist, Malcolm Surry.
Malcolm has been a regular scribe for WA Business News since 2000, covering national and international business issues, with a particular bent on Asia, where he spent much of his career before moving to Perth.
I’d like to thank him for his insights into areas WA Business News doesn’t generally delve.
Its share price was languishing, down below $7, I think, and Michael Chaney’s strategy was being criticised because the tough internal hurdle rates he had set were making an acquisition seemingly impossible.
The main cause of angst was market observers who felt Wesfarmers needed growth.
Their preference was growth by acquisition, the fastest way to get scale which, in turn, brings rewards such as appearing in indices reserved for big companies, as well as cost saving synergies that leave analysts plenty of room to make speculative predictions.
It seemed, at the time, though, that Wesfarmers was always the bridesmaid and never the bride.
The company missed out on several takeover or privatisation opportunities.
To many at the time this indicated some sort of weakness in the strategic plan of the company.
Well, history has shown Wesfarmers’ management to be smarter than those who only had a small, if any, interest in the success of the company.
Wesfarmers bided its time and, when the market had exhausted itself paying too much to too little, had cash in its pockets and few rivals to bid against.
I say all this because I am hearing echoes of 1996 in the commentary about WA oil company, Woodside.
During the past year Woodside has made two major bids and failed.
The effort of such bids was too costly or too time consuming, say some.
These people reckon Woodside should get on with organic growth.
Yet what Woodside has done is entirely appropriate.
By getting involved in the mergers and acquisitions process it has developed in-house expertise and experience, shown it is serious without being cavalier and, importantly, ensured its rivals had to pay top dollar for the assets.
When you buy a house, you don’t go to your first auction and jump enthusiastically into the bidding – not if you want value, that is.
Surely you check out the market and study the trends and wait for the opportunity that best suits your needs and your budget.
If the market is over-valued, you wait for sanity to prevail, as it always does during the next stage of the cycle.
That is the smart way to make money.
Reward for commitment
LAST week I had the pleasure of attending a WA Chinese Chamber of Commerce forum to hear Dr Haruhisa Handa, the eccentric billionaire benefactor to many local causes who calls Perth his second home.
While his delivery is certainly unique, Dr Handa has become famous in Japan for his self-help books – that success alone indicates to me that he has ideas people agree with and have found helpful.
His talk last week focused on doing business the Japanese way, something which was a guaranteed crowd puller two decades ago when his nation was turning Western management theory on its head.
These days Japan has economic problems and far fewer people are interested in how business runs in that country.
However, despite the myriad concerns economists have about Japan, it is probably still the second most important national economy in the world, the home of some of the world’s most successful companies both in terms of sales and innovation, and it remains very rich.
All this on top of the fact that barely more than half a century ago its economic fabric was destroyed by losing a global war.
Anyway, the point of this commentary was not to focus on Japan but to highlight a point raised by Dr Handa – that of employee involvement in the company.
He said that one of the major differences between Japan and US companies was the importance of the employee.
Because managers looked to the very long-term wellbeing of their companies, employees were a more important part of the equation and would generally receive their bonuses before a small share of the remaining profits were distributed to stockholders.
As the debate rages about executive remuneration, I couldn’t help dwell on this.
As far as I am concerned, the argument about excessive executive salaries and any suggestion that governments step in to limit them is ridiculous.
The shareholders are the ones to blame for this; they agreed to pay silly sums without tying them adequately to results that were in the company’s long-term interest.
Putting hope in one person is risky. Business is a team game, and the team members are the employees.
Rewarding employees adequately (not just the CEO) is an important element of creating a great team, and one of the best ways to ensure the long-term commitment of the best staff is to make them shareholders.
I had a discussion this week with a newly arrived senior executive of a listed company, one that has gone seriously backwards during the past year (that won’t narrow it down too much). Without giving the game away, I was amazed to hear how the board was baulking at his proposal to be rewarded for performance with shares.
It’s a pity a few boards didn’t think like that during the past five years when the market was hot and they were writing up new contracts for their CEOs – but surely it is in the tough stages of a company’s life (start-up, big growth, bear markets, etc) when equity becomes a very relevant form of reward.
Not only does it reduce the cash needed to reward the individual, it also can be structured to keep them there when the market turns and rivals are after success stories to hire.
This all brings me to one of the expressions used by Mark Barnaba when he told an audience at a WA Business News Success and Leadership breakfast about how they decided, at the founding of Poynton and Partners, that equity was vital to its success.
Mr Barnaba suggested staff equity was a bit like bacon and eggs – the chicken has an interest but the pig is committed.
Malcolm closes his case
FINALLY, a fond farewell to our back page columnist, Malcolm Surry.
Malcolm has been a regular scribe for WA Business News since 2000, covering national and international business issues, with a particular bent on Asia, where he spent much of his career before moving to Perth.
I’d like to thank him for his insights into areas WA Business News doesn’t generally delve.
