Executive Remuneration: Should directors have a stake in the company ?

One of the much vexed questions which arises with Executive remuneration particularly with Chief Executives, Board Chairs and Directors is how much of a stake in terms of shares/equity should these people hold in the companies which they govern ?  This is particularly relevant for underperforming companies where directors receive high fees but own little or no shares. This becomes all too transparent when a corporation undertakes risky debt financed acquisitions or material business changes which leave shareholders with less value, but directors are unaffected as they have no shares which can be affected. In contrast, engineering company UGL actually issues shares to directors which make up 30% of their fees. The Chair of the Board of Coca-Cola Amatil owns shares in his company worth 11 times his directors fee yet the Board Chair of Spark Infrastructure paid a fee of $245K in 2012 has no shares in that company.

The Australian Shareholders Association undertook research on the issue of shareholdings and gathered data on the 64 independent non-executive chairs of Boards in Australia's top 100 companies. A snapshot of some of the information is below and shows the numbers of share owned, their market value and the level of director's fee paid to the Chairs. Clearly some chairs have little stake in their companies whilst others have committed sizeable amounts of investment.

 

Company	Shares owned	$ Value	Latest $ fee
Spark Infrastructure	0	0	$ 245,000
Fairfax Media	99,206	$   48,611	$ 432,730
Westpac	16,039	$ 449,092	$ 677,464
Woodside Petroleum	20,000	$ 700,200	$ 751,771
Adelaide Brighton	4,739	$   15,638	$ 269,178
Telstra	140,000	$ 653,800	$ 684,441
Perpetual	2,431	$   84,477	$ 484,275
Tabcorp	34,292	$ 102,535	$ 449,625
ASX Ltd	3,825	$ 127,181	$ 326,694
Aust Found Invest Co	2,444,439	$13,077,525	$ 150,000

Negative effects of wind turbine farms: where is the evidence ?

The question of possible negative health effects of winds farms when located near human habitation has been consistently promoted by a small if vocal group. The evidence however is scarce to non-existent and documentary film maker, Neil Barrett shows in this short film that many landholder hosts support wind farms.

Forests and Weather: Can't see the clouds for the trees ?

Environmental scientists have been able to correlate rainfall and temperature patterns with large forest growth for many years however the exact role of forests in the regulation of temperature as well as with the formation of water molecules remains a matter of conjecture. One proposition, of several possible theories, which has garnered strong support  originates from the University of Helsinki and formulates a possible feedback loop exists from trees to aerosol particles. Many plants produce a group of chemicals termed 'Terpenes'. Terpenes are familiar to most people as the smell of pine forests and are the main constituents of turpentine. As terpene molecules are highly volatile the process of oxidisation is theorised to make them less volatile leading to condensation into aerosol particles which have a cooling effect. If this is the case, then the steady deforestation of the planet, through logging/land clearing, weather patterns and outbreaks of disease in trees portents another negative impact on planetary-wide temperature and rainfall patterns. 

Executive Remuneration - pay for performance, the myth and the reality

With the Annual General Meeting season well underway in Australia, the issue of Chief Executive and senior executive remuneration again comes into the spotlight for individual shareholders and institutional investors alike. Despite constant statements from remuneration advisers and optimistic sounds from boards, the reality is that paying the CEO more and providing extraordinary pay packages does not have any relationship to financial results for shareholders.

Investment bank, CLSA examined the executive pay of Australia's top 200 companies plotting their pay in comparison to shareholder returns. The exercise demonstrated that there was no relationship whatsoever. The only relationship which was revealed was the size of the salary often equalled the size of the company - ie big companies paid more but it made no difference to their performance. So where does this leave investors including those who have these 200 top companies in their superannuation accounts ? Certainly the need to exert greater upwards pressure on performance and downwards leverage on disproportionately generous remuneration has never seemed more justified.

Climate Change Insight: Impact of cooler oceans is only temporary

Researchers at UCLA in San Diego in the United States have just released research that shows that the cooling of eastern Pacific Ocean waters has been counteracting the warming effect of greenhouse gases. The impact from this natural variability in ocean cycles is responsible for the pause or “hiatus” in global warming over the last ten years. This is not a permanent effect and will end leading to a resumption in global warming as before.

