Friday, July 3, 2009

Seppuku looking like an attractive alternative to doing nothing

I am not asking for a ritual Seppuku that originated from Japanese Samurai Swordsmen and is still practiced occasionally by shamed Japanese CEO's today but bloody hell I would like at least an attempt at showing responsibility and least some sense of shame when our business leaders do wrong. (gee I have been writing some negative stuff over the last few days - I will be back to stocks next column, I promise)

New Zealand leaders, especially the CEOs of our listed companies are renown for not taking responsibility for making mistakes and costing shareholders precious dollars and company reputations, in fact some have made an art of the practice.

Our company and cultural history is unfortunately littered with a very long list of them.

I have one such man in my sights for special attention, John Bongard from Fisher & Paykel Appliances [FPA.NZ]

When the company announced a few days back the appointment of two new board members from their largest shareholder and recent savior of the company from collapse Haier, one might have expected JB to take a running leap off a short board table and announce he would be taking early retirement from his CEO position.

It seems that it s not to be but that is not unusual in these days of avoidance of responsibility

John Bongard borrowed too much money too quickly to move the New Zealand domiciled and created company to overseas manufacturing bases and buying an overpriced European appliance maker a few years ago with borrowed money certainly didn't help -sure expand, but do so in a financially prudent and methodical manner without putting your company and your shareholder's moola at risk.

The thing is you eventually have to pay the money back or default on your loans as FPA did.

Go on, while I'm having a bitch I should be having a go at the rest of the board as well because they voted along with JB.

Lets hope the two Chinese gentlemen that have just put their feet under the board table can sort out the bottom drawers from the top loaders.

The company will simply limp along in the same hopeless direction they have under Bongard if they don't.


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c Share Investor 2009

Thursday, July 2, 2009

Bruce Sheppard: Mark Weldon - "The Sherrif of Nottingham"

Something that I have been banging on about for years is the lack of independence of Mark Weldon and his New Zealand Stock Exchange [NZX.NZ] and the very lose structures built around Mark's fiefdom that are supposed to protect shareholders, mostly smaller ones like me.

Its partner in crime, the Securities Commission, has as much bite as Jaws with dentures and is as hands off as a doctor treating a patient with swine flu when it comes to any enforcement.

In Bruce Sheppard's column this last Wednesday he manages to articulate my feelings with alot more detail, finesse and institutional fact.

"The listing rules allowed NZX to grant waivers, of the rules. Shit, this meant that NZX could enforce its rules on everyone else but waive them for themselves. Worse as NZX investigated breaches and prosecuted them, judged the results of the prosecution and fined the offenders, this too created a terrible conflict. How would NZX treat itself if it were to breach the rules?" Read the full article here.

The waiving of NZX "rules" has been high in stockmarket news of late as they have been so busy waiving their own rules for various capital raisings that smaller shareholders are wondering whether it will be their company next that will dilute their shareholding in favour of bigger shareholders.

Essential reading for every small shareholder.

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c Share Investor 2009

Wednesday, July 1, 2009

Cadbury could learn a thing or two from 1980's Coca Cola experiment

When you mess around with an iconic product that your customers just love to obsession just because you think you can save money by changing its appearance, packaging and well and truly tried and tested formula you risk losing that iconic status and your reputation that took generations to build and your customers.

Cadbury PLC [CBRY.LSE] have done just that by changing packaging sizes of their family block chocolates while keeping them the same size of the old by using different packaging and the most brain dead thing of all changing the taste of their very successful essential ingredient that has made them the brand to go to when you think of chocolate, the ingredient in all their products, chocolate itself!

Forget for a moment that I am a pure obsessional when it comes to chocolate, my body is part blood, water, Crunchie Bar, Dairy Milk, Moro Bar and a list as long as your arm in Cadbury products but just consider what Cadbury have done.

The product that has made them the leader in chocolate for generations has had its successful formula changed,they have substituted the very essence of chocolate, palm oil for animal fat, supposedly to save money.

That is like taking the sugar out of Coca Cola and still calling it Coke!

Business 101, you don't change a successful product that your customers would die for just to save money. Trust me, they will pay more for it.

Executives at Cadbury head office are perhaps too young to remember another iconic product that was tampered with in the mid 1980s, the aforementioned Coca Cola from the Coca Cola Company [KO.NYSE].

