Financial Crisis Made Easy

The first two sentences were by Michael Lewis, my favourite author, in his new book Boomerang. Thought there was more room to describe the other countries, so I added the rest.


GREECE - The state destroyed it for the people
ICELAND - The banks destroyed it for the state
USA - The financial industry destroyed it for the state and the people
CHINA - Crisis, what crisis ... People, what people
GERMANY - The pesky neighbours are fucking up my neighbourhood
UK - Trying to be a financial center fucked us up royally, blimey
HK - Financial crisis? ... How's Singapore doing?
SINGAPORE - Financial crisis? .. My property prices got drop aah??... naabeh..
INDONESIA - Malaysia is making us look good, that's good enough
THAILAND - We had coup attempts, civil strife and unrest for the past 2 years, and our markets are still better than our neighbours down south ... maipenrai
MALAYSIA - We are untouched because none of our banks have any branches in Europe .. ha-ha, the beauty of being small

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What A Man, What A Legacy

The timing is ironic, just as Apple has taken the mantle as the world's biggest market cap company from Exxon Mobil. Jobs has been so influential globally for the last 20 years at least. The best thing I got from him is you do not give your customers what they want ... you create what they don't even know they needed. MBAs and people who manage via data and surveys will never achieve greatness, these are ass-covering jobs which they do when the projects or ideas they implement were to fail (oh no, but we did the survey and consumer testing ...). Greatness comes from knowing deep inside of you something you should do that you think will work.





“Being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful… that’s what matters to me.”


“Be a yardstick of quality. Some people aren’t used to an environment where excellence is expected.”


“The only problem with Microsoft is they just have no taste. They have absolutely no taste. And I don’t mean that in a small way, I mean that in a big way, in the sense that they don’t think of original ideas, and they don’t bring much culture into their products.”


“My job is to not be easy on people. My job is to make them better.”


“We don’t get a chance to do that many things, and every one should be really excellent. Because this is our life. Life is brief, and then you die, you know? And we’ve all chosen to do this with our lives. So it better be damn good. It better be worth it.”


“Almost everything–all external expectations, all pride, all fear of embarrassment or failure–these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.”


I don't know why, but when I heard the news today, this song suddenly appeared in my mind, I think its the word "quest" ... from now on this song from Man of La Mancha will always make me think of Steve Jobs ...

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This Is A Critical Component Of Corporate Governance Too

While we have been harping on how minority interests have been trampled on lately, CEOs and directors of listed firms need to be clear that executive compensation is also a very critical component of Corporate Governance. Its high time that the directors, esp the independent directors  ... can defend or is able to defend their respective company's executive compensation properly. 

How did they arrive at the figure? Was this part of a long term or short term incentive plans? How did the company perform over the past year, 3 years and 5 years in terms of the usual measuring metrics, plus other intangibles such as reach, branding, market share, etc.?



Moola posted the 2003 figures, so I thought it would be a nice contrast to the most recent figures. I have rated the compensation by X, OK or UP: the first being grossly overpaid, the second is within acceptable boundaries, and the third is under paid. The factors taken into consideration: revenue, profit performance; debt management; size of company; competitive level of industry; demand on management skills; market share penetration; strategic vision for the company; leadership skills; share price returns to shareholders.

The Year 2003 (Total in 2010)
X Genting (Malaysia), CEO Tan Sri Lim Kok Thay (RM40.15-RM40.2m) RM111.4m
X Resorts World chairman, president cum CEO, Tan Sri Lim Koy Thay (RM16.65 million and RM16.70 million) RM48m
OK Berjaya Sports Toto CEO, Tan Sri Vincent Tan gets between (RM8.15 million-RM8.2 million) RM23.6m
OK IOI Corporation executive chairman, Tan Sri Lee Shin Cheng (RM6.90 million-RM6.95 million) RM56.3m
OK IOI Properties' executive chairman Tan Sri Lee Shin Cheng (RM6.90 million-RM6.95 million) ~ (taken private)
X Star Publications (Malaysia), CEO, Datuk Steven Tan Kok Hiang (RM6.35 million-RM6.4 million)
OK Hwang-DBS (Malaysia), executive chairman Datuk Seri Hwang Sing Lue (RM4.42 million)
OK Rashid Hussain executive chairman, Datuk Sri Sulaiman Abdul Rahman Taib (RM4.3 million- RM4.35 million)
OK RHB Capital executive chairman, Datuk Sri Sulaiman Abdul Rahman Taib (RM4.3 million-RM4.35 million)
OK MK Land executive chairman, Tan Sri Mustapha Kamal (RM3.652 million)
UP Public Bank non-executive chairman Tan Sri Teh Hong Piow (RM3.65 million-RM3.7 million) RM23m
OK Yu Neh Huat executive chairman, Datuk Dr Yu Kuan Chon (RM3.6 million-RM3.65 million)
OK Landmarks managing director, Mohamad Abdul Halim Ahmad (RM3.1 million- RM3.15 million)
UP PPB Group executive chairman, Ong Le Cheong (RM3.1 million- RM3.2 million)
OK Edaran Digital Systems executive director, Mohd Shu'aib Ishak (RM3.05 million-RM3.1 million)
X Malayan United Industries chairman cum CEO, Tan Sri Khoo Kay Peng (RM2.9 million-RM2.95 million)
OK Berjaya Group chairman cum CEO, Tan Sri Vincent Tan Chee Yioun (RM2.85 million-RM2.9 million) ^
OK British AmericanTobacco (M) executive director, Russell Scott Cameron (RM2.812 milion)
OK Berjaya Land CEO, Datuk Robin Tan Yeong Ching (RM2.8 million-RM2.85 million)
OK DRB-HICOM group chairman, Tan Sri Mohd Saleh Sulong (RM2.60 milllion-RM2.65 million)


