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• CORPORATE GOVERNANCE  Investor Relations, Speculator Column Winter 2016

Who says Trump doesn’t make money for shareholders?

Who says Trump doesn’t make money for shareholders?

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November 8, 2016 | By Ian Williams

Astute IROs should restart the printing presses and ensure their own celebrity CEO adorns stock certificates

A few passing observations of the different operations needed to manufacture a sewing needle and of the practices of canny 18th century Scottish bankers gave Adam Smith the material for his concept of an ‘invisible hand’ that creates the wealth of nations. When great ideas and perceptions come into proximity at the same time, they can be sewn together to form a new pattern in the minds of men and women.

Our era is amazingly productive of such ideas. We have all sorts of theories, some contradicting each other, but happily adopted simultaneously by national and international leaders desperate to show they are ‘doing something’, as they boldly go across the thin economic ice where none has gone before. Along with trickle-down ‒ and trickle-up ‒ analysts try to cope with the increasing reluctance of economic reality to follow their prescriptions, let alone their predictions.

And alongside these macroeconomic fads is the cult of the celebrity executive, the CEO whose name is so numinous that it attracts offerings from awestricken investors. It surely betokens some deep anthropological need on the part of investors to gild their idols’ feet of clay, continually pumping money into companies whose falling profits and stock prices are inversely proportional to the compensation their management takes.

Ruminating on the news that the Federal Reserve, picking up from European central banks, was contemplating negative interest rates, I came across a scripophily advertisement that proves the point. Trump Hotels and Resorts raised $140 mn at its IPO 20 years ago ‒ and to show what made it attractive, its ticker symbol was DJT, and its snazzy certificate not only had the man’s signature but also had his portrait, hair and all.

Intriguingly, the prospectus invoked ‘THE TRUMP NAME’ (sic) claiming that ‘The Company capitalizes’ on the name’s ‘widespread recognition’, and ‘reputation for quality’. It overlooked mentioning that the huge tax losses on the properties had already been taken by the man selling them to the company that bore its name, indemnifying him against income tax for decades. The NAME notwithstanding, the stock price plummeted from $35 to 17 cents a share. Predictably, the eponymous holder of the voting shares took out more than $80 mn in pay and benefits even as the company lost more than $1 bn.

And in case readers think we are jumping on a bandwagon, I should point out that IR Magazine’s Speculator column first adumbrated Trump’s business acumen 18 years ago and returned to it 10 years ago.

Now some investors of little faith might have been tempted to sell that stock, but true believers in the Donald who held on to the share certificates gained the benefits of long-term investors. The certificate shown below, obtainable for mere pennies in 2004, is now selling for more than $140. Who said the Donald never made money for shareholders!

Taken together, this is inspirational for the investor relations community, introducing a whole new dimension to shareholder value. Throw in Trump, retail investors like those who bought into his company or Tyco, along with the idea of negative interest and we have, blazing like the military-style lasers probably spamming your mailbox now, negative dividends!This is surely a concept whose time has come, since it simply formalizes the common practice of shareholders paying for the privilege of compensating CEOs.

Since it is THE NAME that counts, astute IROs should restart the printing presses and ensure their own celebrity CEO adorns stock certificates and that stockholders are invited to regular bean-feasts with their idol with pictures, regular tweets and messages.

But we need to formalize the returns for the designated celebrity and not just rely on the vagaries of Chapter 11 ‒ hence the innovative idea of negative dividends. Ordinary shareholders should pay quarterly to the company to ensure the CEO has the lifestyle they emulate and want to vicariously share by being stockholders. Like a government run on a no-tax basis, there might be a few glitches to begin with, but the negative dividend has wings. It will fly – all the way to your favorite tax haven!

Arriviste Riche vs Arrivée Riche

Letter From America: Ian Williams

Written By: Ian Williams Tribune, London

Published: November 19, 2016 Last modified: November 17, 2016

At least the Clintons are consistent. They maintained a serene sense of entitlement almost to the end of the election night count. They had explained that the cancellation of the victory fireworks display in the East River was a consequence of the lateness of the count rather than a lack of confidence in victory.

That complacency had been unperturbed by Obama’s victory over Hillary and hardly dented by the Sanders’ upsurge. They really did not see how much they had alienated their traditional constituency with the huge gap between what she was forced to support by the Sanders’ campaign and her actual delivery on these issues.

The emails were not the major treasonable activity that Fox News would have, but the whole episode and her treatment of it, betrayed an arrogance that epitomised her whole campaign. To take huge fees for speaking to the bankers in private while denigrating them to the electorate was insulting the intelligence of the latter, not least when she refused to disclose what she had actually said.

It was historic irony that two such well-heeled candidates, both ethically challenged, should have been appealing for the votes of the victims of the system that had enriched them both. In the end, however, as always in American politics, it was race that won the race. The ‘Centrist’ politics of New Labour and Clinton’s Democrats is a mixture of liberalism on social issues of gender and identity thinly veiling unabashed neoliberalism on economic issues. It has a superficial charm: bankers and billionaires can indeed be gay and broadminded racially and continue raking in the benefits of a government and fiscal system loaded in their favour.

But the New Democrats depend on minority votes, so the Clintons specialized in vociferously and publically courting them as a vote bank – while screwing them with neoliberal policies, just as New Labour took working people in Britain for granted, paving the way for Farage and his ilk.
During the Sanders campaign many leftists bemoaned his lack of traction in the black community. Whether designedly or serendipitously, the Freedom Road rider and struggler for civil and economic rights eschewed Clintonian verbal pandering to the black community. His approach might have cost him the primary –  but it very likely would have won him the election.

