Finance matters!

Cynthia Olmesdahl: 21 years ago

Does it really?

by Cynthia Olmesdahl

Does it really? Let’s take an irreverent meander through a 21-year web of spectacular brand business success, massive failures and some seriously idiotic business decisions. Then decide for yourself...

When Vega opened its doors 21 years ago, the Johannesburg Stock Exchange had already (in 1996) changed from a manual cacophonous “open outcry” trading floor to the subdued computerised offices we know today, where nothing very exciting seems to happen. Shares were dematerialised (no more embossed share certificates in the safe) and online share-trading sites were making an appearance.

Image source: Sunday Times 15 October 2017, Small stock exchanges take on the JSE

South Africa now has four exchanges, the JSE, ZAR X, 4 Africa Exchange and the A2X. So, if a company wants to raise capital, it’s supposedly there for the taking.

But what have local and global companies done with shareholder funds in the past 21 years?

So sure, the first law of business (and life) is not to spend more than you earn. Or is it really?

Elon Musk’s Tesla hasn’t made a profit since inception in 2003 despite revenues of $21,5 billion in 2018 and having a market capitalisation of $60 billion (that’s the company’s value on the stock exchange for finance littlies). (His SpaceX is valued at $33 billion and is profitable). Twitter’s been around since 2006 and made a profit for the first time in 2018.

So, what makes shareholders invest in loss-making companies?

Are they investing in the people or the company? In some cases, like SpaceX and Facebook, shareholders are definitely investing in the person, because Elon Musk and Mark Zuckerberg have majority shareholdings in their companies. Shareholders have no say whatsoever except to choose between investing or not. Crumbs, talk about putting your money where your man is …

And who’s pulled themselves out of the deep doody? Apple recently achieved trillion-dollar status (that’s 12 zeroes in case you're frantically calculating) having been on the verge of bankruptcy 21-ish years ago when Bill Gates rescued it. We’ve certainly seen some other astonishing entrepreneurial phoenixes in Oprah Winfrey, Jeff Bezos and JK Rowling. Bill Gates has cracked the wealthiest individual title for 16 of the past 21 years. I wonder how much his Apple shares are worth now?

According to a recent study, 20% of CEOs are psychopaths. Steve Jobs and Elon Musk are two icons whose disruptive personalities apparently made/make them as innovative as they were/are difficult to work with.

Are shareholders staking their investments on psychopaths?

Maybe it takes a psychopath to win big, but equally lose big. Witness Steinhoff’s Markus Jooste (dubbed by Maverick as a “rich entitled arsehole”) – it surely takes a psychopath to successfully rip off investors and friends.

In the past 21 years, we’ve seen some massive rip-offs and some spectacular failures – Enron and mates Arthur Andersen, the Concorde, General Motors, a $91 billion failure rescued with a $65 billion US-government bailout, RadioShack, Blockbuster, who turned down the opportunity to buy Netflix go figure, WorldCom, another fraud failure, Lehman Brothers, a massive $700 billion failure that epitomised the 2007/2008 sub-prime mortgage world recession, and earlier this year the iconic brand Diesel filed for bankruptcy.

Locally we’ve had our share with 1time Airlines, Nationwide Airlines, LeisureNet (remember them – the Health and Racquet Club gym okes?), Stuttafords, 20Twenty Bank, Saambou, Regal Bank, VBS Mutual Bank, Bell Pottinger (not South African, but we had a hand in its “fake news” demise) Aurora Mines, Steinhoff slowly but surely imploding and more recently Bosasa, Group Five (in business rescue) and SAA (ditto).

Should we even be talking about South African SOEs in this bad bunch? Let’s rather not. Not enough space in the wordcount. We have enough dodgy dealings in our supposedly successful companies with Steinhoff, Tongaat Hulett and Aspen the most recent.

The most spectacular brand crashes of the past 21 years bear some mention, but not much. Any Vega student could likely have foretold the downfall of innovation-lacking brands such as Blackberry, Polaroid, Toys R Us and more recently Thomas Cook.

Whew, depressing stuff, but maybe there’s light. If you find it, please let me know where – I'm writing this on a dying laptop battery with light from a rechargeable lamp.

Should investors rather be playing the share lottery with women? A 12-year study of Fortune 1000 companies shows women-led companies achieved three times the returns of those led by men. An even earlier 19-year study (in 2003) showed a high correlation between high profits and C-suite women – we rock ladies!

Let’s do some more history musing and wander back to before craft gin and to when Vega was a toddler learning to walk.

In 1999 Mark Shuttleworth sold his verification software company for $575 million to Verisign. Eskom was heralded as an efficient entity promising to reduce electricity prices by 15% over the next 20 years. Say wot? Someone was clearly in the dark about something. Maybe it was expecting a millennium blackout to wipe out collective memories.

So, we’re back to the question. Does finance matter? The world’s most admired companies say they rely on supremely talented managers. So, do people matter more than finance? Poodling through 21 years of financial history, it doesn’t look like finance matters, but most certainly people do. They lift shareholders up, they let shareholders (and the starstruck public) down. Love them, hate them, trust them, respect them, whatever. You choose.

Back the man and definitely the woman, not the company, but watch your back for psychopaths.

And no, I didn’t make it all up. Here’s are the references which I liberally and unashamedly messed with:

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Ausick, P., 2019. 11 largest bankruptcies of all time. [online] MSN. Available at:[Accessed 11 Dec. 2019].

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12/11/2019 9:00 AM