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The eurozone after QE and the Greek elections

greece

29 Jan 2015 | Alex Edwards, UKForex

THE surprise for the eurozone last week wasn't the unveiling of a quantitative easing programme by the European Central Bank. What was surprising was the scale of the programme, at €60bn (£44.8bn) per month for the next 19 months. This huge announcement caused the euro to nosedive and, in combination with the divergence between the ECB's monetary policy and that of other major countries, will likely continue to weigh on the single currency over the next year.

Still, once the dust settles, the markets may start to see QE as a positive. The programme demonstrates that the ECB remains fully committed to battling deflation. For this reason, it wouldn't be a surprise to see pockets of support for the euro over the next few weeks.

The recent Greek elections are also piling pressure on the single currency. With the election of left-wing party Syriza on Sunday, there are growing fears that the Greek bail-out programme will fall away in the near future, with a confrontation between Greece and the ECB. These fears for the bail-out programme have set euro investors on edge. The single currency fell to an 11-year low following the election, but recovered slightly after the event. If discussions deteriorate further, however, we can expect the euro to be under pressure for some time yet.

Of course, it's not just the euro that's under threat at the moment. The risk of deflation isn't just a problem confined to the eurozone. With recent sharp declines in the prices of oil, energy and broader commodities, as well as uncertainty around growth prospects for China, the outlook for inflation in countries such as Australia and Canada is worrying. So worrying, in fact, that the Bank of Canada recently cut interest rates and downgraded growth and inflation forecasts.

Although employment numbers from the US have picked up during the last year, this global inflation issue might mean a US rate hike is brought in to question sooner rather than later.

Alex Edwards is head of the corporate desk at UKForex, part of the OzForex group

Excessive directors’ pay must be red flagged in 2015

A fat cat

27 Jan 2015 | Oliver Parry, Institute of Directors

THE shareholder spring of 2012 may seem like little more than a distant memory now, but its impact still reverberates across boardrooms in Britain. The investor uprising at Aviva, Prudential, Trinity Mirror, and AstraZeneca among others had an enormous impact on listed companies in the UK. It set in motion a chain of events which arguably contributed to the 2012 and 2014 revisions to the UK Corporate Governance Code, and it has dictated the discourse on executive rewards ever since.

This may come as a surprise to some; there are certainly those who feel that the uprising generated more light than heat. But the revolt over directors' pay and rewards set a context for boardroom announcements that journalists, policy wonks and government tuned into and have remained attuned to ever since.

Only last year a number of major plcs struggled to obtain widespread investor support for large executive pay packages. Barclays, Standard Chartered, Sports Direct, Burberry and latterly BG Group all faced shareholder pressure over the proposed pay packages of their respective CEOs.

BG Group's actions in particular was a cause for much head-scratching. Historically, the company had been very transparent in communicating with stakeholders, notably to the stock exchange.

But when shareholders voted on the pay package of a new CEO in a binding vote, BG chose to tear the results up. Not a little disrespectful and possibly not very smart. Even large investors who had nodded through pay packages on the back of large dividends, rebelled.

Charismatic impact

BG Group's actions are understandable in the context of it being long-recognised that charismatic leaders can have a massive influence on the share price. When Harriet Green left Thomas Cook last year without warning, the share price took an instant hit.

Such examples obviously provide leverage for high executive packages to get voted through - although BG failed because of the size of the package on offer (£25m) and the lack of a proven track record of Norwegian, Helge Lund.

One can speculate about why the board thought it was a good idea to put such a huge sum in front of shareholders. Perhaps it was put forward in the knowledge that it would certainly be rejected, which then kept the door open for a smaller but still substantial package offering a ‘win, win' solution? We will never really know, but the package Mr Lund ended up with was still, nonetheless, substantial especially when one looks at the relative size of BG compared to other companies operating within the same sector.

Excess, curbed

This year, new regulations are in place to curb such excesses. Companies will have to demonstrate that executive pay is linked to the long term performance of the company (as stated in the 2014 UK Corporate Governance Code).

Until the latest revision of the code which was published in September 2014, boards could choose to ignore a large chunk of shareholders provided the annual report was passed by a majority. It's therefore very significant that the FRC have now added the requirement that boards explain publically what action they plan to take following a meaningful opposing vote - which includes pay awards.

For the banking sector, there are further safeguards with the soon to be implemented FCA rules on executive remuneration which require UK banks to explain and justify remuneration for all their executive directors and CEOs.

