Monday, April 30, 2007

More on Qantas

Kenneth Davidson has written a great piece on the sale of Qantas and has managed to make sense of what I have known but not had the words to get across. Basically it is to do with shareholder responsibilities and ripping the financial guts out of a company. Here is his Article from The Age newspaper.


Kenneth Davidson
April 30, 2007

Whichever way you look at it, the shareholders are passengers on a one-way trip to nowhere.

"THE company at law is a different person altogether from its subscribers." (Lord Macnaughton, House of Lords, 1897)

"Shareholders are not in the eyes of the law part owners of the undertaking. The undertaking is something different from the totality of the shareholdings." (Lord Justice Evershed, House of Lords, 1948)

So who owns Qantas? The question is not as silly as it seems. When I say I own my house, everybody understands that I can use it for my own enjoyment and dispose of it as I wish, subject to the relevant planning laws. But when somebody buys shares in Qantas, the shareholder has none of these rights, apart from the right to sell the shares.

Qantas shareholders (apart from its directors and senior executives who also have shareholdings) have nothing to do with the running of the business. So rather than asserting the shareholders own Qantas, it is more accurate to say that the Qantas shareholders own their shares in Qantas.

So who owns the company? This question is less important than, who is responsible for the management of the company and in whose interests? Only the directors are responsible for the company as an ongoing entity in itself as distinct from its employees, its shareholders, its creditors and its customers, who have interests in aspects of the business.

The idea that the directors of a public company are responsible only to its shareholders is a recent idea, largely promoted by neo-liberals such as Milton Friedman, and it has gained popularity with the rise in the threat of hostile takeovers. The interests of shareholders may be synonymous with the interests of the company, but not always.

Even if APA succeeded in making Qantas a private company, APA's structure ensures the liability of the owners will be limited to the money put into the business by APA. And based on the information available thus far, that will only be about 25 per cent of the liabilities that will be created as part of the takeover package.

But if directors operated according to the idea that their responsibility is to shareholders rather than the company itself, how do they resolve conflicting shareholder interests? These include those who would prefer for tax reasons a share buyback against those who prefer dividends, or foreign shareholders who are not subject to capital gains tax against local shareholders who are, or those who want immediate capital gains because they want to exit the company against those who are interested in a long-term stream of earnings.

Apart from limited liability, the main advantage of listing on the stock exchange is the listing provides liquidity and a vehicle for speculation against an asset or collection of assets that are fundamentally illiquid. Even so, some businesses in energy, telecommunications and transport (including Qantas) that have been privatised in the past decade are still seen as providing a public service.

There are two models of corporate responsibility, according to British economists John Kay and Aubrey Silberston, who wrote a seminal study of corporate governance in the mid 1990s. These are the Anglo-Saxon agency model adopted by Britain, North America and Australia, where the company interest is served as a by-product of maximising shareholder value, and the trusteeship model common to Western Europe and Japan, where directors are expected to weigh the balance of the conflicting interests of current shareholders with the interests of present and future shareholders, employees, customers and the public.

The trusteeship model, which is still embedded in the law and practised increasingly in the breach, fits best with the prime responsibility of management to enhance the long-term development of the capabilities of the business.

The agency model, which the initial bid by the APA partners pretended to address, stands in direct conflict with the role of the sharemarket, which is to divorce the time horizon of investors from the time horizons of the companies in which they invest.

What would be the response of shareholders if Qantas unions proposed a deal in which they got $400-500 million from the company in fees and an up-front payment of $4 billion financed by debt in return for a cut in wages offset by a profit-sharing deal? Union claims are weighed in the balance against the interests of the public and company interest. Why not shareholder claims?

The point is, faced with a Treasurer who is incapable of acting in the public interest, unless directors weigh the interests of shareholders against the interests of the company, who is there to do the job?

The public and shareholders who look at their Qantas shares as an annuity rather than a vehicle for speculation have been badly let down by chairman Margaret Jackson and chief executive Geoff Dixon, by whichever criteria of directors responsibility is used.

Either the two of them were remiss in not returning $4 billion in funds to shareholders before APA made its bid or they failed in their fiduciary duty by not recommending against the takeover proposal when they knew that it involved APA ripping $4 billion out of the company. Let's be blunt. Either the directors have been guilty of running a lazy balance sheet or they have not. If not, they are recommending a bid that endangers the long-term viability of the company. Worse, they expect to profit personally if the APA bid succeeds.

