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Monthly Archives: February 2018

Hangin’ with the Next Jenneration.

23 Friday Feb 2018

Posted by Burning Manager in Uncategorized

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business, C-Suite, investment portfolio, iSentia, Kylie Jenner, market cap, marketing, Millennials, Scent of a Woman, stock market, technology;

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In the 1992 movie Scent of a Woman the main protagonists Slade and Charlie played by Al Pacino and a young Chris O’Donnell form an unlikely bond breaching their significant age and life experience gap. Each ultimately learns from one another. It wasn’t always thus. In times gone by the young learnt from the old – the basis of modern universities was established on the basis of learning from a master. The modern day apprenticeship system still holds strictly to this concept. About the time of the VCR remote control (Google it if you are a Millennial) the pendulum moved ever so slightly to the younger generation as the early shoots of being ‘tech savvy’ started to emerge. Nowadays it is as though the younger generation, our Millennials and those coming up behind them, have the knowledge and the older generations seek their advice in some strange real life version of The Curious Case of Benjamin Button. Not experienced that feeling yet? Try queuing at the Apple shop to get some issue with your iphone sorted and you know exactly what I mean!

The digital/social media generation are becoming much more influential. No recent issue brought this into harsh relief more than the news I caught on Bloomberg that a single message on Twitter by celebrity Kylie Jenner of the Jenner-Kardashian clan helped erase US$1.5bn off the market value of the Snapchat parent company. She didn’t tweet out by saying she had looked at the Snapchat fundamentals and thought it is over-valued, or their downstream growth forecasts are exaggerated, or anything of that ilk. She in fact said:

‘sooo does anyone else not open Snapchat anymore? Or is it just me…ugh this is so sad.’

Bloomberg went on to write ‘Whether it’s the demands of her newfound motherhood, or the recent app redesign, the testament drew similar replies from her 24.5 million followers. Wall Street analysts too have begun to notice, citing recent user engagement trends noticed since the platform’s redesign.’

In other words this next-in line generation of leaders, celebrities and opinion formers are starting to impact on the market. When a random tweet by a person, whose only claim to fame is infamy (and oodles of social media followers – 24.5m), can shift the market it is maybe time those of us who have responsibility for investment portfolios, both big and small, wake up and take notice.

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So I tried to do something very difficult – I tried to channel my inner Millennial. I asked Siri ‘how can I behave like a Millennial?  Not surprising perhaps – and in typical Millennial style – Siri just flicked me to some random websites with features like ‘Don’t Act Your Age, Act Like a Millennial: 5 Lessons to Leverage’ Realising I might have to dig deeper I gathered my Apple products around me – my iphone, Apple watch, ipad, ipad Pro, Apple TV latest generation and Macbook looking for inspiration. Still nothing. Then it dawned on me – if I could take one of the worst performing shares in the portfolio I manage and look at the company, not through the eyes of a seasoned investor, but with beginner’s eyes – in other words using mindfulness -I might just be able to morph my thinking to that of a Millennial. That’s just what I did and the results were profound!

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iSentia are a media analysis company. Remember the old Media Monitors? Well that is now iSentia. It has a current market cap of $241m (total number of shares by current share price). With headquarters in Sydney it has five offices in Australia, two in New Zealand, two in China, one in Hong Kong, Singapore, Kuala Lumpur, Tokyo, Manilla, Bangkok, Jakarta, Ho Chi Min City, Seoul and Taipei. It was founded by Neville Jeffries in 1982, its background in the sale and publication of classified advertising and clipping services. Jeffries died in 2007 and it has grown pretty aggressively through acquisition ever since. At least seven I counted since 2006. Slipping out of Millennial mode for a second, any good business school course looking at M&A activity will tell you how difficult they are to manage and to derive true value from. Wesfarmers acquisition of Homebase in the UK, for example, (the subject of my previous blog) is testament to that fact. The share price of iSentia has fallen 50% in the last 12 months….enough said!

