Pigs get eaten

As South African investors we are a community that is a bit fatigued. We have been battered by investment schemes, scams, overzealous directors and investment companies that has failed on a scale that makes Bruce Willis’s Armageddon look like a Disney channel movie.

Those of us that still have a bit of cash are sitting on it like old hens waiting for the eggs to hatch and we are tapping our feet on different hotplates everyday looking for an investment that is sound in the market that is driven more by news media headlines than investment strategies. Property used to be the ultimate and safe inflation buster, but with tenants defaulting and property sales and prices slowing that avenue has turned into an electric avenue and none of us are in the mood to get shocked.

We want to look offshore, but let’s face it, we are a touchy feely nation and struggle to deal with telephone operators millions of miles away. Even more the old safe havens like Europe and America are constantly fighting their own recession and are so close to being flushed down the financial toilet only their feet are sticking out. So were to then? Who can we trust with our hard earned money?

I think that anyone that has a simple answer to this is either Nostradamus, Da Vinci or just plain reckless. In a world economy where bank bankruptcy is starting to become as normal as taking a tan on the beach in the summer one cannot be blamed for feeling a bit like a headless chicken running all over. There are RSA retail bonds, but let’s not confuse government with optimal spenders and fantastic asset managers. When dead stadiums and defunct para-statels cannot pay back their debts where will the money come from? TAXES? You and me?

So where to go? Where do we go? Diversification is the answer! There is an age old saying: “In any market the bulls make money and the bears make money. It is the pigs that get eaten” Sadly as a nation we tend to invest like pigs. We place our entire investment capital into one product. Recently with Amatenda most of the investors interviewed by Carte Blanche was left destitute by the fact that all their investment capital was gone. With Sharemax we read and here daily of widows and pensioners that invested all their savings into Sharemax and they are now living in garages and looking at family to support them. We are the pigs that happily get eaten year after year after year.

So in this simpletons mind we need to, hedge currencies, invest in multiple asset classes and within those asset classes multiple promoters. That way if you get conned by one or two, at least you are not destitute. Be logical and think with a sober mind. Anything offering above normal bank interests has a risk to it, no matter what the promoter says. Let’s take charge of our destiny, lets invest as widely as possible and get our funds as diverse as we can. Lets either be bears or bulls and leave the pigs be.

Political Will

Necessary "Evil"

In an article posted in the New Age Newspaper on the 14th of December 2010 unions are purported to seek a total ban on Labour Brokers in South Africa and that the demands are building in strength and momentum. So much so it has been dubbed “The Mother of all Battles”. The method to be used by the Unions is the demand for Section 189 of the Labour Relations Act to be repealed. This section directly deals with temporary employment. Although one does have empathy for the plight of the Unions, in the article they specifically mention Labour Broker’s unwillingness to do salary deductions for unions, and the so-called extorted workers one has to review the impact that such critical changes will have in the job creation front.

One has to understand that life has to occur in balance. Once the one side of the scale is packed to heavy life responds by acting “aggressively” to balance the scale. A typical example of how life and people in South Africa has responded to heavy handed government intervention is in the illegal cigarette market which, at least according to British American Tobacco’s advertising campaign, is spiraling out of control and has suddenly become the largest funder of other more violent and “less profitable” crimes like robbery, gun running and drugs. Is the assumption that this is like a gateway crime.
We cannot at all be surprised by the growth of this “market segment”, as approximately 50% of cigarette turnover (not profit) is passed on to government in the form of exorbitant sin taxes. These excessive taxes make it virtually impossible for competitors to enter into the market with cheaper alternatives, without breaking the law. Therefore heavy handed government involvement has created an economy conducive to trading, smuggling and selling illegal cigarettes whilst protecting and building a monopoly state in this R 25 Billion per annum industry.

Indulging me to use the above as an example, one has to ponder if such over protectionism in the labour market will have a positive or negative effect and what the direct effect will be on job creation. All our major job creation industries are currently shedding jobs at a massive scale. In Novembers figures an approximate 18,000 jobs was shed in the formal industry(Banking and Manufacturing the largest culprits). However agency work or labour brokering (governed by Section 189) has been creating jobs at a rate of 5%+ per annum. Is this not already a sign that an over regulated environment is creating opportunities for business men in South Africa? Is it not proof that additional regulation may, as in the cigarette industry, cause a form of illegal labour operations? Before you laugh out loud, be prudent in considering the fact that the Mafia controlled US Cities and even states, due to the ”ownership” of unions.