The formula for that iconic drink was sweetened to taste more like Pepsi and launched on customers as "New Coke" and was an instant failure. Customers protested, Coke didn't listen,



they said the new product was better and consumers just needed to get used to it but Coke management didn't figure on how obsessive their customers were (duh!) and they simply stopped buying the new Coke. Two months latter Coca Cola relented and re-launched old Coke as "Coca Cola Classic" and the two products existed side by side on the supermarket shelf for a number of years. It is no longer sold in the United States.

This should be a lesson for Cadbury who must have execs in the marketing department of their Schweppes division that know about this famous marketing blunder, they sell their own iconic lemonade and other drinks products - the Coke story from the 1980s is taught in business schools around the globe about what not to do when in business.

"Those that don't learn from the lessons of the past are doomed to make the same mistakes".

Cadbury should learn from their mistake, it is already costing them in lost sales and is going to cost them dearly in the long-term if they don't rectify their decision to make a change.

I am a life long consumer of their former delicious products and I will no longer be buying them.

They just don't taste the same.

Its Whittakers for me!

See the new Whittaker's TV Advertising comparing Cadbury to Whittakers.





Disc I love chocolate

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c Share Investor 2009

Mainfreight Annual Report Packs a Punch

If I didn't already run a business I would want to work at Mainfreight Ltd [MFT.NZ].

I say this after reading yet another rather rip-roaring company report that you couldn't help being inspired and motivated by.

The cover of the A4 sized report has every employee's name printed on it, a rather unique idea that just shows how important Mainfreight's workers are to management and how integral they are to the sustained long term success of the company through its family culture.

Bruce Plested, Executive Chairman, has stressed a few poignant reasons why Mainfreight will be able to cope with the economic downturn:

(They have) "Committed people, hundreds of whom have been with Mainfreight for
between 10 and 30 years.

Internal promotion.

An ongoing graduate programme whereby we now have 286 university
qualified people spread through our business in New Zealand,
Australia, USA and China.

Compulsory in-house training for all new people in New Zealand and
Australia.

Weekly performance measurement in more than ten key activities –
in every branch in every country – produced at branch level.

Weekly branch profit reporting – produced at branch level at all
160 worldwide branches.

Ownership of many of our specialised operating sites.

Ever developing technology now standardised and integrated between
our branches in New Zealand, Australia, USA, China and Hong Kong.

Many thousands of great customers, who strive and innovate, who
work hard and are an integral part of our success."

Along with all the usual facts and figures a typical company report contains, there is inspirational company mantra that isn't merely empty verbiage and also a huge focus on the current economic climate, what the company is doing to ameliorate the effects of this downturn and how they see we can use this recession as an opportunity to change our direction as a country in a big way.

Bruce also goes on to add that New Zealand is a country slipping behind in the wealth stakes and we really need to do something to get off our butts and work to increase our productivity, something that has been holding the country back for nearly 40 years, but especially in the last 10.

He gives advice as follows that most people with at least half a brain would agree with:

"Why don’t the losers in the election go and get a job instead of the
futile debate they engage in, and the bureaucracy they carry?

Why not wipe the jury system for a wide range of crimes and let a
judge decide guilt or innocence?

What about a four-year electoral period to enable the development of
longer term strategies?

Instead of building new prisons let’s release enough inmates on a
regular basis to accommodate new offenders.

Let’s provide free university education for the skilled people we
need, i.e. doctors, scientists, teachers, engineers, if they fulfil certain
employment criteria in New Zealand.

Introduce capital gains taxes on sales of property other than the
family home.

Lower company tax to 10% or thereabouts. Nothing will boost our
economy more than nurturing our businesses. The tax will still be
earned by the Government, as dividends are taken.

If we really want a cycle track the length of New Zealand, why not
attempt to do it using volunteers, the unemployed, companies or just
challenge us to find a way.

Appoint successful young business people to serve on the boards of
SOEs, and other Government run organisations. As day follows night,
weak boards result in weak management and poor outcomes.

Don’t allow local bodies to own majority shareholdings in strategic
assets, i.e. ports, airports, electricity. Much of this monopolistic
structure is effectively bound in shackles through incompetent and
agenda driven boards."

He does muddy his economic waters a little by mentioning the economically illiterate Rob Muldoon and financial genious Roger Douglas in the same breath and commenting that we can learn things from them -in Muldoon's case what not to do (my emphasis).

Mostly good advice apart from a brain hemorrhage at the Prison system but great commentary that every third form economics student and every other company CEO should read.

I recommend that you have a read too.

Disc I own MFT shares

Download the 2009 Mainfreight Annual report here.

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c Share Investor 2009