OK Millennial beanie now squarely back on. So what’s the first thing that greets me when I interface with iSentia through its shop window to the world – its webpage?  Keep in the back of your mind that this is a media intelligence and data technology company. You might expect the bar to be set quite high. The David Jones Christmas window looks a tad better than your local newsagent for example. Same principle. Well prepared to be totally underwhelmed. The opening page that is meant to entice a ’click through’ and further engagement leaves me cold. I get no sense of connection here. The font looks like Arial and the logo looks like the work of a year four student just learning cut and paste for the first time. Not an auspicious start. I’m a tenacious Millennial (a rare breed!) so I push on. Oh before I do a lesson from old school marketing 101. The key factor here should be not what you do but why you do it. It’s called your proposition. It must be up front and centre. It’s simple stuff – get the eyeball owner to ask a very basic business question – how can iSentia help me? They haven’t worked this out yet. The homepage below is what you get. Not a USP in sight!

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The ‘Our news’ is always a good place to click-through to. But wait there’s no news here. To get news updates I have to scroll to the bottom of the page below the fold in the website menu area to find a link called ‘newsroom’. It would appear that the latest real iSentia story relates to September 2017. Hey I’m a Millennial, we need to be fed more often than this. Surely something exciting has happened to the company (aside from its inglorious decline) since then?

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Just a personal thing but I dislike photostock photos which headline web pages. What you don’t have enough money to bring a photographer in to do a real job? Surely a company involved in media would get this more than most? Also why do I see this same person pretty much headlining the top of every tab page? It’s as though the budget for stock photos wasn’t big enough to get different pictures.  If iSentia is trying to present a multi-national look and feel there is no sense of the diversity of their workforce. Big oversight. OK let’s dive down into Australia. Not very promising…the font’s changed and it has a completely different look….physician heal thyself! It looks like internet 1.0 in here. Uninspiring and cluttered. Still no USP. More of the same ‘What We Do’, ‘Who We Are’ etc.

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Ah… I see a ‘Careers’ tab. This might be interesting. When you are in the tech and media intelligence space you must compete hard for talent. I’m special so what can you do to entice me to commit to you? Not much if you look at the screen shot above. A strange blend of pictures from photostock to what looks like a somewhat awkward smartphone photo taken at the rear of a bus…let’s hope it doesn’t reverse or some of the top talent will need replacing.  I’m assuming the tuxedo isn’t de rigueur for the office either – not even for dress down Friday!

Ok last shot let’s go to where the big boys are (and I’m using the word boy advisedly) – the Boardroom. I’m a Millennial so I’ll admit I’m not there yet…perhaps in six to eight months… Four dudes and a woman. Font’s different again of course but the most striking thing is the Chairman’s photo is different from the others as though an afterthought. Doesn’t inspire confidence. You guys are in the media business where looks are everything. At least get a corporate look ffs. As for the C-suite read above but only more so. One last attempt to dredge some value here I might click the ESG Report for October 2016 under the Corporate Governance headline. Oh no that entire page and all its hyperlinks are broken. I feel an emoji coming on….

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You could argue that iSentia is too busy getting on with business and turning around their ailing fortunes to spend money, time and effort on the store front. If Kylie Jenner has taught us anything it is we need to pay attention to style and detail. Millennials have their own way of looking at things and when they act the market can shift. It’s time to take off the beanie and loosen the top knot and settle back into my Boomer body…well almost. I’m not ready to give up the sneakers just yet – they are real comfortable. Rad man!

 

Going South with Wes farmers

20 Tuesday Feb 2018

Posted by Burning Manager in Uncategorized

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6 thinkings hats, Andrew Formica, Australian Financial Review;, B&Q, black hat, Bunnings, Bunnings UK, DIY, Edward de Bono, enterprise risk management framework, Fairfax Media, Glass Lewis Policy, governance, governance 101, Governance Australia, Karl Weick, over-boarding, risk appetite, risk tolerance, Wesfarmers

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It’s not like me to do a purely business blog as my regular readers will know. But hey it’s a new year so let’s break with tradition. In a rare moment of foresight in 2016 I spoke to our brokers about our holdings in Wesfarmers (one of Australia’s best performing publicly listed companies) when I heard they were contemplating a foray into the UK DIY market. I don’t profess to be much of an analyst, but having spent literally years of my life in DIY stores in both the UK and Australia I can say I am something of an end-user expert in both markets. On hearing of Wesfarmers ‘ambitious’ plans for Bunnings in the UK I put our brokers on watch. When it was confirmed, a sell order went in.

