Forum Archive Index - May 2001

["Brian Brakenridge" <brianbrak@xtra.co.nz>]

Ben:

 

As a result of your prompting following is a copy of the letter I wrote to the editor of unlimited responding to their March article covering the proposed formation of the NZ Shareholders Association.

 

Sorry for the length but if any of you are interested in this current topic I would be keen to hear some feedback.

 

Declaring War: The High Ground

Instead of small shareholders "declaring war", as the article in unlimited’s March issue covers, I believe it would be considerably more productive to look for the solutions and set the standards rather than engage solely in a corporate witch hunt.

The following quote is taken from arguably one of the most pertinent and decisive investment books ever written, "The Intelligent Investor" by Benjamin Graham.

"Ever since 1934 we have argued in our writings for a more intelligent and energetic attitude by stockholders towards their management. We have asked them to take a generous attitude towards those who are demonstrably doing a good job. We have asked them also to demand clear and satisfactory explanations when the results appear to be worse than they should be, and to support movements to improve or remove clearly unproductive management."

Warren Buffett said "when looking for people to hire you look for three qualities; integrity, intelligence and energy, but, if you don’t get the first right the other two will kill you".

When one studies the philosophies and tenets of the masters such as, Ben Graham, Philip Fisher, Peter Lynch, John Templeton, Charlie Munger and Warren Buffett it is no coincidence that these men place almost as great an emphasis on the quality, integrity and fortitude of management as they do on the financial performances of a company.

Interesting thoughts, especially when taken in context with the present financial environment darkened with an atmosphere of dissent and dissatisfaction evident especially amongst the private investment community and even amongst some members of the institutional investment community.

The formation of an organization of small investors, if encouraged and guided by people of "integrity, intelligence and energy" will do a great deal to highlight the concerns of the New Zealand investment community.

However, the goals and objective of such an organization can not be achieved if it’s energies are channeled solely towards highlighting negative aspects of corporate New Zealand. Such an organization must also clearly exemplify corporations and management who consistently show the highest level productivity, efficiency and above all else openness and integrity towards their owners, the shareholder.

This will arguably achieve two goals. Firstly, over the short term, it will highlight the fact that there is more often than not a direct correlation between the standard of management and the performance of a company. This in turn will empower the investor with the knowledge and security that they are able to direct their investment dollar towards those companies with management displaying these traits.

Secondly, and by default of the trickle down effect, it would be hoped that by holding up these companies who illustrate the highest standard of behavior, then other companies would also endeavor to raise their own standards thus improving their performance and ultimately attracting more investors.

A naïve view?

Maybe. But, who would have thought, even as recently as five years ago, we would have seen international organizations evolving who are highlighting such issues as environmental and socially responsible corporate behavior.