It cannot be ignored that about 7% of South Africa’s workforce is currently employed in the Labour Brokering environment and that this amount is only set to grow, if left to operate. However if this industry is going to be declared illegal would the Private Sector, in reality, absorb these employees? What would business to do repair the scales of balance? Another point that is prudent to investigate is true and honest temporary employment. If Project Management, the agricultural industry or contract based businesses are not going to be allowed to align their staffing strategy with their actual demands, which by default varies from time to time, it may very well cause these industries immense damage and, at least in my mind, cause these industries to seek alternatives to employing people. Items like mechanization, automation and technology deployment would become the leading factor in business success and not staff deployment and training. This does not show a rosy picture for the blue collar worker the union is so set to protect, or at least protect salary deductions from.

In conclusion, it should be considered whether the “evil” of labour brokering is not a “necessary evil” to stimulate our economy’s most dire demand, job creation. Maybe better and focused regulation of temporary workers and labour brokers would be a more viable option. Maybe more emphasis on training and social investment by these firms may protect our economy from the short term damage of job losses, whilst encouraging future growth for our unemployment figures.

My sincere condolences to Uganda and its people

I would like to extent my sincere condeliences and best wishes to all people affected by the bomb blasts in Kampala.

May we soon live in a world with humanity, honour and compassion where outrageous acts like these do not have any place in the world anymore.

My thoughts and prayers are with all those that have lost family and friends and may prayer is that the peacefull and loving nature of the Ugandan people remain intact as an example to the rest of the world.

Outsourcing vs Labour Brokering

Especially in South Africa labour brokering is often confused with outsourcing and the biggest culprits in promoting this myth is the labour brokering industry itself. Now I would like to state very clearly that I am not against labour brokering and I am a firm believer that there is an important place for the industry in South Africa. That said I think it is prudent to ensure that the two very different industries are not confused.

Firstly, labour brokering is the provision of staff on an outsourced basis, whilst outsourcing is the fulfilling of a function within which a staffing solution may be provided. The methodology and profit generation of these industries is vastly different. Allow me to explain in slightly more detail.

A labour broker earns its revenue from employing and deploying as many staff members as possible. The profits are generated from invoicing their clients more than what they pay the employee. The biggest reason a company is willing to pay a premium for this service is the “passing-on” of risks associated with employing staff and in some cases the increased costs, if any, can be justified by the decreased administration requirement.

A true outsourcing company, on the other hand, generates its revenue from addressing the need of the company within a function at as low a cost as possible and charging the client a premium for that service. Usually at a lower rate than employing staff to fulfil that function. The focus of the outsourcing company is therefore not on their clients staffing requirement but rather on the function that needs to be fulfilled.

So in other words the outsourcing company generates its margin from increasing its efficiency and by leveraging the intellectual capital within the company. For example using better software and more expensive staff than what its clients could afford and sharing these resources with more than one client. On the other hand the labour broker generates its margin from its administrative abilities and from decreasing legal risk.

So which one should your company choose? Simple, it depends on your need. If you require a warm body and do not want litigation risk and the administrative head ache of employment, labour brokering is a viable option for you. If you on the other hand require a function within your company to be managed more effectively and at lower cost outsourcing should then be looked at.

In conclusion, both industries have an important place in the South African economy and address the needs of companies to reduce risk and potentially costs. That said they should not be confused or pit against each other.

Direct Insurance, is it the right move?

We as consumers are being bombarded with advertising, mock TV shows s and call centre telling us that it is better to insure directly and cut out the “expensive” middle man. A large emphasis is placed on the fact that they are irrelevant in the short term insurance realm and even more that they are a pure burden to the consumer. A recent advert comparing a broker to a fish and chip sales person is a clear indication that little regard is being placed on the role of financial advisors and brokers within the short term insurance industry.

