Forum Archive Index - December 2000

["hugh webber" <hugh.webber@clear.net.nz>]

G'day Chris,
a couple of observations - sure the CEO and company should be 
focussed on successfully venturing capital in new technology but it is
the function of the Chairman of the Board of Directors to have a 
higher and longer term vision. In this respect he should be 
looking at shareholder rewards, at whether ITC is on a large 
enough scale and what to do about it, and also at whether ITC
can find a way of better planning its cashflow.

The ultimate vision has to be rewarding the shareholders otherwise
its not a commercial undertaking or its not a company - its a Non Profit
Institution Serving Directors or a NPIS Staff. The reason shareholders 
buy into a company is for the rewards. BIL was ultimately corrupted by
empire building vs profitability then when it got into a bind it started 
flogging off its best and most saleable investments one by one until
it was down a residue of unasaleble ones such as Molokai Ranch,
Mt Charlotte Hotels etc then it had a round of blood letting, changed
its focus to IT investment after the bird had flown and belatedly 
realised it had sizeable Australasian tax losses it couldn't afford to
chuck. A cautionary tale; I believe they had a nibble at China and the
Asian 'tigers' along the way as well and came out with their tale between 
their legs.If BIL had been oriented towards profitably serving shareholders
rather serving management's empire ambitions it wouldn't have happened.

I note in the case of SEU's recent report they said they were about to wind

up and return the shareholder's money after looking at 210 possibilities
in the last 2 years and not seeing one that met decent return criteria.
They're selling Genztech which is after more capital. Apparently SEU 
made a 50% return on its Wairarapa Electricity investment over 2 years.
SEU is being taken over. It would be nice if ITC could get itself
into that situation.

I guess one of the things I'm being critical of is that they don't seem
to have mapped out a schedule of how long they'll hold each investment,
how much they're capping there cash flow into it at, when and how much
they'll sell it off for and matching that with their planned cash inflow
whereas you get the impression that SEU was looking at those things very
carefully and hocked off WE at the right time and are hocking off Genztech
and investors are picking up the difference in vibes from ITC cf SEU.
I don't see why the ITC chairman can't set up a little project team
or financial services contractor to advise him on planning shareholder
rewards and that way it'll stay out of the CEO's hair. But I do see 
cashflow as one of the CEO's planning functions and I get the
impression that he's totally focussed on the underlying investments
and just does survival mode stuff on the cashflow side. 
 


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