There are some horribly eerie parallels in the following article...

There are some horribly eerie parallels in the following article and perhaps a sad, but timely, reminder to AHF shareholders as to what they could well be staring at right now unless something is done about it with a sense of urgency.

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Bond’s legacy of misconduct lives on
I’ve been waiting keenly for the start of the new Channel Nine mini-series The House of Bond.
It’s a sort of morbid curiosity I guess, because the last time I saw Alan Bond face to face we parted on fairly bad terms. In fact, he kicked me out of his office.

That was about 25 years ago and I was then the West Australian Bureau Chief of the AustralianFinancial Review. It was a Sunday afternoon and I’d received a tip-off that receivers had just been appointed to his flagship private company Dallhold Investments.

I’d been told that Bond had been seen going into his building, so I drove down to Dallhold’s then HQ on Perth’s St Georges Terrace to check things out. As I arrived, the scene in front of me was chaotic. There was Bond standing in the centre of the office foyer, orchestrating a dozen or more of his employees carrying document boxes from one side to the other.

I don’t know what was in those document boxes. But I do know they didn’t get to the receivers, because I could hear the Bond shredding machines working overtime.

By then I’d been on Bond’s case for more than two years, covering his public and private business interests. Large amounts of company money had disappeared and, as his empire crumbled, I had uncovered a network of private trusts and companies controlled by other members of the Bond family owning properties and other investment assets.

I’d estimated them to be worth at least $50 million at the time, and they were effectively untouchable because Alan Bond’s name wasn’t on any title. He had managed to look after his personal interests extremely well while leaving his loyal shareholders with nothing.

As I stood at the front of the foyer recording the scene, Bond spotted me standing alone. The game was up, and Bond yelled at me to get out. It didn’t really matter. I had everything I needed, and another front page story followed – it was one of the sorriest tales in Australian corporate history for all the wrong reasons.
If you were among the many thousands of investors holding shares in Bond Corporation, Bell Resources or others caught in the Bond spider web, I suppose you kissed that money goodbye many years ago.

Fortunately, the laws have changed markedly from the 1990s and there’s much closer scrutiny by regulators of the behaviours of executive and non-executive directors on listed and unlisted companies.
Together, the Australian Securities and Investments Commission, the Australian Securities Exchange and the Australian Competition and Consumer Commission are a formidable force in tracking company activities, breaches and monitoring corporate governance practices.

For several years I consulted to a number of the big accounting firms, in conjunction with the University of Newcastle, to produce a detailed annual survey analysing corporate governance standards across Australia. It was a rigorous exercise, recording the performance of ASX-listed companies against key global corporate governance benchmarks.

Australia’s largest public companies – the top 50 – pretty much tick all the right boxes. All now have a majority of independent directors on their boards, including the chairperson. They also get top marks in relation to the independence of their audit, remuneration and nomination committees, the existence of a risk management committee, a code of conduct and a share trading policy.
That’s not to say they’re necessarily always good corporate citizens. They’re not, and we’ve seen plenty of examples of poor conduct and unethical behaviour.

When you look further down the ASX field, it’s more evident that the corporate governance net is being stretched. Smaller companies, with limited resources, are often falling short on key measures such as having independent directors. Mining companies, of which there are many, are perennially the worst offenders.

A company I owned shares in was delisted last year, its chairman and chief executive (the same person) banned as a director for five years by ASIC for multiple breaches of the Corporations Act. While at the helm he’d been using the company’s cash flow as his personal salary, pulling out $50,000 per month in management fees. And he’d been doing the same with at least four other ASX-listed companies of which he was a director.

I won’t see my money again either.

Let’s face it, despite all the years that have gone by since the Bond collapse and all the regulatory steps that have been taken here to improve corporate governance standards and continuous disclosure, investors are still highly exposed. And given how easy it is to access global markets these days, the whole issue of governance and misconduct is really a global consideration for Australian investors. Corporate laws are tough in the UK, US and Europe too, but crime is still rampant.

Only recently, we’ve seen huge cases of misconduct involving the likes of Volkswagen and Deutsche Bank in Germany, Goldman Sachs and Wells Fargo in the US, and dozens of other high-profile corporate scandals that have resulted in huge fines and heavy share price falls. Investors have had to pay the ultimate price, yet again.

This week I noted that ASIC had ordered the former chairman of AWB Ltd, Trevor Flugge, to pay a pecuniary penalty of $50,000 and be disqualified from managing corporations for a period of five years for breaching his duties as a director. This related to his failure to inquire into the payment of around $200 million of transportation fees by AWB, which ultimately fell into the pockets of former Iraqi dictator Saddam Hussein.

Then, on Tuesday this week, law firm Maurice Blackburn, with support from litigation funding giant IMF Bentham, announced a planned class action lawsuit against retailer Woolworths over alleged Corporations Law breaches in relation to a profit warning issued in February 2015. The retailer had upgraded to its 2015 profit guidance in the previous August, but hadn’t advised the market until months later that it had identified significant risks to its earnings. The company’s shares subsequently dived, costing me and other shareholders dearly.

IMF Bentham has a chunk of investor class actions on its books against Australian corporates, including Spotless Group, Bellamy’s Holdings, UGL and others. Maurice Blackburn also has a growing list of class actions, including against Crown Resorts, QBE, Radio Rentals, and rival law firm Slater & Gordon. The latter’s list is also impressive, with pending class actions against ANZ, Commonwealth Bank, NAB and many others.

What can we, as investors, make out of this litigation? Is it just a case of law firms wanting to cash in, or is there something inherently wrong with corporate Australia?

I think there’s elements of both. Litigation is certainly more prevalent these days and, in many cases, it is warranted. Corporate scandals do keep popping up, and company directors are routinely being booked by ASIC. Likewise, the ACCC has regularly launched court actions against companies for breaching competition rules and for misleading consumers.

Shareholders are still being taken advantage of too, with many directors being paid obscene salaries out of company earnings that simply don’t equate with the performance of the companies they manage. Even this week, the Australian Shareholders Association criticised the board of Australia’s largest construction group, CIMIC, for paying its top executives more than $1 million each in bonuses despite the deaths of several employees during the year.

I do think things have got much better for shareholders in terms of corporate governance from the days when the likes of Alan Bond could treat their investors with total disdain.

But, call me a cynic, I doubt we ever will totally stamp out corporate misconduct. It’s just evident in other, more subtle ways.

I think, from an investing point of view, Warren Buffett summed things up very well in terms of company management.

“I try to buy stock in businesses that are so wonderful that an idiot can run them because, sooner or later, one will,” he once said.

It’s a very good tip. I’ve invested in lots of great companies with excellent fundamentals over time, but some have ended up being run by idiots.

The trick is to pick good stocks that are idiot proof.
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Source: https://www.investsmart.com.au/inve...medium=email&utm_campaign=free-weekend-150417