The FCA explains on their website: "Our remit on remuneration is to make sure that pay practices in the firms we regulate do not encourage inappropriate risk taking and that firms do not pay out more than they can afford. We are not looking to limit individual levels of pay, as that is not our mandate, but we believe that firms must have remuneration policies that are consistent with sound risk management." 

Add-in the government's Binding Vote Policy, which also aims to limit future pay awards, and it's clear that companies will be under pressure to demonstrate that, in all things, they are both fulfilling their fiduciary duties to their company and working constructively with shareholders.

We must wait and see what impact this all has. There is no doubt, as I've described, that executive pay has soared over the last few years and the IoD has spoken out against what we regard as grossly excessive levels at listed companies. This is certainly a matter for a company's owners to respond to, rather than politicians. But while the court of public opinion has been vocal in this area, many institutional investors have been far too apathetic.

Free market sensitivity

Political sensibilities will be much keener this year with a General Election looming. It's important therefore that large listed companies don't propose pay packages that could do untold damage to corporate Britain as a whole and consequently become a red flag for opponents of the free market.

In simple terms, pay packages should be transparent, linked to long term strategy and performance and adhere to binding votes. Companies need to avoid capitulating to short term share price pressures and instead, maintain confidence and faith in a longer term strategy. Business needs to strengthen its focus on the longer term and the sustainability of value creation - as stated in the code. Exactly the ethos that the IoD believes is needed to continue to improve business performance.

Oliver Parry is a senior adviser in corporate governance, company law and financial services at the IoD

Off Balance: Excel makes you ill

Captain Obvious

21 Jan 2015 | Off Balance

DO SPREADSHEETS make you queasy? Make you turn a bit green around the gills? Off Balance's experience of FDs is that they're more likely to flush pink and smile inanely at the sight of a pivot table being created.

However, the cryptically named F1F9 [they do data-modelling - Ed] believes that a "plague of spreadsheet sickness" is sweeping across the corporate world, apparently costing businesses "billions of pounds". OB hasn't noticed this, but we thought it should be relayed to you.

The worst Excel errors can be linked to real-life illnesses, F1F9 claims. So sleep deprivation is the result of late-night attempts to fix broken spreadsheet models, and malnutrition occurs as a result of replacing ‘superfoods' with high-sugar drinks and pizza as you muck about with quarterly tables.

OB isn't convinced, so we bestow upon F1F9 our Captain Obvious Award for the most statistically challenged, or inane, press releases. Congrats.

Off Balance: Fatcat Tuesday? That's so yesterday...

Fat cat

07 Jan 2015 | Financial Director staff

FDs SHOULD be very careful the next time they publicly decry their lot at being back at work after the Christmas break, and struggles to fend off the January blues.

The reason? By the end of 6 January, Britain's most senior executives will have trousered more money in 2015 than the average UK worker earns in an entire year, according to calculations by the High Pay Centre (HPC) think-tank.

The calculations show that earnings for company executives returning to work on Monday 5 January will pass the UK average salary of £27,200 by late afternoon on ‘Fatcat Tuesday'. FTSE 100 chief execs are paid an average £4.72m.

When the HPC made the same calculation last year, it estimated that top bosses would have to wait until the first working Wednesday of 2014 to surpass the earnings of the average worker. But while pay realised by FTSE 100 chief execs rose by almost £500,000 since last year, the annual pay rise of the average UK worker limped up by a pathetic £200. Bah Humbug.

Off Balance: Cellar fella is new Wetherspoons FD

beer66

24 Dec 2014 | Off Balance

OFF BALANCE was delighted to note the stellar [should that be Stella?: Ed] rise of Ben Whitley, who has been appointed interim FD at Wetherspoons.

From draught beer to draft accounts, Whitley began working in one of its pubs as a shift manager, before moving into a series of audit and finance roles in head office.

A great effort, I'm sure you can all agree. It reminds OB of our own meteoric rise from abacus bead-polisher to chief head of calculator procurement.

We can only hope that such a tough, responsible, role doesn't drive him to drink.

A Postcard From...India: Smell the confidence

new-delhi-india-web

16 Dec 2014 | Arbinder Chatwal, BDO

IN May of this year, the world's largest democracy went to the polls to vote for a new government.

