Archive for July, 2016

Work and Pensions and Business, Innovation and Skills Committees: The BHS Report

The inquiry (1 and 2) has tried to shed light into the reasons why some 11.000 BHS workers may be considered direct losers, up to 20.000 when pensioneers are included, many more if we consider eventual job losses in BHS providers, and up to 11 million when current and future pensioneers in other firms, (all of them contributors to the Pension Protection Fund that will afford part of the damage) are counted.

The big numbers also point to some winners: the company was bought in 2000 for £200 million; in the period 2002-04 some £423 million were given in dividends, (more than the £208m in Net Profit), £307m paid to the Green family. Goodwill and some real estate transactions allowed to pay these amounts, but also reduced the firm capacity to fulfill its pension obligations, invest or later afford the loss-making period until 2009, so that in 2014 the company had negative equity and was largely financed  by debt, (part of it granted by Green`s other companies). Operations didn`t really go well, as sales remained flat and profits might have increased mainly as a result of cost cuts. Read more…


Why do institutional investors “exit” instead of raising their voice?

July 18, 2016 4 comments

A certain time ago, I published a post about Pescanova, (1) a rather small public firm. At the time its problems were unveiled by an investor who didn`t believe the accounts and management´s explanations about the CF trends, no “voice” had been raised against its managers, or its performance, the corporate governance structure, its strategy, capital allocation….What`s more, I remember a chorus of financial analysts that had been broadcasting their recommendations to buy the stock one or two years before. The story (if true as it has been told) is well-known: results had been introduced for some time from outside of the perimeter, while the “third party firms” were in fact firms controlled by the company or its managers, (and were full of debt that finally “exploded”).

Exit or Voice 2

 But I won`t talk about this today. Instead, I will try to guess why no voice had been produced about its corporate governance (CG) practices, that were apparently very defective, (as the Spanish regulator said –after everything was unveiled- ),(2). The distinction between “exit and voice”, or “active versus passive monitoring” was introduced by Hirschman (3) and is described by Tirole, (4). Read more…