Here, you can see that good compensation does not guarantee superior performance. In fact, some of them were terribly managed, from the 2003 list, lets not mention names.



The Newbies In 2010 List Who Did Not Make The Shortlist In 2003
OK CIMB, Nazir Razak, RM18.5m
OK Maxis, Sandip Das, RM13m
OK SP Setia, RM20.4m
OK YTL Corp, Yeoh Tiong Lay, RM34.4m
X Masterskill, Edmund Santhara, RM8.7m
OK Tan Chong Motor, Tan Heng Chew, RM12.5m
UP AirAsia, Tony Fernandes, RM18.3m
OK Mah Sing Group, RM10.8m

Do we see anything wrong with the compensation scheme? Independent directors, please note, the ball is in your court ... the controlling shareholders will always tweak compensation in their favour. Its up to the independent directors to ask for transparency to be better, to ask the board come out with a clean and clear remuneration package and incentives that is fair to all, especially minority shareholders.

a) If you pay yourself RM50m or RM100m, how do you draw the line between proper incentives and motivation to run the company well, and just plain excess. If you move past the RM50m mark, what is there to stop you from getting RM200m or RM300m a year? Hence there must be clear guidelines and goalposts to mark your achievements. 


Back to Genting, if the board can issue clear guidelines declaring IF the company can notch 3 straight years of net profit growth of 12% annually, that there will be a RM30m bonus to the CEO; and if the share price can achieve a compounded annual return of 15% a year, the CEO will get another RM20m; and if the company can make sure that the return on capital deployed is at least 9%p.a. for 3 straight years, the CEO will gte another RM25m etc... That way, no one will care if your end package is RM50m or RM150m even, you deserved it. There need to be clawbacks clauses as well, that's why the performance is over 3 years, oe longer if warranted.

b) There is a silly mentality that if a person controls a company i.e. over 32.9%, then that person can do whatever he/she likes. WRONG!!! Even if you own more than 50% of a listed company, you must still govern according to best global practices. Those who still act and behave as if its their own family company tells you a lot about their mindset and where the pitfalls of the company are: lack of professionalism; not a true pursuer of global best practices; will tend to just get by on transparency issue rather than seeing the improvements in integrity and professionalism by doing so. The danger is that a CEO in this kind of situation may keep paying himself an excessive amount of compensation, whether or not it is justifiable or defensible. If you own it 100%, then its fine. Even if you own 99%, you still have to consider the interest of that 1% in that whether you have been paying yourself excessively.

c) Already you can see which are the more professionally managed firms, by being more professional, you can be more assured that all transactions will be more at arm's length, that they will not screw minority shareholders deliberately. The directors' pay at SP Setia, YTL and CIMB are excellent examples. You do great, you get rewarded, and even then within decent sums. CIMB did not do as well, and they got a lot less - they have a clear defensible formula that allows them to get good bonuses when the important performance metrics have been achieved.

d) If the US can come up with a deliberation of a US$500,000 salary cap ... are we so peacock-like to say our CEOs deserve more than RM1.8m in base salary even when they are managing companies that is ten or twenty times smaller? Base salary must be fair and attractive, but seriously you are deluding yourself when your basic pay is more than RM5m - that is so nonsensical and indefensible. I am all for paying a CEO a lot more than that, provided he/she performs, which is why there must be oerformance clauses clearly spelt out for all to see, and there must be clawback clauses. It must also be based on metrics that "add long term value" to the underlying value of the company. Superficial metrics such as: growth in revenue, number of outlets, number of markets, etc... Key performance metrics that create long term value: sustainable improvements to net margins; sustainable benchmarking to outperform interest rates by at least 300 basis point on capital deployed; ensuring employee turnover rate is less than 10% a year; etc...

e) The current craze and anger over finance executives' compensation and bonuses are justified. For my life, I could never understand how and why options granted to employees are not expensed out or deducted as a real cost!!! If its of no real cost/value, then the employees should not even find getting these options as attractive at all - if they want the options, it must because there is a value.

f) The other piss me silly thing is how financial industry (and other senior management of top corporations) employees can be drawing US$300,000-US$500,000 and still justify bonuses and stock options running into 2x, 4x, heck some even 10x their base pay. The most ridiculous defense given by them is "we need to align the interest of the executives with the shareholders". CBMF... give you US$300,000-US$500,000 a year also NOT ENOUGH to align your interests with the shareholders' interest??!! I guess the US$300,000-US$500,000 salary is only for me to fuck around in the company - interesting lesson, that should be in Management 101 for all MBAs. So, you are saying that you got US$500,000 to work at a company but your interest will NOT be directed towards making the best returns and nurturing the best growth plans for the company... which pays you US$500,000 a year UNLESS you get a truckload of bonuses and options???!! Please go jump off the nearest building.

