Don’t give a Jack
Some people may eulogise the death of former GE CEO Jack Welch, aged 84. Those people — including the fabled New York Times, which described Welch as the most influential business manager of his generation and a “superstar” — are idiots.
Welch was one of the original “Celebrity CEOs” (he was somewhat prematurely dubbed “CEO of the Century” by Fortune), who greatly enriched himself, in the end, at the expense of shareholders (although it took a while for that to become apparent).
Few embody the confusion between talent and luck more than Welch (although SoftBank’s Masayoshi Son would come a close second, see below).
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Welch had the incredible fortune of taking over from Reginald Jones as CEO of GE in 1980 when he was just 45 — only months before the greatest debt-funded bull market run of our time (which happened to end the month before Welch quit).
Welch acolytes will point to the increase in GE’s market value, from US$14 billion to more than US$400 billion.
That however tells only a small part of the story. GE’s stunning share price growth was driven not only by good timing, but by financial chicanery and huge risk taking — in particular with GE Capital.
GE’s share price, which hit $58 in 2000, fell as low at US$7.51 this year, a drop of almost 90 percent. The two decade decline was precipitated by Welch’s debt binge, from which GE hasn’t yet, and may never, recover.
Welch’s good fortune made him a very rich man.
He famously received a US$417 million severance package when he retired, but without a messy divorce from his second (of three) wives, we never would have know the full extent of the lucre that Welch was collecting. (Bear in mind by the end of his stint, Welch was barely working, in his last year as CEO, he spent 166 days at speaking engagements).
According to documents filed by Welch’s second wife in their divorce proceedings, in addition to his severance, GE also gave Welch “use of an $80,000-a-month company apartment in Manhattan, courtside seats at the US Open Tennis tournament (and also, by the way, at Wimbledon), box seats at Yankees and Red Sox baseball games, membership fees at numerous country clubs in the US, free bodyguards and other security services.
“And the company would also pay his bills at one of New York’s most exclusive restaurants, run by celebrity chef Jean Georges. And, he was even allowed to continue using a company Boeing 737 to jet around the world free of charge.”
Bear in mind this was after Welch had retired from GE. Fair to say Welch is unlikely to be winning any more awards, dead or alive.
Tech bubble trouble
The most toxic part of the latest tech bubble has been a Japanese fund (largely made up of Saudi money) called the Vision Fund, created by Japanese company, SoftBank.
SoftBank was founded by Japanese billionaire Masayoshi Son. Masa, who’s now worth around US$23 billion, made his money from selling software in the early 1980s then as a long-distance telephone reseller.
But Masa really struck it rich with two brilliant (or very lucky) investments. First in Yahoo, and then in Alibaba (Masa’s US$20 billion Alibaba investment is now worth around US$100 billion).
Masa then parlayed this skill/luck and created the Vision Fund, which has largely been a disaster, headlined by its diabolical investments in WeWork and Oyo (as well as Uber and Wag).
The man who is now CEO of the Vision Fund is a former investment banker, Rajeev Misra. Mirsa has an increasingly poor investment record, and his reputation has been further damaged by allegations made by The Wall Street Journal last week.
The WSJ report that he is embroiled in a “honey trap” scandal. It is alleged that Misra installed a video camera in a hotel room to try to trap an internal rival, former SoftBank president Nikesh Arora, to return with “one or more women” (the scheme failed). The move was part of an alleged years-long “dark arts” campaign against Arora and his deputy Alok Sama.
A spokesman for Misra denied the allegations to the WSJ: “These are old allegations which contain a series of falsehoods that have been consistently denied. Mr Misra did not orchestrate a campaign against his former colleagues.”
SoftBank claimed that, “for several years, we have investigated a campaign of falsehoods against SoftBank Group and certain former employees in an attempt to identify those behind it. SoftBank will be reviewing the inferences made by The Wall Street Journal.”
Regardless of those findings, one suspects Misra will be hoping for an Adam Neumann-style severance package.
RBA stuffs it up, again
There seems to be little doubt that the RBA’s decision to slash interest rates last year has proven to be a disaster. Even before the bushfires and COVID-19, growth in the December quarter had slumped. Before they did it again yesterday.
As Bernard Keane and Glenn Dyer wrote last week, “total construction fell 3% in seasonally adjusted terms, and was down 7.4% over 2019. Residential construction was worst: down 4.6% in the quarter, and 12.8% in the year — over one-eighth.”
Why has construction investment fallen? Here’s my theory: the constant lowering of interest rates has meant property prices resumed their obscene rise (there’s a direct inverse relationship).
High property prices mean that developers aren’t able to generate a sufficient return and stop investing (smart developers started sitting it out years ago). So rather than spurring investment, all that Philip Lowe and the bumbling RBA board has achieved is the exact opposite.
Plus, low rates have meant than anyone relying on savings for their livelihood have far less money to spend. This reduces consumption (and those with mortgages tend to pay down their debt, rather than spend the money).
This is of course the same experience as in Europe and the US, where economies have been kept notionally growing by rampant money printing and, at times, negative interest rates (as well as lower corporate taxes). The real malaise is evident in the lack of real wage barely grown in decades.
Now, when Australia is almost certainly about to enter a genuine recession as a result of genuine external shocks, the RBA is almost completely out of gunpowder, having lowered interested rates below emergency levels while unemployment was at near historic lows.
Five hundred years ago, if the king’s advisors oversaw as much damage as Lowe and his predecessor Glenn Stevens, they would have had their heads chopped off. These days they get an Order of Australia and $10,000 a pop as an after-dinner speaker.
Another celebrity CEO comes unstuck
Jeez, we never could have guessed. A brash American CEO who spent a decade publicly pointing out his own brilliance and demanding huge pay packages hasn’t lived up to his own hype.
The AFR calculated this week that Michael Clarke, the soon-to-be ex CEO of Treasury Wine Estates, has been paid a staggering $63 million in just six years.
Despite his public proclamations, Clarke appears to have shown minimal faith in Treasury’s future performance, offselling around $13 million worth of shares, including a massive tranche at $19.85 per share, within a whisker of Treasury’s all-time high.
While Crikey is not suggesting anything untoward, Clarke’s sales were well-times, just below Treasury’s all-time high.
Treasury’s share price is now back to $10.94 and, if history is any guide, Clarke’s successor, Tim Ford, will clear the decks in six months and the share price will probably end up back where it was when the brash American first took over. Even before the recent share price cataclysm, Treasury had been accused of “channel stuffing” in the US and China.
What Clarke has been exceptional at (like many other American CEOs that Australian corporate boards continually hire) was self-promotion. Famously noting after he was hired, “I am also confident that my … truly global experience can help TWE become the world’s most successful and celebrated wine company”.
Don’t think so, Mike.
Adam Schwab is a company director, angel investor and author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed.