Is the status of the publicly quoted company in permanent decline? The relationship between company shareholders and company directors certainly appears to be in a state of flux, if not downright crisis.
Sir Nigel Rudd pointed out this trend when he presented the ACT Winter Paper, sponsored by Barclays Capital.
Looking back on his career, Sir Nigel praised the treasury profession, saying that it was only when his group Williams first appointed a treasurer that it had struck him how off the pace the company was at dealing with the banks.
But Sir Nigel was more interested in looking forward to dangers ahead. Over the first half of 2007 – before the business pages and the economy were engulfed by the credit crisis – a torrent of abuse was directed against the private equity industry, a source of finance portrayed by some as little more than tax-avoiding asset strippers.
Few treasurers would recognise or concur with that description. In fact, the idea is now being promoted that a private equity owner has distinct advantages over a set of troublesome shareholders and a provocative media that are routinely encountered by public companies. Would the chairman or chief executive of a business prefer to be subject to the scrutiny of an owner or the City editor of the Daily Mail?
The argument gaining currency is that private equity owners care more about the medium to long-term success of the business than do some shareholders of public companies. Too often, the latter are in for a quick buck and will wreck the business on the way if that is what it takes to extract the maximum profit in the shortest timescale. There are recent examples of chief executives falling into trouble because of their desire to react positively to the radically different demands of a changed shareholder base more focused on short-term price advantage than long-term value.
The changed behaviour is a significant departure from the days when a company’s chairman or managing director knew that the long-standing shareholders were interested in, and concerned about, the business and its strategy.
Of course, shares have always been traded for short-term as well as long-term gain.
So it could be said that directors of big business complaining about the relationship they have with their shareholders is not a new phenomenon.
But what is intriguing is the idea that some shareholders no longer see themselves as owners of the companies in which they hold shares. The emergence of such a trend poses a serious threat to the public company.
PETER WILLIAMS
Editor
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2008 Financial Risk Outlook
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With tumbleweed blowing through the European bond markets, investors were forced to look elsewhere for action. To the Middle East, in fact, where the National Bank of Abu Dhabi (NBAD) was knocked over in the rush for $2bn of 10-year floating-rate subordinated convertible bonds.
A question of trust
Is the credit crunch changing the treasurer/banker relationship? Two treasurers, Gary Slawther and Ian Weldon, ponder that question while financier Jon Norton looks at how the bank/treasurer relationship has changed over time.
Before reaching an actual trading decision, companies need to take into consideration their internal practices, including the identification of risk, hedging objectives and the development of policies, as well as external factors.
Treasurers were rewarded for innovative and groundbreaking deals at The Treasurer’s Deals of the Year Awards 2007 dinner in London. At Drapers’ Hall in central London, high-flyers celebrated amid the splendour of a superbly extravagant hall in an evening of excitement and anticipation. It was the first year that the ceremony was an evening affair rather than a lunch, and it was a huge success.
Vodafone’s treasury department puts its success in scooping the Treasury Team of the Year Award 2007 down to a thirst for learning and a balance of hard work and enthusiasm. As Phil Clark, Deputy Group Treasurer, puts it: “The team is a collection of well-rounded treasury professionals.” This mix of background gives the department a broad base of knowledge. “We get clear leadership from our Group Treasurer, Gerry Bacon, who sets the parameters within which we work,” says Clark. “That, plus good people management, sets a great working ethos.”
Once an inflexible state-owned enterprise, Austrian steelmaker Voestalpine is now one of Europe’s most dynamic businesses. Brigitte Wimmer, Senior Vice President of Treasury, tells Graham Buck how the company transformed itself.
Private equity (PE) fundraising increased every year between 2002 and 2007 and exceeded $100bn in 2006. This, and the availability of cheap credit, has provided significant capacity for PE, which has consequently played an active role in the M&A markets over the last few years. In fact, seven of the eight largest leveraged buy-out (LBO) transactions occurred during the 18 months preceding the credit crunch of August 2007. Since August, however, the leveraged markets have become more challenging, especially for larger transactions exceeding €1.0-€2.0bn. The fact that leveraged loans are trading well below par in the secondary market means that banks are finding it difficult to underwrite large primary transactions. At the same time, the mezzanine market appears less constrained given the increased returns available to mezzanine investors after a long period of margin compression driven by oversupply of senior debt.
Across all the key areas of treasury, innovation is pushing the boundaries of best practice. Treasury and the wider business environment are in a period of adjustment and realignment. For companies to thrive in these challenging and fast-changing times treasurers should also look beyond established processes. Shared services centres (SSCs) are already a well-established part of the corporate landscape, the ones that add most value are those that constantly evolve to take on new processes and extend their reach into new regions
Money market funds (MMFs) represent a cautious cash investment strategy with attractions when the outlook is hazardous. Bearing many of the characteristics of bank deposit accounts, MMFs have traditionally offered a high level of security, same-day access and the potential for higher returns. Volatility in global markets since the start of the decade has increased their appeal, a trend accelerated by the onset of the credit crunch. Corporate treasurers, traditionally the main users of MMFs, have now been joined by a wider range of investors including pension funds.
The credit crunch is affecting businesses in many ways. As well as causing practical problems it has accounting implications that companies should not overlook.
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The strategic dimensions, as well as operational aspects of treasury, must be considered if a treasury audit is to be effective. There are three main elements to the treasury audit programme: governance, infrastructure and strategic.
Four close and well-managed banking relationships enable midcap company Edinburgh Woollen Mill to achieve the high standards of a large-cap treasury operation despite the more limited resources available to it.
For some time the UK has lagged behind the US in terms of its ability, or willingness, to bring about prosecutions in corporate corruption cases. The US has led the way in corruption issues and now sees itself as the world’s police force in terms of anticorruption and regulatory enforcement.
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The global IT and business process outsourcing market has enjoyed phenomenal growth in recent years. Its total annual value is about to exceed $500bn and the market is still expanding rapidly, reports accountancy and consultancy firm Deloitte. However, it also warns that the growing reliance on offshore entities and other third parties for business and IT processes has led to a commensurate increase in the potential risks.
Why is it that when an organisation takes over or merges with another, communication barriers seem to come up and neither party gets the best end result? Partly, it’s related to information ownership, partly exercising control and partly lack of forethought. But there are some things treasurers can do to ensure better communication to enhance such transitions.
