Corporate Governance

Gender pay gap in US soccer?

US Democratic Senator Kirsten Gillibrand railed at the gender pay gap between the US Soccer men’s team and women’s team after the latter thrashed Thailand 13-0.

Democratic Senator and perennial identity politician Elizabeth Warren also chipped in with her slant on things about how it is high time to address the pay gap!

Former Republican Senator Orrin Hatch asked the U.S. Soccer Federation to “end this two-tiered, gender-based structure that has unfairly discriminated against female athletes.”

Before US senators took to bashing the US Soccer Federation (USSF), a quick look at the Annual Report for 2018 reveals that “expenses” on the national women’s team were higher than the men’s.

By the numbers, women’s expenditure grew 25% to $17.13m in 2018 over the previous year while the men’s slid 35% to $14.63m (down from $22.43m in 2017). While expenditures aren’t completely broken down, one can assume that this adjustment includes paying for performance.

When boiled down, the expenses allocated to the women’s national team came in at 24% of overall expenses in 2018 from 18% in 2017. Men fell from 30% of the total to 20% over the same time period.

Unless multiple men’s team players have been sacked and there are surplus female players the pay gap is probably swinging in favour of the fairer sex. Or could it be that the governing body is exercising good governance?

Whatever it is, even better to see the investment in the youth national team and player development which has risen from $23.2m to $27.4m.

If only female soccer star Megan Rapinoe could casts aside her Trump Derangement Syndrome and sing the national anthem because she’s representing her country.

Not surprising to see own goals kicked by politicians who don’t look at the facts.

Perhaps the US women’s soccer team should address the pay gap between themselves first. Then once that is complete go after the blokes.

Constructive dismissal?

CM’s view on the incompetence of Rugby Australia (RA) is well documented and reconfirmed by Alan Jones in The Australian today. It appears that Israel Folau looks more like a sacrifice to the altar of the sponsor god, Qantas.

Sponsorship money is important to sports teams but it should never get to a point where the sponsored has to make unconscionable decisions to acquiesce their paymasters. It is unethical.

CM has long held issues over Qantas’ flagrant use of shareholder capital to sponsor the CEO’s activism. It is terrible governance.

Remember the acceptance rings ahead of the same sex marriage debate that Qantas pushed so hard on us? The idea was to distribute these acceptance rings (not fully closed) to customers, clients and travellers.

CM supposed if someone were to politely decline to wear one they risked being be branded homophobic, bigoted and summarily ostracized for expressing such views. It might be that they actually support gay marriage but do not wish to express it openly. That is nothing more than a conscious choice, not categorical staunch opposition. Perhaps failure to wear the ring could cause their career takes a turn for the worse all because they don’t comply with group expression i.e. corporate slavery. The team leader who passes them over because they incorrectly assume the employee is a dissenter. That is palpable workplace bullying encouraged by a woke CEO.

What Jones points out is that the ‘wallaby court’ had already decided the outcome before a word was uttered in defence. It appears it was a ‘hearing’ conducted with the deaf.

RA CEO Raelene Castle apparently told Vanessa Hudson, chief customer officer at Qantas,

I updated her on the situation a day after the post and told her that, confidentially, Rugby AU would be working towards a process to terminate Mr Folau’s contract and that Ms Hudson can share that position with Qantas chief executive Mr Alan Joyce. Ms Hudson texted me later that day saying that she had only shared the update with Mr Joyce and he was appreciative of the transparency and he said that a speedy resolution by Rugby AU was paramount.”

This says a lot about Qantas. If it wants to exert control over RA it should acquire it and manage it as a subsidiary.

Yet where was the pushback by RA? It flaked. If it understood the dwindling fan numbers meant it wasn’t connecting to revenue, it might have thought defending Folau might have been its greatest coup and that many non virtue signaling corporates could replace Qantas’ sponsorship.

The culture of RA is self evident. It is not about rugby anymore but a platform for identity politics.No wonder fans are deserting it. CM discusses dwindling fan numbers yesterday, something Jones alluded to. Put simply, the product stinks and that rot permeates from the top. Fans aren’t stupid.

Coach Michael Cheika’s abysmal win/loss record is tolerated because he tows the line of the C-level cabal. So do some of the players who threatened to boycott the team if Folau was allowed to keep playing.What a joke! These virtue signaling players if given the choice to stand by their beliefs or keep their lucrative contracts would choose the latter every time. They sounded just like those Hollywoodcelebrities that threatened to leave America if Trump won the presidency.Hypocrites.