The prudent question I believe we need to ask ourselves is whether we believe this propaganda and whether we would want to trust a call centre operator with insuring our valued assets and now even our lives. Let’s take the following points into consideration when unpack direct insurance for ourselves, ignoring propaganda.

It does not take a rocket scientist to understand that the very call centre operator assisting you in obtaining your insurance is in fact a low level employee, irrelevant of earnings, within the company. They are selling high volumes of policies and therefore making it impossible to remember a little thing like your name. If you have a dispute on your claim who would you speak to? The answer is very simple, their legal department. One young man, who alleges on Hellopeter.com that he was effectively bullied by a large direct insurer’s in house legal team into signing documents that eventually led to his claim being denied is proof of that.

Now no one is claiming that the young man is talking the truth about the matter or that the insurance company is in fact bullying clients into not paying claims, the fact that is being brought across is merely that when a dispute arose his communication point was moved from the friendly voice at the call centre to the legal department, an intimidating place for any non legal professional.
Now bringing that into comparison with a broker environment one needs to understand that your broker would be your port of call, not his legal department. If it is warranted that a legal department of an insurer has to get involved you would at least be “protected” if not just escorted by your broker. Your broker is also an individual with a larger vested interest in your well being and naturally concerned with you cancelling other policies with him. He or she is not just a voice.

I would like to re-iterate that this article is not aimed as an attack on direct insurance, although I must convey my surprise that the broker industry has not attacked back with similar vigour. It is merely aimed at providing some perspective within the propaganda.

Have a merry 2010

To all my friends and associates. I wish a fantastic 2010. May the winds of good fortune blow behind you with such vigour that your ears whislte.

Having a will?

A Will is a simple, straightforward yet incredibly important document in your personal life. During 2009 seven friends passed on and only 3 had up to date wills. This has left the other four's families and friends destitute and struggling to understand how they should wind up the estate.

Most of us are hitting the roads from this week onwards, the sad reality is that this season has the highest road death ratio for the year and the reality that one of us may not return home after our holiday is very real. It is extremely reckless of all of us to believe that it will not happen to us, as this is what everyone of the "other people" in accidents also believed.

In conclusion, contact your financial advisor, attorney or accountant and get your will up to date. It will be the best Christmas present you can give your loved ones.

Plain Language

Plain Language is now a requirement under the National Credit Act, The Consumer Protection Act as well as the Companies Act of 2008. The only problem is that the definition, as contained in these acts, are in anything but plain language. Although writing a document in plain language sounds incredibly simple, it is however not that simple.

All South African Banks made a commitment to distribute their documents in plain language years ago, with a self imposed target for October 2000. Now not to venture a guess, but I dont get my correspondence in what I term as plain language. So why is it so difficult to write a document in plain language?

Well firstly lets look at the authors, and lets face facts most of them are legal professionals. From the first day at varsity they get taught to write all there documents in Legal English (a sepreate subject for your LLB). This is basically to teach students to write in "high" language and to create ambigious statements, allowing multiple interpretations. So is it our tertiary education system letting us down or is it the ego of our legal profession? I will leave that decision up to you.

That said the important thing that all of us must recognise is that Plain Language correspondence is no longer a mere virtue. It is a requirement in terms of 3 seperate pieces of legislation. This changes the ball game dramitacally within the corporate business world.

S0 I would like to humbly request the legal profession, tertiary eduction services and business owners to focus correspondence and training to write correspondece towards plain language. Paying a fine, having a contract rescinded or losing accreditation is just not worth looking clever in my mind.

People, Planet & Profit

The new King III report puts a much larger emphasis on so called Triple Bottom Line reporting for businesses. Business is not just about making money anymore as it is about how you make the money and whether you take from the people and planet or give to the people and planet.

Obviously as King III applies to all entities it is placing a bigger burden on smaller business to also comply to these codes and therefore we are seeing a bit of resistance to King III. That said King III has an apply or explain approach and therefore I am off the opinion that this approach makes it accessible to most businesses. But what does apply or explain mean? This basically means that you need to apply your mind on how you can comply, do the best you can do to comply and explain why you can’t do more. So basically it is a soft and positive approach rather than the traditional comply or else like in the US system. With the recent global meltdown I am sure we can debate for hours on the success of the more aggressive approach taken by the US government in governance.