News recently of the write-down of the UK division of Bunnings (a Wesfarmers subsidiary) finally vindicates my position. I’m ok, but by no means could you call me  a savvy investor, but I spotted the problem when very few others did not. Certainly Fairfax media didn’t (publishers of the Australian Financial Review). I wrote an email to Michael Smith of the AFR on this very topic in January 2016 and got the response back that then CEO Goyder is ‘notoriously conservative  with acquisitions…and I tend to think they have done their homework..’

Turns out they hadn’t. This had me thinking about cricket and our recent Ashes win over the ‘Poms’. At first glance there may be few parallels between cricket and retailing but let me argue the counter-point. In cricket barely any nation wins away from home. Pitches are prepared (doctored – is that too harsh?) for home players who exploit their superior local knowledge. Same is true for retailing. Local retailers know local markets and consumer patterns best. While the drive to do DIY might be a universal one, the patterns of buyer behaviour vary nation by nation. To think you could supplant your Australian based stores ‘lock stock and barrel’ into an already well serviced market thousands of miles away is folly.

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What troubles me as an investor is that this now pretty apparent folly went unnoticed or unchecked,  begging  the question about what layers of defense were breached permitting this foolhardy decision to slip through the the keeper as it were! Firstly the proposal must have gone to the Wesfarmers Board. How on earth the proposal could have been given the green light by this august body of men and women with decades of experience in the business world between them is beyond me, and I suspect millions of Australian superannuation holders who each have a stake in Wesfarmers performing well. Wesfarmers has a Board of nine and by no means could you call this lot ‘knuckle heads’ despite making a ‘knuckle head’ decision that wiped squillions ( well in excess of $1bn) off the value of the business. I can only speak for my company but that would have me at home on seek.com.

Every Board of repute, and certainly my little old Board, has an enterprise risk management framework which is a risk blueprint for how the unhappy bedfellows of opportunity, safety and  compliance can get along. Nestled in this lengthy tome will be a couple of key nuggets – risk appetite and risk tolerance. By all accounts these were not considered at Wesfarmers and it alarms me as to why not. It would appear that this fundamental tenet of governance (governance 101), whereby the Board has a pre-determined risk appetite and this informs decision making, was absent. To have entered the UK DIY market against the strength of B&Q in a country in the northern hemisphere known around the world as a nation of shopkeepers beggars belief. To get that through surely their risk appetite was set at ‘we’ll give anything a crack’.

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There are a couple of possible reasons why the Directors (representing us as shareholders no less) were asleep at the wheel. The first place to look is neuroscience. Aside from ‘group think’ which most people are familiar with, there are a number of other strategic decision making traps that I would assume the Directors are cognisant of and  have strategies to ensure don’t arise. If optimism bias arose how was this checked? Did the Directors all wear the de Bono black hat on the UK Bunnings expansion idea? If so they can’t have worn them for long.  Did they snap shut the window of realism too soon because each Director thought that the others must know better if they were all speaking for the motion – a  phenomenon known as pluralistic ignorance. This is social psychology 101 which was exactly where I learnt it. Was there, what Karl Weick of the University of Michigan calls, consensual neglect? Or diffusion of responsibility perhaps? These are smart people. There are at least 16 Bachelor and Masters degrees in the mix according to their profiles (with the exception of Tony Howarth  AO who doesn’t include his qualifications). Come to mention it there are three Directors with Australia Awards (two AOs and an AM).  So I think I would be doing a disservice to them even suggesting that they don’t know this neuroscience and psychology stuff.

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There must be another reason. That took me to the Wesfarmers website and the Directors’ own profiles and I think I might just know how this so called ‘debacle’ (AFR 9 Feb) came about. A quick glance there will show that this is a very busy group of individuals. In fact their corporate governance must occupy much of their working lives and beyond. A rather startling fact for me was that between them they share 45 Directorships, or roles I would equate with being a Director and 11 Chair roles. Take out one performer who seems to have a light, but you might consider appropriate workload, and the average Board/advisory involvement rounds to 7 each! The US Glass Lewis Policy has a limit of 5. Rules of thumb around this in Australia seem hard to find but I recall Governance Australia saying once that three was a maximum figure and only two if you had a Chair’s role. Well under the Wesfarmers average.