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Tuesday, April 24, 2007

Where did the rain water go?

It rained here in Melbourne over the weekend and it was a lovely sight. Unfortunately not for very long and we need way more over the next few months.
I'm not sure how you can measure the rainfall on a city. I know the weather forecasters will tell you we received 10 mm. but that is not the whole picture. If you are in the country and there are open fields and dams etc. the water just falls where it falls with some run off after the ground has absorbed it's fill. But here in the city all the surfaces are hard and impervious. The water runs off almost immediately. Off it goes down the spouting into the drains and off down to the streams/rivers and ultimately the sea.

Yep all you people who live in cities that collect their rain water like London, you read that correctly. Here in Melbourne we just let the rain water run down into the sea.

Why I don't know, so when the pollies are telling us about expensive schemes to make drinking water out of sea water or collect water from the far north of Australia, both very expensive. You tell them that when it rains in our cities we should save every drop of it and return it to the water system.

Forget rain tanks in back yards they can be hazardous. We need to look at water collection like our forefathers did and come up with schemes that can make a real difference and guarantee additional water for all Australians.

A note for Mandy: We are going to have a new government this year and it will probably be a change to Labor. But it will be as you said much of same.

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Friday, April 20, 2007

Pray for rain, he said

John Howard says pray for rain. We are in a once in a life time drought, maybe once in a thousand years. We haven't had decent rain, down here in the south east of Australia for the best part of years.

Yesterday the prime minister was shown a report on the water situation. Then announces that we need to pray for rain. He said other things to, mainly aimed at election year politics. Unfortunately for us the economic miracle that the Howard government has presided over has excluded insuring we are drought proof. You could say they have squandered their surpluses and asset sales.

After 10 years we are told to pray for rain. I am sure that if we had started addressing the situation 5 years ago we would have recycled water, rain tank subsides, efficiencies in industry and agriculture. We may of even go rid of cotton and rice farms.

If we end up with a really bad situation down here in south east Australia, we have only ourselves to blame. We have voted in these economic rationalists who have a bottom line and tax relief, as their main cause d'etre.

No country can be sustained on big business running the show. We need good governance to set up a workable infrastructure that can provide the basics.

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Thursday, April 19, 2007

Election year

Yesterdays paper, had a picture of our new leader of the opposition dancing with a day time TV host. There are photos of him giving the TV host tastes of his culinary skills. So what are we to draw from this. Is Kevin trying to soften his image, give the relatively small day time viewing public a lesson in dancing along the lines of, just wait and see me in 'Come Dancing' later this year. Or is it all a bit of fluff to fill newspapers/TV shows, which are now more than ever cross media owned and self promoting. Probably a mix of both.
Barely a month ago a story broke of how the new opposition leader had attended a Labor dinner at which a prominent ex premier of Western Australia had also attended. The ex premier is a disgraced person, he has been to jail for a white collar type crime. Done his time and is a free man again.
When this news of a dinner party that took place a couple years before he became the opposition leader. The government went ballistic, it was if Kevin had supped with the Devil himself. The treasure was particularly damming of this behaviour and implied that if you had dinner with this ex crim you yourself were as good as one.
With in days politicians who had had some contact with ex crim premier were coming out of the woodwork from both sides of politics. I didn't here the Treasure give any sort of apology to Kevin, and the show went on.
The above is to describe how we are manipulated by politicians and media alike to praise, applaud, revile, laugh, despise, etc etc at their whim. On the one hand we have the over serious moral attitude that is shown when a pollie wants to show up the weakness of their opposition. And then you have the kissing babies approach when you they want us to think they are kind caring type people. Another six months of this before the next election. and all we are likely to get is same same as the Thai saying goes.
The worst of it is that here in Australia, we actually have to vote. We can't say "no" my democratic right is to not vote if I so please. And then to top it off they say the vote you have cast could end up going to someone you haven't even considered as a member of parliament.

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Tuesday, April 17, 2007

Been Away

I have been camping over Easter and way away from technology. I have come back to find some members of the Federal government have woken up to the fact that the take over merchants who want to buy out Qantas are going to take billions of dollars out of the airline and make the rest of the debt in the company tax deductible. The treasurer knew about this and said it was OK for the takeover to go ahead. Looks like there is nothing we can do to stop this sort of take over and behaviour. It has been going on for ever and we are fooling ourselves if we think this type of privileged behaviour has been stopped.
On a happier note, watching planets glide across your telescope lense is bliss on a clear autumn night.

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