Now THAT’S Pain!
Archive for February, 2009
So Long Sol
One of Australia’s most contentious CEOs is leaving at the end of June. Sol Trujillo has been in charge of Telstra for the past four years. (Telstra is the former government monopoly telecommunications giant that now must face a competitive world post-privatisation.)
Australians love to hate Telstra - it’s part of the national identity. Yet additional venom has been reserved for CEO Sol Trujillo. In turn he’s alientated government, the media, the public, customers, unions and shareholders. You have to admit he’s been quite thorough.
Before he even took the job or started as CEO Trujillo had several factors working against him. Telstra has offered decades of shoddy service at exorbitant prices. When I first moved to Australia in 1990 it was common to have one call to the USA costing over $100. Today a $100 phone card can keep you in touch for two or three years! Repairs were slow and new installations were slower. Hence - we love to hate Telstra!
Second factor working against Trujillo? Sin of all sins - he’s American. And Americans are universally idolised and despised in Australia (or is it just me?). We’re loud, brash, know-it-alls. We wear sneakers with khakis and shout when talking would do. We’re ignorant of the world and its customs (”Look at the funny Australian money!”). And when we succeed we don’t fade into the wallpaper and share the credit - we thump our chests and say, “Damn right!” Ain’t that awful?
Last year Sol was found to be less trustworthy than…the Wiggles. For real!
But the king pin reason for the “I Hate Sol”club is his approach to government relations and business. He rallied against restrictive government policies that would have forced Telstra to provide competitors discounted access to trunk lines. He fought to retain market share. And he made it difficult for government to take Telstra for granted.
But (and this is a BIG but) Sol did so in a very public manner. He and his team aired their grievances in the media, on-line and in public. It was reminiscent of Karl Rove where “divide to conquer” approaches split red states from blue states, brother from brother. The “in your face” style of issues management was very out of place in Australia and very controversial.
So farewell Sol. And as for the replacement CEO? Get ready. Because you’re replacing Sol people will love you - but only a little. After all, you’re at Telstra. (That is unless you’re a Wiggle!)
The Pre-War Years: China & The Weimar Republic
Before World War Two, Germany endured a decade of economic losses spurred by the loss of World War One and the Great Depression. That period of time, called the Weimar Republic, was characterised by high inflation, currency devaluation, unemployment followed by a rise of nationalism and social unrest. With the vast scale of economic collapse globally I believe we’ll look back and call this time the “Pre-War Years”. Something’s gonna give - big time.
No country is being spared in the global economic collapse. Millions are jobless. In the USA in January 750,000 joined the ranks of unemployed. In the last six months 20 million people in China lost their jobs. That’s roughly the population of Australia. Government benefits are being rushed out to help but like all things government it will be too little, too late. Prices are tumbling and confidence has evaporated.
In time these collapses will ripple further. What happens when food production is impacted - or people can no longer afford dietary staples? One billion people lack access to clean drinking water. What happens when some of those live in Orange County or Barcelona or Beijing? When will civil discontent bubble into unrest?
In “Canadian Bacon” a fictional USA President finds his popularity waning. He believes war to be the best way to galvanise the public behind his presidency. Doesn’t take a large stretch of the imagination to foresee a Premier in China concerned about growing civil unrest - and using the same tactic to divert attention. And as always there are plenty of countries needing to be brought in line.
Other than the eternal bogeyman of China it is easy to see any country squabbling with its neighbours near and far over economic issues. Boost the tariff on pulp and watch Canadians get annoyed. Ban salted cod and the Portuguese are your enemies. Dispute a province and India is before the United Nations.
In times of economic unrest the quickest diversion for any politician is to externalise the argument. This isn’t the economy, stupid. This is war. Now it’s just a matter of when and where. Are the British betting agencies accepting wagers yet?
Detroit: Why Not Bankruptcy?
Auto manufacturers have been pressing Congress for more and more funds. They say bankruptcy is not an option - it would cause sales to plummet and consumers to lose confidence. Instead they press for billions in taxpayer funds. Columnists call for President Barack Obama to end the merry-go-round. He needs to let the companies fail, declare bankruptcy and restructure. Otherwise the US taxpayer will continue to pay for Detroit’s business mistakes. It’s time for a reality check - if Detroit is given handouts, when will it stop?