The polling data suggests that too many of the minorities saw through Clinton’s feigned affection, while many white working class voters were alienated by her ostentatious courting of black and Latin voters as she happily gadded with Goldman Sachs and the rich elite. Sean McElwee of Demos published some interesting data on the prejudices of white working class voters showing how they feared minority competition along with elite domination, and it is a convincing explanation of where Trump’s support emerged from on election day.

In the dewy-eyed New Deal nostalgia of the left, we often overlook FDR’s very cynical deal, which was to ensure support for its policies by excluding most American blacks from its direct benefit. Those attitudes are alive and well, even, one might say even more so, in a country with a black president in the White House, not least a technocrat President who integrated rather too seamlessly into the neoliberal Washington consensus.

With all that, however, the incestuous political punditocracy’s assessment of electability has proven completely wrong and polls suggest that if it were not for the machinations of the Democratic leaders we would now be cheering a President Sanders. They completely missed the louche charms of Donald Trump, who, despite his inherited wealth came over as an outsider, a brash self-made man not scared to confront the metropolitan elite and their consensual ranks.

Of course, he now has to meet the expectations his insurgent candidacy have raised, and, sadly, highly visible executive action like beating up on immigrants is far easier than actually creating the jobs and wealth he has promised his supporters. One of the iconic moments of the election day was Trump turning up to vote in New York and being booed by a typical Manhattanite crowd. But not all TV clips showed that, up on the scaffolding across the street, the hard-hatted construction workers were cheering a man whose first major project employed undocumented Polish workers, who had to spend years in court to get their minimum wages out of him.

They probably could not afford to live in Manhattan, let alone in the apartments they were building, but the unions that secured them a living wage will be under threat from Trump policies now backed by Republican majorities in Congress. Trump is no ideologue, but he has surrounded himself with as slimy a bunch of ethically challenged conservatives as ever slithered out of the undergrowth. One hopes his arrogance will cow Giuliani, Christie, Gingrich, Bolton and the like, who even the hard right Republicans had shunned. If he wants a second term, he has to meet the expectations he aroused in the Rust Belt.

Selfish Success and Succession!

Investor Relations magazine, Fall 2016

Gold-plated CEOs have little incentive to appoint successors

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August 29, 2016 | By Ian Williams

Ian Williams ponders the best way to hire a figurehead

There has been a recent spate of complaints that boards and CEOs are not planning for CEO succession. Why is anyone surprised? Imperial CEOs assume the company will go to Hell in a handbasket as soon as they leave, and if CEOs need their maws stuffed with gold just to deliver good results, why would they care what happens once they have landed with their golden parachute? 

Just how essential are a CEO’s talents for a corporation? Like the divine right of kings, the indispensability of the CEO seems deeply rooted – but rarely investigated – in IR lore. CEOs are surrounded with awe and pomp while in office but, with a few rare exceptions, in reality they are ephemeral shooting stars who are almost instantly forgotten when they go. Carly Fiorina’s inglorious executive career, for example, had been buried in the public subconscious until she chose to resurrect herself as a US presidential candidate, only to see her reputation reburied even more deeply. 

By contrast, we are likely to remember the Fords and the Bacardis and members of the House of Windsor: these bosses’ names evoke historically successful businesses. Dynastic succession does not always work, however. Many years ago I interviewed the bright and optimistic IRO of Seagram – just before perky young heir Edgar Bronfman, Jr took over and destroyed the company. Normally, family members care enough about their operation to keep upstarts on a rein, but young Bronfman was unconstrained. A good CEO might not make much difference to the upside, but a bad one can signpost the road to Hell.

In fact, one reason for lack of succession planning might be that CEOs are taking the Ottoman approach. The first thing a new Sultan would do is murder all the siblings who might threaten his position, and one cannot help but wonder whether CEOs paranoid enough to need golden parachutes and other protective paraphernalia to guarantee safe succession really want to identify potential rivals – other than to exclude them from the equation.

A CEO is indeed a figurehead for a company: the first person investors see. But if we examine the metaphor, the figurehead only appears to be leading the ship. In reality the engine room is below decks, while the vessel is actually steered from much farther back. But figureheads were often decked with gold, so there is indeed a resemblance to the modern CEO.

How necessary is all that gold, though? Ostentatious emoluments – the corporate jets, the golden parachutes, and the rest – are there like Queen Elizabeth II’s privy purse, crown and state coach: so the incumbent can live up to the expectations that employees and shareholders hold of the company. 

The purpose of pretending to try outside recruitment is to boost the myth that there is a market for CEOs, so that the compensation committee the CEO appoints will be trapped in the whirring treadmill, always paying more than the average, and the few who are appointed from outside contribute admirably to the expanding universe of executive pay by doubling their remuneration. 

Above all, however, it is clear that a CEO’s main tasks are to perform for the shareholders and public, and to boost morale in the company. It is not that high pay is necessary to incentivize these executives, for surely they would give their all for the company anyway, out of loyalty? No. 

Preferably, then, the CEO succession should be from within the company so the candidates know its idiosyncrasies. For the pool of CEO candidates, therefore, the line of succession should clearly come from the IR department. IR people need some coaching in the simulation of leadership – acting, voice coaching, deportment and similar skills – but no one can match their knowledge of corporate workings. At last, a figurehead that thinks!

Then again, CEOs should epitomize, not exclude themselves from efficient market theory, which suggests that CEO contracts, like all others should go to the best qualified – and lowest – bidder, which in turn reinforces using the IR department as the recruitment pool – because everyone knows that IROs come cheaper than all others. 

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