g) In aligning directors’ remuneration with the firm’s performance, the company directors must carefully consider the performance indicators to be used. Generally there are three categories of performance measures:
Market based performance measures
In this category, the remuneration will be based on the movement of the share price of the company over the given period of time. The example of the indicator is total shareholders return. This indicator will measure the return earned by shareholders, expressed in a percentage in terms of dividend received with a share price.
Earning based performance measures
The indicator in this category is based on profit related measures of performance such as earnings per share (EPS), return on equity (ROE), gross profit margin (GP Margin) and net profit margin (NP margin).
Internal performance measures
 These are the most difficult performance measurements as the indicators used are subject to the special characteristics and internal environment such as the risks of the company. Examples of performance measures in this category include increase in the cash inflow due to improvement in overdue debtor accounts and higher profit as a result of group restructuring.
Other vital measures
Some things are harder to measure (not impossible) but nonetheless important: branding, reach, market share, defence strategies against competitors, investing for the long term, ability to move the company to the next level, etc.


So, especially for value or long term investors, pay attention to the company's attitude with respect to executive compensation. Stand up and ask the directors proper questions as to how they pluck the figure out of the air during annual meetings. You keep quiet, they will be braver next time, and next time.

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Dilbert@Malaysia

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PNB's Strategy Simplified

Sometimes, we give too much credit to people in the news, be they politicians, business leaders, etc. We tend to view something thats in suits and in print as surely something "better", "more knowledgeable",  "qualified" ... We tend to think they are smarter than the rest of us. We tend to think that they would have strategised very deeply before acting or saying things. 


Here I am not belittling PNB's strategy but let me try to simplify them. I think the recent wave of racialising and politicising the few recent mergers and acquisitions has been barking up the wrong tree. As a listed entity, owners will sell if the price is right. If they do sell, then its the end of story there. You can only politicise these things IF and WHEN the owners are forced to sell or "pressured to relinquish via indirect means". I do not see such untoward pressure with respect to Sunrise, E&O or even SP Setia ... but if we ask Robert Kuok, he may say something else.


Anyway, I digress, back to PNB's strategy. Mind you, PNB has been putting in returns of around 8%, a few notches above EPF, but of course EPF's cake is much harder to manage and the bulk is not in equities. Thus you cannot and should never compare PNB with EPF or EPF with LTAT. PNB is sitting on assets of over RM120 billion (based on 2010 numbers). Its investments have yielded at least 8.5% returns to unitholders for the past five years.In comparison, the Employees Provident Fund provided returns to unit holders of less than 6%, Lembaga Tabung Haji 4.5% to 7% and Lembaga Angkatan Tentera between 15% and 16% over the same period. (Hint: A smaller fund can benefit from say a large placement of Malaysian Sugar or Bumi Armada IPO, which will not make a dent for EPF or PNB).


If you want to simplify PNB's strategy, just look at the yield of their investments. Generally, they do not interfere with management's direction. Just look at the yield and you know where their problematic holdings are.


PNB should be very pissed off with Sime Darby. As PNB has a sizable stake relative to its portfolio, the returns will be affected as Sime Darby tries to revitalise itself, which may take another 2 years. Hence they needed to boost their yields via other investments. 


To make a significant play, their current stake must not be too high, SP Setia falls into that category. The yields looked good relative to the projects secured. Mind you, PNB has also privatise Island & Peninsular and Pelangi, as they provide decent yields but not sufficient liquidity to need to be listed still. Lack of liquidity means poor market valuations and a difficulty in raising funds for expansion, so, better to take them private. 


In line with that, obviously someone came up with the idea that you can best have a stable yield by locking up decent property companies with established portfolios. To that end, it would not be far fetched for Sime Darby to have consulted with PNB on that strategy: before taking up E&O.


The move to privatise SP Setia was great timing as markets were badly affected by the current EU sovereign mess. SP Setia's rapid drop below RM4.00 to nearly RM3.40 was an excellent window to launch the RM3.90 bid, it looked relatively good (in my view, yes, it undervalues SP Setia still by at least 15%, and yes minority shareholders should NOT accept). 







So, that should have been PNB's strategy, but somehow we all like to speculate and over think everything. 

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Dilbert@Malaysia .. socialising after a Corporate Governance seminar

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What A Gem

Easily, the most talented Chinese singers alive ... Eason held his Beijing concert over the weekend and had 50,000 attendees. Thats why making it in China makes a whole truckload of difference. Eason knew Faye Wong had never agreed to be a guest performer in any concerts before, but had try anyway since he was performing in Beijing. Faye agreed after thinking it over on the premise that Eason does not talk to her and she need not say anything. I have been to Faye's concert before and it was pretty mundane as she just sang and sang, no dancing even. She is quite a character.


Probably never to happen again, its a wonderful moment ... and you can see how ecstatic Eason was after the song.

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