The UCLA  study examines the tropical Pacific Decadal Oscillation, a climate cycle that occurs over the course of several decades. Within this large pattern are the El Niño and La Niña  cycles that cause shifts in the distribution of warm water in the equatorial Pacific Ocean. While El Niño and La Niña last only a few years, the Pacific Decadal Oscillation lasts several decades. The Oscillation has been in a cooling phase since 1998.

When the climate cycle that governs that ocean cooling reverses and begins warming again, the planet-wide direction toward higher temperatures will resume.

As the researchers have noted, before 2000, global temperatures had risen at a rate of 0.13C per decade since 1950. The hiatus in warming has happened while levels of carbon dioxide, the main greenhouse gas, continue rising steadily. In May 2013, carbon dioxide reached 400 parts per million in the atmosphere for the first time in human history. This study does not refute climate change models, but only reinforces the understanding of the various dynamic forces at work in the environment.

Social interaction: gestures and expressions are not always what they seem

Confused or what emotion ?

Understanding and reading people's body language and expressions has underpinned a range of professions and marketing/human resource functions for many years. An increasing cohort of research studies however is starting to completely debunk much of these assumptions and indicate many 'rules' of body language are arbitrary instead. A number of examples place the contrast between implied meaning and actual sentiment in context: it is often commonly believed that crossed arms is a sign of defensiveness yet researchers at the University of Chicago found that the same arm-cross can also mean 'invulernability' if linked to a super-erect torso; a well known and popular notion that women show interest in a man through flipping their hair, making eye contact or adjusting their clothes should only be interpreted as a time based activity - they only use this body language to keep the man interested long enough to judge whether it's worth knowing him or not - the University of Vienna estimated that this measurement takes only 4 minutes or so.

Researchers at the University of Hertfordshire in the United Kingdom, found that fidgeting and avoiding eye contact which is often  associated with dishonesty was found in equal measure in people who were otherwise honest but simply showing signs of emotional discomfort. If there is one primary message to draw from this data its simply that gut-instinct is just as effective as any other measure.

Posture	What people think it means....	Actual science finding....
Arms crossed:	Defensive	Perhaps but it can also mean invulnerable, self-comforting or being cold.
Hands on hips, wide stance:	Power and/or confidence	True
Scratching nose:	Deceit or misleading	No more common for liars than truth-tellers.
Looking up and to the right:	Deceit or misleading	No evidence to support this view.
Swaggering walk:	Confidence	Not necessarily – can be faked.
Averting gaze:	Deceptive	False, A misconception in many cultures: could be embarrassment.
Fidgeting:	Embarrassed	True
Raised arms, chin up:	Triumph, pride	True in all cultures.
Palms up when talking:	Trustworthy	No evidence to support this view.

Climate change insight - sea levels fall as well as rise

A common misconception reported in the popular media about climate change science involves predictions of ice sheets melting with commensurate rising sea levels across coastlines. In many reports the impression  given is that the effects are somehow uniform across the globe with dire effects. This perception and selective presentation of information is incorrect. There are  several other factors and influences which occur with melting ice sheets. For example, the actual physics of large ice sheets involve gravitational effects - any large mass on Earth whether a continent or a massive ice field exerts a significant gravitational pull on water surrounding it, thus drawing the liquid towards its perimeter. When the ice melts the water is released and the sea level falls. This has been known since 1888 when physicist, Robert Woodward published his findings and was utilised again in 1976 in work by William Farrell and James Clark when calculating potential impacts from the melt of the great northern ice sheets. A second factor is the weight of ice sheets on the earth's crust - the crust is actually pushed down by the ice sheets in the Northern and Southern polar and sub arctic regions and with the current melting, the crust rebounds and rises. Hudson Bay is currently rising a centimetre a year and has been doing so since the last ice age.

There are also more complex physics impacts to consider - the volume of water and ice actually influences the Earth's rotation. The planet's balance is altered if a large ice sheet melts hence the distribution of water is altered. The melting of Greenland would shift the axis of rotation approx half a kilometre towards the ex-ice sheet. These effects mean that the levels of sea rise would be quite different across continents and countries - Scotland could see a sea fall of more than 3 metres whilst South America could see a sea rise of close to 10 metres.