I do however believe we need to ask ourselves a more prudent question. Is it good business to comply to King III? Well let’s not debate the legal issues around it but the pure advantage that it will offer you, if any. I think the answer is a resounding YES. Most of us as directors spend 110% of our time working IN our businesses focussing on our functional role within the company and we don’t spent any time working ON our businesses focussing on strategic and long term visions. When complying and applying King III into your business you will force yourself to spent at least some time ON your business and just in that the advantage of compliance is massive.

In conclusion, every change brings opportunity and risk and compliance to King and THINKING about Poeple, Planet and Profit will give more opportunity to you to manage your business effectively. Non compliance only brings risk. So my opinion is: Lets apply King III.

To find out more about King III, the New Companies Act or the Consumer Protection Act please visit http://www.sinkorswim.co.za/

Property Syndication and King III

Although King III was only “launched” on the 1st of September this year we have to already start asking whether the Property Syndication is gearing towards the compliance of King III. That said it may even be extremely prudent to ask if they have ever been King I or II compliant. As the aim of the King reports was directly related to Public and Listed companies.

A lot has been said about the Property Syndication industry with a wave of allegations made against the operators. Some warranted and some maybe not. I believe that most of the attacks have been along the wrong avenue. We have seen some esteemed writers hammering the syndication industry about shareholder communication, so called inflated returns and poor and expensive management principles. Although these items are obviously extremely relevant and more than just idle points of discussion I believe that more emphasis should be placed on whether property syndication promoters subscribe to the King II and now King III rules of governance.

The basic reality is that most may not even know of the King reports. For example the directors of the now defunct Blue Everest Investments never even attempted to subscribe to King I and II and I believe that this was due to ignorance to its existence. Is that an excuse? I don’t think so, Asset Manager City Capital also never attempted compliance to King. Why not? Is it pure ignorance from the public, the promoters and from brokers alike? Is it that the so called governing body ,the Public Property Syndication Association better known as the PPSA, does not even mention compliance of King in their constitution? Or is it because we never demanded it?

In an industry that is bombarded by negative press brokers still keep selling their products and we are led to believe that it is merely the high commission being paid that motivates selling the products. I am however of the opinion that the concept behind the industry is solid and could be a fantastic investment for investors, but only if the syndication industry is more aggressively regulated by us, the public. Having an FSB number is no longer enough to protect the public, as clearly evident in the Capital Investments debacle. Capital Investments was/is a fully licensed Asset Manager and millions of rands are alleged to have been lost in this investment platform.

The focus for the immediate future should be to look at items like proper governance, ie. King III and the broker industry should demand compliance to these codes.

To find out more about the New Companies Act, King III and the Consumer Protection Act please visit www.sinkorswim.co.za

King III Anounced

“Governance in the past was about board effectiveness, currently it is risk management whilst the future of governance is King III” Lindie Engelbrecht of IODSA (Institute of Directors South Africa).

On the 8th of September Webber Wentzel in association with IODSA gave us a brief overview on the newly launched King III and the methodology and mindset behind creating it. The two most powerful messages, in my humble mind, was the fact that King III has taken an “apply or explain” approach and the fact that we in South Africa will now enter into an “All inclusive stakeholder environment”. The key question is was does this mean.

Apply or explain effectively destroys the “tick the box” concept as was the norm in compliance and governance. This change in mindset from “do or else” is definitely an aim at giving governance a more positive approach. The part that I personally enjoyed the most was the fact that it now forces company officers and directors to actually think about every aspect of King III in their compliance. Thus not comply or explain, but the apply your mind and explain what and how you did it.

It is international standards that all stakeholders in companies are regarded as important in the business. However the shareholders rights come first !!! The New Companies Act changes that all together. All stakeholders are now equal and their rights are protected in line with Constitution and the Bill of Rights.

Overall King III is not only a new international benchmark in corporate governance but also a progressive look at responsible directorship and elevating the position of directors into a more and more professional world.

Fore more information about King III and The New Companies Act please visit www.sinkorswim.co.za