Silent Movie
Film is a wonderful medium - it allows more to be said in imagery and action that words can ever express. Animation is especially elastic. A French short film shows a wide range of actions and emotions - true love, distress, action, determination, salvation, surprise and, in the end, sacrifice. Take two minutes and twenty-five secnds and enjoy…
Time Magazine - Not Local, Not Global - Just American
A week after the worst peacetime disaster in Australia’s history - the massive bushfires that claimed more than 200 lives - “Time Magazine”published a cover story on the healing power of faith. The devastating bushfires were consigned to a page where the photo size exceeded the column inches of the story. Grief contracted to one-third of a page.
Later in the issue was a two page expose on the US Defence Secretary’s strategy for re-building the American military. And a riveting story on healing through prayer.
To me it is contemptuous that “Time” would claim to publish a local edition then forego covering that nation’s most pressing news. This is the fall-out from cut-backs last year. In November 2008 “Time” shuttered offices around the world - via teleconference! “The Daily Telegraph” reported on the news (25 November 2008):
Time Australiaeditor Steve Waterson told The Daily Telegraph Online he and the Sydney bureau’s nine staff were told of the closure last night on a conference call from the US.
“They told the journalists they are are going and that our edition is closing down,” Mr Waterson said.
So in their grand effort to bolster the bottom-line “Time” has decided to forego any local reporting and provides Australian subscribers a US-centric view of the news. But it seems the Septics now fail to provide Loo-worthy reading. Perhaps there’s another use for “Time” while we’re in the dunny?
How to Alientate Shareholders and Lose Power
The turmoil within the top ranks of Rio Tinto has spillled out onto the front pages of the newspapers today. Shareholders are angered at management’s refusal to discuss the Chinalco deal and feel top-drawer assets are being sold at bottom-of-market prices. There’s lingering anger over the purchase price and terms for Alcan. And the deal with China’s state-run company wouldn’t be necessary if Rio Tinto hadn’t been so forceful rejecting all overtures from BHP Billiton.
Today’s The Australian reports that institutional shareholders do not support the Chinalco offer and may be seeking to oust CEO Albanese and Chairman Skinner. Said one:
“Shareholders have been more vocal against this deal than I’ve seen in a long time - it’s unusual to see people that active.”
Adding to their ire, shareholders have been unable to meet with CEO Tom Albanese. He’s also been forced to delay business trips as he seeks to deal with growing shareholder discontent.
Shareholder activism is a rarity in Australia. Individuals and institutions tend to accept the leadership of companies and rarely disagree. The majority of annual meeting proposals are accepted with a vast majority. Occasionally a block of disaffected shares will be voted against management but rarely do they override the company’s plans.
In Rio Tinto’s case the vast majority of shareholders are based in the UK - some 78% of the stock is held in Britain. So the upsets and outpourings reported down here are all the more unusual. We’re witnessing a glimpse of how other markets deal with belligerent management.
On-line journal “Crikey” founder Stephen Mayne is a one-person gadfly (individual shareholder activist). He has a diverse portfolio owning one share of most Australian companies. Like Charlie’s golden ticket to enter Willie Wonka’s factory, Mayne’s sole shareholding entitles him to enter annual meetings and query top management. He rides that single share for all it’s worth.
“The Mayne Report” chronicles one man’s journey to keep companies accountable to retail shareholders. It’s a valiant battle and one that may be like attacking paper tigers. The slashing and jousting may lead to nothing more than paper cuts.
But for all Stephen’s efforts the concept of shareholder activism is best raised when unrest at a company like Rio Tinto spills out into public. We’ll continue to watch this company and it’s battles as it sets the stage for change brought about by concerted shareholder action. Australia’s shareholders may be sleeping dragons but Rio Tinto CEO Tom Albanese looks to be the unlucky knight who woke this beast.
Superhero China to the Rescue!