I would have thought the cognitive capacity to consider and properly evaluate complex proposals brought to the Board table is diminished by the complexity and involvement in other governance activities. Putting the obvious question of potential conflicts of interest aside, it is hard to understand how the right amount of fresh thinking time can be devoted to complex, time consuming tasks that can impact the lives of everyday Australians when pulled in so many different directions at once. By the way there is a legal duty under the Corporations Act 2011 to certain obligations and fiduciary duties apply.

If Wesfarmers is to get this right and get their ‘swagger back’ (a la Andrew Formica) a good place to start might be delayering the amount of distraction that the Directors, whom we entrust as Shareholders to do what’s right by the Company, have in their governance portfolios. Let’s be honest we all want Wesfarmers heading north not south. Oops that’s what got them in trouble to begin with!

 

Cleaning Up Our Act

07 Wednesday Feb 2018

Posted by Burning Manager in Uncategorized

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Three years ago today Adelle lost her life; brutally murdered by an estranged partner who had been stalking her online and in person in the lead-up to the tragic event. Mother of two she was ordinary and exceptional in equal measure. She was also for some time my Personal Assistant and then an administrator in a quite remarkably creative and uplifting workplace before I left to pursue other opportunities. In such a happy place where imagination reigned supreme her light shone brightly.

Today I announce that while it has taken me three years to do something meaningful I am in the process of establishing a social enterprise for women who have suffered domestic, family and intimate partner violence, sexual harassment and sexual assault. It is a business designed to provide empowerment back to the lives of those who have been made to feel weak and disempowered through the action of physical, mental and sexual violence – most often by those they know intimately.

Like any social enterprise it will start slowly and in a small way – the scale is important to allow those who participate in it to flourish as they determine it, best fitting their needs and the needs of their customers. It doesn’t need an overly strong hand on the tiller but we will be around to mentor and provide advice and guidance to give it the best possible chance of success.

So what is it? It is a cleaning company owned, managed and run by women for whom violence has been part of their reality. It is hoped that once it is up and running it can scale and offer opportunities for many who wish some financial independence and work in a business model free from ‘Weinstein worries’. ‘Ah women cleaning’ might be your reaction thinking that it reinforces some sort of misogynistic stereotype. We don’t think so and here’s why.  Cleaning offers the opportunity of flexibility for its workforce. For us, we don’t particularly care when the work is done, just that the place is clean. Those delivering the service can tailor when they do the job to fit around parenting responsibilities, appointments with their lawyer and court appearances as required etc.

There is a lot of work to be done to get it underway. Policies, procedures, selection, training, social media and other marketing to get lined up. Books need to be in place and all the other hard work that is standard before an enterprise hits the streets. We are there to lend a hand and I’m hoping other businesses will lend a hand too. Very shortly we will be starting to crowd source some of the capital costs of getting this venture off the ground. We hope you can help there too. Every small donation will have a huge multiplier effect.

So what has this got to do with business? Well quite a lot I think. Leadership in the realm of business cannot be solely isolated to the confines of business operating hours. I’ve blogged about this before; particularly given the distrust the public has in our institutions. Sometimes you need to give back in a way where others get to bask in the glory and benefit from the fruits of their own hard work. It was reassuring to read an article in the Australian Financial Review this week (6th of February) lamenting the decline of the public’s trust in organisations but noting that CEO’s have risen up the trust scale. The role taken by Alan Joyce of Qantas over the marriage equality issue was a shining example they pointed to. If Joycey can do it so can others and many do!

Taking on a social enterprise in a workplace that might otherwise be commercially focused can be highly affirming and demonstrate that when we pull together we can achieve remarkable things. Lessons learned and achievements in one area easily permeate to other business areas making the workforce more motivated and focused -two essential elements in managing an enterprise. In fact longstanding and respected CEO Andrew Formica commenting on the recent calamitous foray of Wesfarmers into the UK DIY market is quoted as saying that Wesfarmers failed management 101 by not engaging with their workforce. What better engagement than getting your teams to work on a common cause for good.

Sometimes there are issues that as business people – particularly male champions of change – we cannot ignore. With one woman dying each week from domestic violence in Australia and a hospitalisation every three hours it is right and proper that we make a stand in the workplace.

Wouldn’t it be great to see women invigorated, in control and feeling whole again, as if touched by the ‘magic’ that Adelle generated around the office seemingly without effort. You too can help make this happen. If you want to know how to help, email me though my LinkedIn page www.linkedin.com/in/phil-diver-a052575/

 

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