However it only reinforces the reality of the culture within the RA that encourages this type of numb skulled response to pander to the top. If these players wanted to think about faith in context of not selling out core beliefs they could learn muchfrom Israel Folau.

It increasingly looks like the high level breach has been committed by the board in cahoots with Qantas.

As CM mentioned yesterday, perhaps receivership is the best outcome for RA. That way the apparatchiks get cleared out and replaced by people that connect with fans who ultimately pay the keep the lights on at HQ. It isn’t that hard to fix RA’s problems but it will be impossible with a leadership team which seems to support constructive dismissal at the behest of corporates that champion activism rather than principle. Clearly Qantas is the mean “spirit of Australia”

Get woke, go broke.

Industry gets the management it deserves

What did the Rugby Australia (RA) board expect from Israel Folau? That he’d crawl away into obscurity? CM has long held the RA’s handling of this affair has been about as good as the Wallabies on-field performance under Michael Cheika, the coach with the worst record in the history of the team.

Industry gets the management it deserves. Bad outcomes come from poor decisions at the top. RA CEO Raelene Castle’s performance in this affair has revealed she has no crisis management credentials. If Folau ends up bankrupting RA then management didn’t weigh the risks properly when they terminated him for a supposed “high-level breach”.

Recall RA tried to buy Israel Folau off with a $1m shut-up cheque but his religious beliefs weren’t for sale. Folau reached out to former Wallaby and fellow devout Christian, Nick Farr-Jones, who concluded after an intense grilling that his faith was authentic. Did the board take into account NF-J’s testimony? 

The RA’s decision smacks of the spineless virtue signalling that pervades our corporates today. It folds at the first sign of social media activist pressure. It might bang on about “inclusivity” but it practices exclusivity. One wonders if a player from another religion tweeted “apostasy is death” the board would have sung an entirely different tune. It would have said, “we respect all views.

Then we saw the hypocrisy of NRL Chairman Peter Beattie who spoke of the importance of inclusion and freedom of speech (when it comes to players protesting the national anthem) despite affirming that Folau would never play rugby league. So which is it? Whose freedom of speech is free? Beattie even argued that the Folau Twitter post still remained up. If he took it down would the NRL sign him up? Not a chance.

As CM wrote in the last dispatch, RA’s #1 priority does not appear to be rugby. The website is flush with identity politics. Such as this:

MCC works with influential leaders and encourages them to take action towards gender equality. 

Rugby Australia is a proud supporter of MCC and our Chief Executive Raelene Castle has recently been appointed as a Special Advisor on the MCC Sport program. 

This program aims to enhance the involvement of women in all aspects of sport and works with key stakeholders to achieve pay equity.

What has this got to do with managing the Wallabies franchise? Too much focus on irrelevant things that will not turn around the continual losses in the business because the key ingredient that generates revenue – a winning team is second fiddle.

RA folded at the foot of the sponsor, Qantas. A sponsor has the rights to be represented in certain ways but how little confidence must RA have in its ability to attract new backers? Cricket Australia snagged Alinta Energy after the ball-tampering scenario. CM reckons the Adani Wallabies has a nice ring to it.

RA is not run for its fans. Player David Pocock was arrested and charged for chaining himself to a piece of heavy equipment but Folau was fired for quoting a passage from the Bible.

It is quite likely that Folau’s bid in the High Court will succeed. Our constitution enshrines free speech. Whether we like what he said or not is irrelevant. We either support it or we don’t.

Maybe RA needs a total clean out? Perhaps sending in the receivers would see the appointment of someone who loves the game and reconnects with the fans, not waste time trying to enforce identity politics on them.  RA was set up for one purpose. To win.

Why not look at the yardstick of attendance? Why is it since 1962, Eden Park in Auckland is always at full capacity when the beloved All Blacks play? Because the team is so dominant. Why is attendance at Stadium Australia at 65~80% of available seats when it used to be 100% in 2002-2009? Why have Super Rugby attendance figures slumped t to around 11,000 per game vs 35,000 for Aussie Rules and 15,000 for NRL? Even A-League soccer gets average game attendances of 12,500. There is a message here RA. You are not connecting with the flock.

Perhaps Izzy Folau is reciting in prayer for the fans;

For I know the plans I have for you…plans to prosper you and not to harm you, plans to give you hope and a future.” – Jeremiah 29:11

Why doesn’t Atlassian lead the charge if it is such a great idea?