Australia owed its success in the first half of the 20th century to wool - it was ”a lucky country” built “off the sheep’s back”. In the 1990’s the economy powered through a decade without recession due to increased demand for minerals. Raw exports from Australia fed the growth in Asia and particularly China. In the same period China built vast reserves due to growth in trade. Australia was one of a very few countries with a positive trade balance with China. The USA faced a record imbalance as it relied more and more on China’s low cost imports.
Today China still has vast wealth reserves. Couple that with a desire to secure long-term resources and the country is sitting pretty.
Australia’s Treasurer Wayne Swan faces difficult decisions as China’s state-owned minerals company seeks to buy into Rio Tinto, one of Australia’s largest mineral companies. (Further complicating matters Rio Tinto knocked back an offer from BHP Billiton and now may accept a lower offer due to financial stress. Their gamesmanship didn’t work. Checkmate, Rio Tinto?)
Is China using the global economic crisis to sweep into long-term deals? You betcha!
In Russia a loan was announced today where two oil companies receive $25 billion from China in exchange for long-term supply contracts. The frankest summation comes from Charles Freeman at the Centre for Strategic and International Studies in Washington DC:
“Realistically, there is nowhere to go but China.”
But China faces an enormous image issue - as they experienced during the Olympic Torch Relay. A large number of people around the world distrust the Government of China. Human rights, Tibet, Tiananmen Square, censorship and other serious issues are raised. But today the country with cash is king. And China is awash in foreign currencies. It is one country able to buy USA bonds to fund the massive bail-out.
China has become a lender of last resort - and one we are highly, highly dependent on. William Shakespeare said:
“Misery acquaints a man with strange bedfellows.”
Shove over America, Australia, Russia and others - make room in bed for Superhero China!
Learning from the 1930’s
Barack Obama signed a bill today in Denver apportioning US$787 billion to stimulate the USA economy. That same day his aides say the President has not ruled out a second stimulus package.
Here in Australia AU$42 billion has been approved to kick-start the local economy. (Actually kick-start’s a poor verb. Australia hasn’t officially entered recession yet. The package will keep Oz on life support and out of the red.) Similar packages have been approved in dozens of other countries.
Yet on the day the bill was approved the Dow Jones fell, as did other major indices. The markets had already factored in the stimulus bill. They were responding to the dire news out of Japan. Tokyo forecasters say the country is in the worst recession since WWII. In many ways this downturn is looking more like a long-term depression that a temporary recession.
In the novel “Water for Elephants” by Sara Gruen readers follow a circus worker in 1930’s America. In one scene he is met at the train station by a local official and notes what an expensive car the man is driving. He comments that many would have been less excessive if they’d known what that Friday in October 1929 had in store.
So. We’re not the first to go through this. What did our grandparents and great grandparents do to survive? My Aunt Lottie washed plastic bags and reused them. Her husband Al saved string and had multi-coloured balls of it in various drawers. But more than that they did without.
Coles Supermarkets has already reported a decrease in steak sales and an increase in sausage sales. People are starting to trade down and do without.
What more can we learn from the dire decade of 1930 to survive the coming years?
The Lost Decade
Late last year forecasters said the economic downturn would be bad for the first half of 2009 but by July we would see recovery. Then in January predictions were for a grim 2009 but a quick recovery in 2010. But last night Wall Street tumbled (again) and the Australian dollar sank in sympathy.
In Japan the 1990’s are known as “the lost decade”. Economic policy and deteriorated confidence led to ten years with no economic growth. The country was at a standstill.
Take a walk around your town. Take notice of the “For Lease” signs. Notice the businesses having sales of 50% off or more. Many of those closing down? Look for construction sites at a standstill. What about houses for sale? Any of those under the instructions of the mortgagee? Stop for a coffee and read the newspaper. In the USA in January over 600,000 jobs were lost. That’s one month alone. Companies are closing. Retirement savings are lost. Squatters are occupying million dollar homes. Twenty million migrant workers in China are unemployed and are back in the countryside with nothing to do.
I believe we are at the start of a lost decade. It will take that long to return to the heady economy we enjoyed just one year ago. Shops will sit vacant. Construction sites will overgrow. The newly unemployed will become an army of part-time workers scrambling to make due. And governments will spend and spend.
It is a sad, scary and sobering thought. That’s not a speed bump ahead - it’s a brick wall.
