Corporate excesses cost faith as well as dollars
Melbourne Age January 10 2003
As investors count their losses, the biggest may be confidence in big business, writes David Campbell.
Three weary travellers arrived late one night at an isolated farmhouse and sought shelter.
The farmer said they could have the use of his spare room if they were prepared to pay $30. The travellers readily agreed, handed over $10 each, and settled in for the night.
The farmer, however, had a troubled conscience, for it was a very small room. He called his son, gave him five $1 coins, and asked him to refund the money. The son, always on the lookout for extra pocket money, kept $2 for himself and returned $3 to the travellers.
Thus, each of the guests ended up paying $9. Now, three nines are 27 and if we add in the $2 the son kept, we have a total of $29. What happened to the missing dollar?
If you know the answer, you are a mathematician. If you do not know the answer, you are an accountant. If you do not know the answer, but are willing to sign a piece of paper saying that you do, you are an auditor. If you do not want to know the answer, you are a politician. If your response was "What would you like the answer to be?" then you are an economist.
And if you do not understand the question because it does not deal in millions, then you are probably the CEO of a major corporation.
Yes, this is an exercise in cynicism but it is hard to be otherwise after the bombshell announcement of Brian Gilbertson's up-to $30 million payout as he departs from BHP Billiton after only six months in the job.
It gets worse when it is set against a background of two years of slumping sharemarkets, corporate disasters, and the fact that superannuation funds are recording their worst results in 28 years.
The median return for fund managers last year was a loss of 7.3 per cent, and it could take years for investors to recover their money, let alone make a profit.
Public faith in big business and those that regulate it has taken a battering, and Gilbertson's payout only rubs salt into the wound.
It follows the reported $30 million that Steve Jones took from Suncorp Metway, but it is only the latest in a long line of revolving-door CEO payouts that have attracted headlines in recent years.
For example, Paul Anderson, the previous CEO at BHP Billiton, walked away with a total of $18 million.
George Trumbull, who will be remembered for the disastrous acquisition of GIO, left AMP with $13.2 million.
Disillusioned shareholders are left wondering what alien world these money managers inhabit when boards are prepared to negotiate such incredible contracts.
The corporate collapses of 2002 have also undermined investor trust.
Here in Australia we watched a parade of witnesses before the various commissions and courts of inquiry that were trying to untangle the web of lies and deceit behind the HIH and One.Tel disasters.
The cast included managing directors, chief financial officers, accountants and auditors.
Less attractive words such as con-men, spivs, shysters, and hustlers might be more appropriate.
We also saw the collapse of the energy trader Enron, the seventh-largest company in the US. Thousands of employees lost their life savings and questions were asked about how much the US Government knew, and to what extent the auditors, Andersen, were negligent in their supervisory role. That disaster was then dwarfed by the collapse of WorldCom, which resulted in 17,000 employees losing their jobs.
The sharemarket is a volatile place. Most investors know that and take precautions. But sooner or later we have to trust someone, and it's the so-called money experts - the accountants, the auditors, the investment managers, the economists, the CEOs - to whom we turn.
In the light of events such as these, is it any wonder that we have become sceptical?
Most of us cannot comprehend the figures being tossed around in the Gilbertson payout and in the losses incurred through the corporate collapses.
Centre stage are the big money merchants, the financial jugglers who have become so desensitised to the massive dollar amounts they're dealing with that they have lost any sense of perspective for the little people - the employees, the dependent businesses and the small investors - who rely on them.
Meanwhile, those of us on the receiving end can only shake our heads and count our losses. And high on the list is a loss of faith in big business and the sharemarket.
Our nest eggs are shrinking. Investment managers keep telling us to hold on and think long term but that reassurance is beginning to sound hollow. The looming war with Iraq promises further instability.
The problems arising from the dot-com shakeout were exacerbated by September 11, but nothing has happened over the past 12 months to calm the underlying nervousness of small investors.
The corporate world has some confidence-building to do if trust is to return.
The collective buying power of the emerging generation of baby-boomer retirees is huge but we will not easily forget these examples of corporate incompetence and excess.
David Campbell is a Melbourne writer, mathematician and former One.Tel investor. E-mail: dcampbel at netspace.net.au