25/10/2005 - 22:00

Tim Treadgold:Briefcase - Time to consolidate on leadership

25/10/2005 - 22:00


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TAKING the moral high ground can be a very expensive business, as the innocent small shareholders of Consolidated Minerals are discovering.

During the past few weeks they have watched the price of their company slide from a high of $4.33 at the start of October to around $3.58 the last time Briefcase looked.

Translated into cold cash, that 75c drop represents a loss to the owners of the manganese, chromite and nickel miner of $163 million. It also left the owners with a one-word question: “Why?”

Well, the answer is simple. Because men with money have decided to take up a moral crusade about how much is too much and, like all crusades, there are guiltless victims.

In the Consolidated case there is also a deeper question: “Who actually runs a company?”

Briefcase will try to not slip into moral mood itself but stick to the facts, and the key elements here are:

• Consolidated’s chief executive, Michael Kiernan, was offered a new five-year contract, which would have included being issued shares worth up to $18 million at current prices over five years. Significantly, the shares could also be worth nothing if the company did not perform;

• a group of institutional investors, including AMP, Investco and Portfolio Partners said this was too generous and they would vote against it at the annual meeting on October 27; and

• Mr Kiernan, feeling the effects of a tough year and the mortality of all men, said he was deeply upset at some of the barbs hurled at him by the institutions and said he would not renew his contract, preferring to leave the company he built next June.

The moral question, which seems to be driving the institutions, is that they believe Mr Kiernan was being paid too much.

It didn’t matter that he had been largely responsible for growing Consolidated from a penny dreadful worth less than $10 million into a business worth almost $1 billion.

Mr Kiernan, it might also be said, took up a moral position by declaring that if some major shareholders were rude to him then he would walk away, even if he is the best man to run the business, which has thousands of small shareholders.

In this rather sad example of morality gone mad it is the institutions who are grievously wrong and they have tried to apply a one size fits all solution to a matter which has unique characteristics.

Consolidated is not a business that can be run by anyone; and the ‘cheaper the better’ stance, which appears to be the position of the institutions, is hopeless.

Like all mining companies, Consolidated is operating in a highly competitive environment and just because metal prices are high today does not mean they will be high tomorrow. In fact, the tough years lie ahead for Consolidated because world production of metals is rising and a strong leader will be just what the company needs.

Then there is the question of whether it is the board of a company, or a syndicate of faceless investors, which call the shots in picking and choosing management.

In this case, the faceless men from the institutions have slapped the Consolidated board around the chops and rejected its recommendation on Mr Kiernan’s pay, and left it searching for a new chief executive at a time when management and leadership skills are almost impossible to find.

Social engineers, and so-called shareholder advocates, will be cheering the departure of Mr Kiernan because it represents a victory for their curious view of the world; one which appears to be saying: ‘lets get the cheapest chief executive we can because it will save money’.

Briefcase may be totally out of touch these days but he can’t help but think about his mother’s warning over buying cheap shoes, or that other piece of excellent advice about paying peanuts and getting monkeys.

By saving $18 million (over a five-year period) the shareholders of Consolidated can now ‘celebrate’ the loss of $163 million in the market value of their business.

Why do the expressions ‘false economy’ and ‘biting off your own nose’ keep springing to mind?


On the question of peanuts, monkeys and morality, what is it with politicians that they always seem to enjoy playing game of ‘poorest is smartest’.

This curious sport generally involves members of the socialist side of the political spectrum arguing that it isn’t necessary to pay people a lot to have them lead the country, or state.

Briefcase has always found this a rather silly approach to management because he’s more than happy to see members of parliament well paid so long as they do a good job.

Over the past few weeks in Perth we have seen a variation on this theme from the other side of politics which has been scoring points over small parcels of shares in Alinta owned by assorted members of parliament.

While the key argument is that some members forgot to declare an interest in their Alinta shares, a mistake that falls into the frivolous category, the deeper issue seems to be that members of parliament shouldn’t even be the owners of shares in the first place.

What the purists appear to want, and perhaps they’re the same people running the investment institutions who skewered Mick Kiernan last week, are people:

• of the highest intelligence;

• able to make the best decisions for the running of the state;

• prepared to work ridiculously long hours;

• field a steady stream of inane questions from voters who can’t run their own lives;

• freely donate their time and money to every worthy cause; and

• live off a salary equivalent to that paid to a middle manager in a small business.

Sorry, life just doesn’t work that way. If you want the best people, you have to pay for them.

And, if you want to keep the best people, you have to tolerate small mistakes, avoid petty point scoring, and keep your eyes on the bigger picture, which in this case is the running of a large business called Western Australia.


“Morality is simply the attitude we adopt to people whom we personally dislike.” Oscar Wilde


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