A record-breaking turnout was reported. The Indian citizen voted for change, hope and progress. After almost 25 years, the people of India gave a decisive mandate to a single party (and almost a single individual) Mr. Narendra Modi, the head of right wing, Bharitya Janta Party (BJP)

On my trip to India, while leading a trade delegation organised by the London Mayor's office early last month, I could smell the confidence, pride and optimism in the air. Though not visible on the ground or in numbers yet, the change in momentum is evident. Heading an almost presidential form of government, Modi has caught the imagination of Indians and the world. Starting with a hardnosed, no nonsense approach towards the administration, he has galvanised the bureaucracy and his own ministry into action. He is smartly concentrating on plucking low hanging policy fruits like energy prices, FDI liberalization in defense, insurance, real estate etc., to make a clear statement of intent. Power & Coal sector reforms; GST & interest rate reduction are clearly projected on the visible horizon.

Flights in and out of India are no longer just full of holiday travelers. Five star business hotels in Delhi & Mumbai are improving occupancy & re-positioning for more business travelers than ever before. Coffee shops are full of on-the-move meetings. Professional services firms - Law & Accounting, are buzzing with M&A and India entry discussions. BDO India, our network member firm in India, has doubled office capacity in Mumbai & Pune and has its partner strength navigating advisory solutions to national and global clients.

Industry sectors are indicating upward graphs amongst which infrastructure, health care, education, tourism, textiles, IT & auto ancillaries are the sectors to look out for. Some of the latest catch phrases in India are "smart cities", "industrial corridors" and "Make in India" - the campaigns initiated and rolled out in a quest for a transforming nation.

Alongside me, the trade delegation - a group of corporates from different sectors exploring the India business landscape for potential entry/expansion opportunities, sensed an outlook towards the fiscal, monetary, administrative reforms unfurling in India with this new change. The Corporates, all defined as SMEs and having an annual turnover of less than £50 million and fewer than 250 employees, came from sectors such as construction, software and computer services, education and training, renewable energy and creative and media.

One of the delegates, a BDO UK managed client, Aspen Pumps said: "As an SME looking for opportunities in international markets, Aspen Pumps was delighted to be chosen to be part of the delegation that went to Mumbai for the Indian marketing and strategy programme. The programme was immensely helpful in expanding my understanding of how to penetrate the market and the business opportunities in India. The event was extremely well organised and well put together and I commend the organisers for the structured and well planned agenda throughout the trip. I look forward to putting my new found knowledge to good use in our Indian marketing strategy and look forward to reporting back on our continued expansion in this growing economy."

BDO UK envisages to play the role of this pivotal catalyst easing India entry from an overall perspective, while our India member firm would take up the thread to not only help establish but aid in the growth of business operations in the homeland.

India Today: The intensity is there. The intent is serious. Capitalising on the momentum is the clear priority.

Arbinder Chatwal is an audit directors at BDO

Off Balance: Tech stats befuddle Captain Obvious

Captain Obvious

01 Dec 2014 | Off Balance

OFF BALANCE has taken a month-long hiatus from handing out a Captain Obvious Award to the most inane or, erm, obvious press release that we'd been unfortunate enough to receive.

Thankfully, our friends at Randstad Technologies have helped us back on the Captain Obvious train heading to a place of bad stats.

Amazingly, workers in IT chose ‘IT' as the most fulfilling industry to work in. Most other people chose health or care. Hmm ... what kind of people work in IT? Those who like to memorise server locations? Run diagnostics on your Windows NT-addled laptop? Play Quake during lunch?

They can't do anything else. They don't want to do anything else. Telling us that IT people are a bit geeky and have different views to the rest of the population is worthy of the Captain Obvious Award.

Well done, Randstad Technologies.

Off Balance: Twitter CFO accidentally tweets M&A plans

Twitter

25 Nov 2014 | Off Balance

PROFESSIONALS and execs are always being urged to embrace social media and be more open and transparent, but one CFO who should have known about the risks of using social media is Twitter CFO Anthony Noto.

And if Noto wasn't aware of the dangers of being fast and loose on the social media platform, he is now. On Monday, Noto committed a classic Twitter faux par after he appeared to have accidentally sent a public tweet which disclosed confidential corporate strategy plans around a potential acquisition target.

"I still think we should buy them. He is on your schedule for Dec 15 or 16 -- we will need to sell him. I have a plan," Noto tweeted. The offending tweet was later deleted.

It is unclear how the error took place, although Twitter spokesman Jim Prosser confirmed to Bloomberg that Noto was trying to send the message privately. The slip up is commonly referred to as a "DM fail," for "direct message fail."

Still, Off Balance loves to see a CFO using his own company's products, but will understand if Noto chooses to revise that strategy.

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