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India Equity Research Reports, IPO and Stock News
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Emerging Leaders
Corporate governance meltdown
What’s gone wrong – why now?
Attending my daughter’s school play of The Wizard of Oz and watching the
Wicked Witch of the West cry out ‘I’m melting!’ felt eerily familiar for this analyst
of Chinese small caps. But of course, this meltdown of companies with corporate
governance concerns is a good thing and will eventually clear the air on many
long-standing suspicions. The game has rapidly changed and suddenly, shorting
Chinese names that have less than transparent backgrounds and accounts has
become a “no-risk bet” (in the words of one investor quoted on Bloomberg) -
whether or not the short-sellers evidence is as air-tight as they claim. It seems
as if the witch-hunt for 'frauds' is on. And in witch-hunts, the good often get
caught up with the bad.
David Webb’s take
Several weeks ago, long-time HK corporate governance activist David Webb
presented at our Greater China conference. Inside this issue, we recap his main
critiques and advocated changes to clean up the HK stock exchange.
Macquarie’s take
While the standard checklists are useful, we also draw on our experience as a
China-based CFO. We review some of our less commonly used techniques
inside. These include grilling CFOs on their ERP systems (remarkably, some
are quite shaky there) and gauging the extent of delegation within the
organisation (when one man is running the show it is easy to shuffle accounts).
Our alerts go higher, the more complex the accounts. This is particularly true of
‘growth by acquisition’ stories. We like simple, focussed strategies, teams that
combine old-timers and new blood from MNCs, robust ERP systems, longstanding quality auditors and long track records. MNCs or private equity on the
Board of Directors are another plus.
The way forward
Out of the wreckage, some interesting sprouts are emerging. Several companies
that have been tarred with accusations have emerged with a variety of
convincing rebuttals. These include extensive 3
rd
party due diligence made
public, reputable private equity firms taking stakes after extensive due diligence
and upgrades in personnel. What we have not yet seen, but may emerge this
year, is minority shareholders voting onto boards truly independent Non
Executive board members.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Emerging Leaders
Corporate governance meltdown
What’s gone wrong – why now?
Attending my daughter’s school play of The Wizard of Oz and watching the
Wicked Witch of the West cry out ‘I’m melting!’ felt eerily familiar for this analyst
of Chinese small caps. But of course, this meltdown of companies with corporate
governance concerns is a good thing and will eventually clear the air on many
long-standing suspicions. The game has rapidly changed and suddenly, shorting
Chinese names that have less than transparent backgrounds and accounts has
become a “no-risk bet” (in the words of one investor quoted on Bloomberg) -
whether or not the short-sellers evidence is as air-tight as they claim. It seems
as if the witch-hunt for 'frauds' is on. And in witch-hunts, the good often get
caught up with the bad.
David Webb’s take
Several weeks ago, long-time HK corporate governance activist David Webb
presented at our Greater China conference. Inside this issue, we recap his main
critiques and advocated changes to clean up the HK stock exchange.
Macquarie’s take
While the standard checklists are useful, we also draw on our experience as a
China-based CFO. We review some of our less commonly used techniques
inside. These include grilling CFOs on their ERP systems (remarkably, some
are quite shaky there) and gauging the extent of delegation within the
organisation (when one man is running the show it is easy to shuffle accounts).
Our alerts go higher, the more complex the accounts. This is particularly true of
‘growth by acquisition’ stories. We like simple, focussed strategies, teams that
combine old-timers and new blood from MNCs, robust ERP systems, longstanding quality auditors and long track records. MNCs or private equity on the
Board of Directors are another plus.
The way forward
Out of the wreckage, some interesting sprouts are emerging. Several companies
that have been tarred with accusations have emerged with a variety of
convincing rebuttals. These include extensive 3
rd
party due diligence made
public, reputable private equity firms taking stakes after extensive due diligence
and upgrades in personnel. What we have not yet seen, but may emerge this
year, is minority shareholders voting onto boards truly independent Non
Executive board members.
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