Coal.png

Atlassian Co-Founder Mike Cannon-Brookes (MCB) has put forward a vision that is so compelling for Australia to junk its $70bn coal industry, it is a real wonder why he has not decided to deploy the tech giant’s own capital to seize those obvious riches? He believes coal will be worth zero in 15-25 years. If it is such a dead industry, can he explain why China’s coal-fired power (great infographics here) has grown from 200GW in 2000 to over 900GW today? Or India that has grown from 61GW to 221GW of coal-fired power gen? Why would Adani persevere in the face of 8 years of government and regulatory roadblocks in Queensland if coal wasn’t on the menu for India’s future?

The International Energy Agency (IEA) notes the following on coal,

Coal power generation increased 3% in 2018 (similar to the 2017 increase), and for the first time crossed the 10 000 TWh mark. Coal remains firmly in place as the largest source of power at 38% of overall generation. Growth was mainly in Asia, particularly in China and India.

Note in the following map, yellow and red are levels of intensity and in operation. Grey is that idled or shut down.

Coal Fired Power.png

Global wind and solar installations account for about the same as China’s current coal-fired power capacity.

MCB’s idea that we should export the sun and wind is utterly fanciful. The amount of transmission loss over distances in Australia would be massive. Our own energy market operator, AEMO, noted that energy transmission losses for those wind and solar farms located furthest from the main load hubs, in north Queensland, western NSW and some in Victoria could suffer marginal loss factors (MLF) of up to 22%.

To think our closest neighbours – New Zealand, Papua New Guinea & East Timor – are at least 200km away from our extremities. At least 500km to major city centres like Port Moresby. That is assuming our ecomentalist Department of Environment would fast track approval for Cape York and the Daintree Forest to be logged and turned into a wind and solar park to then run some cable to Port Moresby. The problem with MLF is that if Port Moresby demanded 1MW of energy, then it would need to pay for more than it needed to anticipate the MLF which would grow the further the demand was from the main load hubs that could supply it.

To add to the problem, Australia’s ridiculously high power prices would be completely unattractive to the likes of Papua New Guinea. They would be better off ignoring Australia’s transmission and self-supply. That is exactly what it is doing. PNG currently get 30% of its power from hydro, 40% from gas and 24% from oil. Note it has signed a memorandum of agreement to install, you guessed it, a 60MW coal-fired power station in Lae. Energy security is on the menu.

MCB has suggested we set up local manufacturing to harness all of our local resources. Once again, a great idea on paper, but in practice, our prowess in low-cost manufacturing has a terrible track record. The now defunct auto industry is exhibit A on that plan.

As is so often the case for celebrity billionaires, thought bubbles are often free to them but costly to others. Tesla shareholders know that feeling. Who could forget JCB’s retweet of Greta Thunberg at the time of the election, imploring Australians to “not f*ck it up“??

MCB may drive a Tesla and have plans to make Atlassian 100% powered by renewables by 2025 but for the sake of shareholders it best he sticks to his core business unless he plans to divert capital to diversify Atlassian and harness this green future. Perhaps he should put Greta Thunberg on the Atlassian board as an executive director on renewable exports?

Ryde Council declares a Climate Emergency

The real purpose of a local council is to dispose of household waste, keep local parks tidy and ensure toilet paper is installed in public lavatories. Outside of that, there is little local residents require from local councils other than on-street parking permits or onerous red tape when seeking housing renovation approvals. Maybe maintain the local library.

It was reported yesterday that the Ryde Council declared a “climate emergency“. As we can quickly work out, this is nothing more than joining the global Extinction Rebellion style virtue signalling with zero substance. Will Ryde ratepayers be asked to sponsor Greta Thunberg or Al Gore to lecture the council on climate matters?

Referring to the Annual Report 2018 financials section one can see that it spends on what it terms “Environmental Programs” a grand sum of $547,000, down from $556,000 the previous year. To put that in context of budget expenditure, this climate fearing council spends, wait for it, 0.34% of the total annual revenue. Put your money where your mouth is Ryde! Unfortunately, that was down from a slightly less pithy fraction.  Nonetheless, it grandstanded with,

This includes a commitment to divest its investment portfolio from fossil fuel-aligned financial institutions, supporting renewable and clean energy solutions and becoming one of the first councils to phase out single-use plastics.

Was this requested by ratepayers? Sadly the council will never be able to phase out single-use plastics as the overwhelming majority of household waste is disposed of in single-use plastic bags because the supermarkets caved in allowing residents to reuse plastic shopping bags.

CM shudders to think how huge the investment portfolio of Ryde Council could be? Yet why pick on financial institutions? It sounds as if it believes it carries the might of some massive sovereign wealth fund that can rattle the cages of capitalism via its activism! It is unlikely that even if it sold those investments ‘at market’ that the present liquidity would absorb it in a heartbeat.