Chocolate continues to astound with its unique value

The latest research on chocolate, contained within a letter to the science journal, Nature, takes a new direction in data analysis by outlining the results of a survey of chocolate consumption of 23 male Nobel laureates during their years of prizewinning work. The survey relates that 10 (43%) report eating chocolate more than twice a week, compared to 25% of 237 educated, age-matched men. This latest survey follows a 2012 analysis showing the level of national chocolate consumption correlates strongly with the per capita incidence of Nobel Prize Awards. Fascinating data for all those who derive their energy boost from sweet indulgence.

Flavonoids, the key chemicals in choclate claimed to boost cognitive ability, are also in red wine although the merits of this source are very limited. Classifed as a phytochemical, Flavonoids are highly effective in reversing age-related declines in neuro-cognitive performance through their ability to interact with the cellular and molecular architecture of those partsm of the brain responsible for memory and by reducing neuronal loss due to neurodegenerative processes. It is claimed that in particular, Flavonoids may increase the number of, and strength of, connections between neurons. Naturally correlation does not necessarily equal causation. What if the Nobel laureates were also coffee drinkers thus with another source of stimulation ?

Weapons of fiction, now a reality

Active Denial mounted on its main heavy carrier

Smaller mobile unit of Active Denial

The idea of using invisible rays to inflict pain and/or disable an opponent has long been a favourite theme for thriller and science fiction writers and audiences alike. However such a device or system has been moving through the concept phase to active development for three decades. A prototype was in fact developed for the United States Air Force as far back as the year 2000. Using millimetre waves (which are described as very short wavelength microwaves) with a frequency of 95 gigahertz, the effects penetrate only the outer 0.4 millimetres of skin. The effect however is dramatic and is described as impossible to resist. The United States has spent around $120 million on these devices which are named Active Denial and have progressively been reduced in size from the enormous 7.5 tonnes to military versions which can be mounted on smaller vehicles. Active Denial resembles a large flat antenna dish mounted on the back of a small truck and has a beam diameter of 2 metres with a range of several hundreds of metres in distance. It fires in bursts of 3 to 5 seconds duration. With civilian versions now being developed for deployment with police forces, the obvious question is one of public safety and potential misuse. The deployment of military technology in connection with civilian matters and public order  is usually controversial with the risk of unintended consequences such as injury and/or political repression. Active Denial is a  new device and its potential effects are still relatively unknown. It should remain in limited use until the proven safety and appropriateness of deployment in civilian settings has been effectively demonstrated.

 

UNESCO's concern over the future of Australia's Great Barrier Reef

Bleached coral - Great Barrier Reef, Australia

The latest report from the World Heritage Committee of the United Nations Educational, Scientific and Cultural Organisation (UNESCO) tabled at the thirty-seventh session in June 2013, raises the uncomfortable proposal to list the Great Barrier Reef on the list of World Heritage sites in danger. UNESCO routinely monitors World Heritage sites and comments on efforts by states parties to maintain these listed valuable sites within their geographical borders. The UN body has raised concerns about coastal development, particularly the Port of Gladstone, and water quality with the Australian and Queensland Governments in previous years but found that key issues were not being fully addressed. In addition there was a lack of transparency in information being provided by the Queensland Government.

In relation to the Great Barrier Reef and Australia, the UN report specifically states:

The World Heritage Centre and IUCN recommend that the World Heritage Committee reiterate its request to the State Party (Australia) to undertake the following actions:

a) make a clear financial commitment to maintain the Reef Rescue programme and ensure water quality continues to improve,
 
b) halt the approval of coastal development projects that could individually or cumulatively impact on the property’s Oustanding Universal Value (OUV) and compromise the ongoing Strategic Assessment, and
 
c) ensure that the legislation protecting the property remains strong and adequate to maintain and enhance its OUV.
 
They further recommend that the Committee consider the Great Barrier Reef for inscription on the List of World Heritage in Danger at its 38th session in 2014 in the absence of a firm and demonstrable commitment on these priority issues by the State Party.

The Great Barrier Reef is one of the wonders of the world and the largest coral reef on the planet. The international recognition of serious threats to its' survival should galvanise further action domestically as warnings from local marine scientists appear to have been largely unsuccessful.