CEO for 20 minutes

How would you like to be CEO for 20 minutes ? No this is not one of those employee motivation exercises, nor is it a joke. This is all too real.  That's precisely what happened to Bill Johnson the CEO designate of Duke Energy.

All this arose from a merger between Duke and Progress, two giant utility companies in the US. It is now the largest electric utility in the US. As is typical in such merger of giants, the CEO of Duke was to become the Chairman of the combined entity and the CEO of Progress, Bill Johnson, was to become the CEO of the combined entity. Regulatory and shareholder permissions were sought , and received. All very good. On 27th June, Bill Johnson signed his new employment contract and  that was that.

The merger was consummated at 4.00 PM on Monday 2nd July. Immediately thereafter the new Board met and sacked Bill Johnson. At 4.20 PM Johnson resigned - he resigned rather than refusing to do so, as he was getting a $10m settlement that way. CEO for 20 minutes.

This is not a tin pot company, nor is the Board a bunch of jokers (although you have to rethink that now). Both the companies are giants in their own right and the combined entity is a behemoth. And yet, did they seriously believe that they would get away with this sort of behaviour? Did they expect the regulators and the shareholders to keep quiet. Even a moron can see that this is probably the worst move that you can make.

Mergers and acquisitions are notoriously difficult to implement. More go wrong than right. But if you start off like this, what chance do you have of any success ?

The future is all too predictable. The Board will defend for 3 days that all was right. Public and regulatory outcry will build up. Then the Chairman will resign. As will a few more Board members, if not all. A new CEO will be appointed. More turmoil. And the acquisition will steadily go downhill. Two years from now, Progress will be divested at one tenth the acquisition value.

It boggles the mind how corporations can monkey around like this. They seem to be their own worst enemies.

PS. Since all this drama is happening in Gils's current hometown,  perhaps, the esteemed blogger might pen a first hand account in the comments section :)

When "information" equals garbage

It is a fundamental tenet of capitalism that an investor should be fully informed of all matters relating to his investment. Over the years, regulatory authorities have been increasing disclosure requirements so that there is as much transparency as possible. But has this gone too far ? And has the overreaching legal recourses, especially in the US, led to the purpose being defeated ? No this is not a boring, dry post. Read on.

Take the case of Manchester United's IPO filing (if you ask what Manchester United is, I'll clobber you). IPO filers are required to disclose the risks associated with their business. Fair enough. But look at Man U's risks disclosed. They have listed 51 risks. Amongst them are such gems as

• There could be a decline in the popularity of football (beggars belief)
•  To service our indebtedness, we require cash, and our ability to generate cash is subject to many factors beyond our control. ( Ha Ha)
• We are dependent upon the performance and popularity of our first team. (Really ?? - this is like a company saying that we are dependent on the popularity of our products)
• If we fail to properly manage our anticipated growth, our business could suffer. (this is supposed to be an earth shattering revelation)
• Our international expansion and operations in foreign markets expose us to risks associated with international sales and operations (brilliant insight which we otherwise did not have).

There are 51 such gems and monuments to inanity. Obviously lawyers have written this piece of garbage, including everything they can possibly think of. I am surprised that they did not add the following, which I will freely offer for inclusion in the filing

•  Wayne Rooney (Man U's star striker) might develop a pimple on his ass that might prevent him from scoring goals
•  An asteroid might hit the earth tomorrow
• All other teams in the league might gang up and refuse to play Man U saying that they are fed up of getting thumped.
• The queen might die and Prince Charles might succeed her (Prince Charles is a known Burnley supporter)
• China may pass a law banning the Chinese from wearing Man U T shirts on the grounds that the Dalai Lama visited Old Trafford for a game.

This disclosure business has gone too much. To cover their asses, lawyers disclose a mountain of irrelevant stuff. Any sane follower is buried under a ton of garbage. Take Annual Reports of companies. They have become so bulky and big, that nobody reads them anymore. They are also written in such complex legalese that they are largely unintelligible to anybody. The only thing that anybody even sees , if they ever open one of them, is the constipated faces of the pompous Board. So much for the riveting reading annual reports make.

The purpose of full disclosure has been completely thwarted. Only three classes of people read these things these days. Lawyers who wrote the gibberish in the first place (I am not entirely convinced that they read it, but we shall give them the benefit of doubt). Lawyers looking for ways to sue. And finally a few unemployed  bloggers like yours truly.

There's something very rotten in Finance

Can a whole industry be rotten ? Definitely not. As in any field, you should expect the good, the bad and the ugly. But increasingly it is difficult to spot anything good with the financial services industry. Consider the latest scandal to hit the headlines - the manipulation of LIBOR by Barclays and 20 other banks.

LIBOR (which stands for London inter bank offer rate) is one of the prime interest rate benchmarks in the world. Many interest rates are fixed at LIBOR plus a premium. LIBOR should therefore be an impartial market rate based on which a whole lot of other transactions revolve. But it now comes out that Barclays has been manipulating this rate for a while. A fine of $450m has been imposed on Barclays and a probe is on with 20 other banks.

I know greed is a universal vice and an industry that directly deals with money is especially vulnerable to an overdose of greed. Yet it would be difficult to find an industry that has so allowed its core to rot . One after another, examples of insane risk taking, outright fraud, manipulation and criminal behaviour is coming to light. Action by governments has been patchy at best.

There is almost no  financial player that has remained untouched. Mention banks and every bank of renown has been in trouble. Mention insurance and the likes of AIG and Marsh & McLennan come to mind. I don't even need to comment on the likes of hedge funds and other less savoury players. Even the most reputable names in the business (Barclays is one of them) have been caught in wrongdoing. How can this be - a whole industry cannot be bad ?

The best brains in the world go into finance. And this is the field that seems to have the deepest rot.  Says something about the value systems of bright people. The state of the industry has gone beyond outrageous levels and has to be stopped.

Draconian action has to be launched by governments against the industry. It has to be made the most boring business in the world - so much so that the best minds recoil from going there.  All the scare mongering that capital for business would dry up should be discarded - there is enough capital in the world and like water, it will find its way to the best businesses. If some forms of risk management become impossible - it doesn't matter; the plethora of so called hedging products have created more risk than provided insulation against them.

The Reserve Bank of India stands out , amongst global central banks, by being bulldogish and refusing to allow any form of sex appeal in Indian banking. They have tried their best to keep Indian banking a boring business. By and large Indian financial institutions have escaped from major disasters - we have the RBI to thank for this. 

I hate to say this, but even Ramamritham has his uses !