In the “Our Vision for Ryde 2028” piece, “climate” is mentioned 7 times. “Emergency” is mentioned zero times. “Sustainable” 18 times. “Environment” 20 times. Run of the mill council stuff. Many of the ‘environment’ words are not actually related to climate in any way. Still, for a 2019 document, where was the climate emergency?

The same report cites under the heading of ‘Climate Change‘, with absolutely no proof to substantiate it,

Over the coming decade, natural hazards such as heatwaves, increased overnight temperatures and increased “hot” days during the year, as well as the frequency of extreme rainfall events and high-intensity storms are expected to accelerate as the climate changes.”

In a never-ending push to make the local council more relevant, Mayor Jerome Laxale profile of the Annual Report proudly notes, “He also initiated Council’s entry into social media, its partnership with Australia’s Racism it stops with me! campaign led a national push against changes to the Racial Discrimination Act.”

Racism? 19.2% of Ryde’s population is of Chinese ethnicity according to the Census 2016. As a migrant city, 48.5% were born in Australia. So by definition, 51.5% weren’t. Stands to reason that the mayor is chasing a problem that probably doesn’t exist. 12.5% were born in China (excluding HK or Taiwan) which is 4x the NSW average, 3.9% born in Korea (5x the NSW average), 3.6% born in India (2x the NSW average), HK born at 2.4% (4x NSW average).

Did Ryde really require this leftist mayor to push against changes to the Racial Discrimination Act? Was it a burning issue where the majority were born outside the country? Do ratepayers that fork our $83.4m of rates each year want Laxale to focus on this nonsense?

This is just additional part of the growing trend of radicalised councils acting outside of their remits Remember the two councils (Yarra and Darebin) in Melbourne who went out of their way to ask their own activist groups to rig polls to cancel Australia Day. Forgetting the 220,000 residents across the two cities, a handful of people who were bound to give the desired response were targeted. Even then it wasn’t a slam dunk. One mayor said they made the decision because their constituents are too ignorant of history so they were going to educate them without their opinion. When breaking down the composition of the councillors in these two cities it wasn’t a surprise. Both Greens led with a smattering of Labor, Socialist and left-leaning independents. The perfect cocktail for the totalitarian.

Just like those Melbourne local councils banning Australia Day, we now have Ryde looking to join the likes of Newcastle and the Inner West which think they are the axe on climate change based on what one Clr Christopher Gordon said,

We have scientists telling that us in the next 20 years, we’ll be facing even more extreme climate problems as rising sea levels are estimated to displace tens of millions of people around the world.

This isn’t self researched conviction but flopping to the cause of activists and their echo chamber. Merely rattling off their empty rhetoric which has in the overwhelming majority of cases found to be false.

Perhaps if Clr Gordon called up those evil fossil-fuel aligned financial institutions he would quickly work out they are still lending to new property sites on the shoreline and that climate refugees are as has long been the case, a figment of their imagination.

The voices of local councils have always been largely irrelevant. Now they are merely an irritant.

Cate Faehrmann plays investor for a day

Investment managers have difficult jobs. They have to forecast a whole plethora of variables from global economic growth, currencies, commodity prices and micro level corporate industries. If governments can provide ironclad policy certainty, investment choices become relatively easier. Unfortunately, perfect information detracts from performance because things get priced almost instantaneously.

It might be nice that 415 funds all call for a ratification of Paris Climate Accord (which means nothing in practice as the US isn’t a signatory and its emissions have fallen while China is a signatory and emissions continue to rise) but truth be told,  it sounds what is commonly termed in financial circles as “talking one’s book.” NSW Greens MLC Cate Faehrmann pretends to understand finance in her latest piece.

While these 415 firms might represent $32 trillion in assets under management (AUM), the truth is not all of those funds are spoken for in terms of climate-related investments. Investment advisors by their very nature have very diverse client bases. They cover basic low-risk pension (i.e. stable income) funds all the way to riskier return profiles for clients that want more exposure to certain themes or countries. If clients aren’t interested in buying climate funds, the asset managers don’t gather fees. Pretty simple.

Much of the fund industry has focused on ESG (environment, social responsibility & governance) since its inception in 2005. ESG represents around $20 trillion of global AUM, or 25% of total professionally managed funds. Therefore the other 75% of monies are deployed without this in mind. In reality, this is done because investment managers must hunt for the best returns, not those which sacrifice profitability for virtue. If NAB offered you a 10% 1-yr deposit and no solar panels on the HQ roof and Westpac offered a 1% 1-yr deposit because it did, would you invest in the latter based on its ecomentalism?

