Tags

  • Published on

    Has the IPO supply-and-demand equation reached a tipping point?

    Governance Performance
    I've mused about the steady stream of IPO activity in New Zealand several times of late, most recently this morning. Expectations have been high. However, the soft response to Serko's listing, and nervous chatter on various news and social media sites, suggests that the supply-and-demand equation may have reached a tipping point. Could this be? 

    I'm not convinced. Good investments should—and generally do—attract good support, and weaker ones should be put to the torch. At the risk of being labelled as having a somewhat simplistic viewpoint, I think the market has simply woken up, such that it will not blindly support weak proposals. If this is the case, I'd call the situation by its proper name: common sense.
  • Published on

    Actual performance trumps promises, actually

    Management Performance Strategy
    Newly-listed Gentrack provided recent and aspiring IPOs with a salutary message yesterday. The investment community prefers solid profitable companies with growth potential. Surprise, surprise.

    In the last year, several companies—including some who are yet to record a sustainable profit—have sought and gained a listing on the New Zealand stock market. The headlong rush to list seems to have been dominated by promises of huge growth and, therefore, good rewards at some point in the future. Some, who entered early, have had an amazing ride but are now getting a reality check, as I mused recently. However, many IPO companies carry a burden of debt into the IPO, which means some of the new capital is needed to tidy up the balance sheet.

    In contrast, Gentrack has been operating for many years, has many customers, and is a proven performer with a track record of profits. It also has a credible plan and has signalled an intent to pay a dividend within twelve months. The company received a warm welcome when it listed yesterday.

    Is the aura surrounding the high-tech sector and hype of stellar returns starting to lose its lustre? Maybe. However, I'm confident that the invisible hand of the market will redress any imbalances that have occurred as a result of the current lemming-like rush to list. It will be very interesting to see which companies come through the current gold rush fever well.

    (Disclosure: I do not hold any shares in any of the companies mentioned in this muse.)
  • Published on

    New job requirement: Ability to read a crystal ball

    Governance Leadership Performance
    Have you seen the new governance code that in being introduced in the UK later this year? It contains many good elements, and one that is quite scary. The new code will require (figuratively) directors to add a new line-item to their competencies: reading crystal balls. The new code seems to place a duty on directors to predict how long their company will remain viable. The so-called viability test is a big development, and one that may see directors running to check their insurances. While New Zealand and other jurisdictions utilise a solvency test (that directors do not trade recklessly and do not knowingly allow the company to trade while insolvent), this new development lifts director responsibility and accountability to a new level. 

    Directors of businesses that operate near the edges of moral, ethical and legal acceptability should be concerned, and rightly so. It will be very interesting to see how this development shakes out, and whether the boards of well-run companies have anything to be concerned about or not. What is your view?
  • Published on

    Boardroom decisions: The crucial importance of context

    Governance Leadership Management Performance Strategy
    Things are looking rosy for the New Zealand economy—rosy enough that Paul Bloxham, Chief Economist at HSBC, reckons "New Zealand will be the rock star economy of 2014". An important driver appears to be continued strong demand for New Zealand's dairy and meat products, particularly from Asia where the move to protein-based consumption continues unabated—which reminded me of a speech that I heard eight to ten years ago, delivered by the then Chief Economist of Westpac Bank. The suggestion was that Chinese demand for coal and steel would wane, as massive infrastructure projects were completed. Demand would then shift to food, to feed the growing middle class. The corollary was that New Zealand could look forward to long-term demand for its primary exports, and the resultant economic growth from a steady stream of export receipts. The chickens seem to be coming home to roost.

    This seems to be good news, so what should corporate boards do with it, if anything? Should boards move quickly to capture "their share" of what is obviously a growing international pie? Should more capital be applied to drive expansion into new areas, or should companies stick to their knitting? These are important questions. In the last seven days, I have been party to discussions with two successful companies that are seriously considering international expansion, to become exporters of services to Asia on the back on high primary sector demand. My initial response was to suggest several questions that their boards should ask and answer before any decisions are made:
    • What is the actual opportunity?
    • How does it fit with our current strategy?
    • What do we know about the off-shore market that the locals don't?
    • How transferrable is our capability? 
    • What will the impact be on our established business? 
    • How will it fit with the wishes of our shareholders?

    The pursuit of opportunistic growth is often exciting. However, it is rarely sustainable. Boards need to stand back and look at the big picture—to understand the context within which they operate, check their strategy and understand how the so-called opportunity fits—before making any significant decisions. The pathway of history is littered with stories of companies—including some large, well-resourced ones—that have tried and failed to become exporters on the coattails of growth in another sector. However, if boards are adequately informed before they make important decisions about strategy and the application of capital, they stand a much greater chance of success. Growth opportunities abound, but context is crucial.
  • Published on

    The crucial importance of providing great customer service

    Governance Leadership Management Performance
    I want to tell you a short story, to demonstrate the crucial importance of providing great customer service, and reflect on implications for boards of directors. In mid-May, a small but important part of my website stopped working—the Twitter counter. This counter reports how many people have tweeted or retweeted links to any given blog post. It is a very useful indicator of whether a posting is of interest or not. I reported the issue to the website people. They quickly admitted there was a problem; told me that others had reported the problem; and, said they were working on a resolution. However, they kept my expectations in check by saying that they did not have an expected resolution date. All good so far. A few days later, a 20-second survey form arrived, asking for feedback on the customer service provided to date. I happily provided a positive response. Yesterday, another note arrived—this time to advise that the engineering team thought they had fixed the problem and could I please check my website. So, I checked and provided the requested feedback. Hopefully the problem is now fixed, and the update to the software will be deployed soon.

    While we don't like things to break, sometimes they do. Given this, it's the putting right that counts. This is what I learnt about "the putting right" that counted from this experience:
    • If there is a problem, admit it straight away
    • Commit to finding a remedy, but be realistic about when and how that might occur
    • Keep the customer informed of developments as they occur
    • Ask for further feedback or information
    • Tell the customer when the problem is resolved

    There is a profound message here for boards of directors. It concerns communications. People talk. They tell their friends and colleagues about their experiences—good and bad—in ways that can't be controlled. Boards are somewhat aloof from the day-by-day activities of the companies they govern, yet the effect of poor customer service has the potential to directly ruin the board's day. However, if boards put effective reporting measures in place and ask appropriate probing questions, the chance of being blindsided by unforeseen problems is greatly reduced. Effective leadership and a healthy culture from the boardroom out through the organisation are crucial. Boards that do the hard yards in the boardroom should see the fruits of their labours become apparent—on the bottom line—soon enough.
  • Published on

    Another capital raise breaks cover

    Governance Leadership Performance Strategy
    Further to my commentary yesterday, reports have emerged from New Zealand this morning that another ambitious technology business, PowerbyProxi, is seeking capital for growth. PowerbyProxi is developing a wireless charging technology which, if it comes off, will mean fewer wires in the office and when travelling. Samsung is an early adopter. PowerbyProxi wants to hire an additional 90 engineers, based in New Zealand, Korea and the USA, to accelerate product development and commercialise the technology.

    Whereas others are heading down the IPO path to fund growth, PowerbyProxi may seek a listing or it may use other instruments. Overall, the plan sounds audacious. However, the CEO Greg Cross, has a track record of making things happen.