Let’s take the world’s largest public pension fund (2 million members), California Public Employees’ Retirement System (CalPERS) which is a cosignatory to this demand for climate action. Apart from the fact that this $380bn fund has been so poorly managed (marked to market unfunded liabilities are c.US$1 trillion), its portfolio consists of widespread ownership of met coal, petroleum and other mining assets. It owns bonds in fossil-fuel producing nations such as Abu Dhabi, Qatar and Saudi Arabia as well as highly environmentally unfriendly aluminium smelters in the world’s biggest polluter, China. So there goes the rhetoric of “demanding” Paris is ratified, that we shift to a low carbon economy and we force companies to report their carbon commitments.

It is frightening that some members of our political class believe that investment managers which collaborate in groupthink are worthy of listening to. On the contrary, the performance of many must be sub par. It is a sad reality that 80% of large-cap fund managers fail to outperform the index on a regular basis. So praying for governments to backstop investments they deployed capital into shows more desperation than innovation.

Maybe we should think of Adani as a classic example of investment at work. While Annastacia Palaszczuk’s government is backflipping on the Adani Carmichael coal mine after the electoral drubbing handed out to federal colleagues, the voluntary infrastructure tax is a cynical way to try to make the project less financially viable. After 8 years of ridiculous and onerous environmental approvals, Adani probably think it only needs to wait til October 2020 when an election will wipe out Queensland Labor from government and the infrastructure tax will be repealed soon after.

CM has long held that the non-ESG names are the place to invest. Most of the auto-pilot, brain dead, virtue signalling group think money has been poured into ESG. All non-ESG companies care about is profitability, not focusing on all the soft cuddly things they do displayed on the corporate lobby TV screens on a loop. Sadly when markets inevitably implode, investors always seek safe havens to limit the damage. As so much money is collectively invested together, so the bigger the stampede to the relatively attractive values provided by the stocks that have been cast aside by “woke” investors.

More auto marriages have ended in divorce

Auto mergers were once thought of as the best things since sliced bread. Massive operating capacity leverage, shared platforms to reduce cost and a reduction of R&D spend per vehicle. The word “synergy” gets bandied about more than Casanova whispers “I love you“on Valentines Day! Yet why is the auto industry littered with divorces from these romances?

Lets list them.

Daimler bought Chrysler in 1998. Divorced in 2007.

Daimler alliance with Mitsubishi Motors founded in 2000. Divorce in 2005.

Daimler alliance with Hyundai founded in 2000. Divorce in 2004.

Honda – Rover JV. Started 1980. Divorced 1994

BMW – Rover – Started 1994. Deceased 2000.

Nissan – Renault – Started 1999. Currently providing real headaches due to Carlos Ghosn saga. Nissan wants full independence

Ford forms Premier Automotive Group (PAG) comprising Land Rover, Aston Martin, Volvo, Lincoln and Jaguar. Set up in 1999.

Ford sells Aston Martin in 2007.

Ford sells Land Rover & Jaguar to Tata in 2008

Ford sells Volvo to Geely in 2010.

Fiat Chrysler (FCA) formed in 2014 – including Fiat, Abarth, Chrysler, Jeep, RAM, Dodge, Lancia, Maserati & Ferrari brands.

FCA spins Ferrari off in 2016.

This isn’t an exhaustive list but one can be guaranteed that more money has been lost in auto mergers in aggregate than made. Daimler paid $45bn for Chrysler. Almost all of the Mercedes profits plugged the losses of Chrysler. Mercedes quality suffered through cost cutting sending it down toward the bottom of surveys. Daimler’s shares lost over $80bn in market cap as this disaster unfolded.

FCA and Nissan/Renault have been amongst the more successful marriages but global markets have turned many a honeymoon period into separation with fights over custody.

Forming a merger at the top of a cycle seems fraught with risks. Global auto sales are slowing. Renault and Fiat bring a lot of overlap in product lines. Nissan is such an unclear part of the puzzle.

One can argue that synergies which will lower the costs of future production have merit. Investing in battery technology does make sense across multiple product lines.

The biggest problem for the auto industry is that should a slowdown hit mid-merger, which brand suffers the hits? Which marketing team gets culled? Which R&D projects get scuppered? Too many cooks spoil the broth is the end result. There is no way a merger can be locked down in a short timeframe unless one of the parties is facing bankruptcy and has no choice but to comply. That is why Nissan-Renault worked.

Renault-FCA would be better conceived after markets have imploded. Marriages built on tough times stand a far bigger chance of survival than those that are built when things are the rosiest. Shareholders will be the biggest losers if conceived now.