So now the country’s growth problems are the fault of institutional shareholders? The lack of innovation and growth, we’re told, is because risk-averse shareholders are hobbling the plans of those grand visionaries on the boards of Australia’s blue chip companies.
Firstly, do we actually have a problem? Australia’s growth has been the envy of the developed world over the past two decades and, given a meltdown in the very significant mining sector, I’m surprised the economy is holding up as well as it is.
But, assuming we do have a problem, blaming shareholders is a load of garbage. If anything, I’d say the country’s institutional investors are too supportive of dumb strategies and are not making directors accountable enough.
Having seen many ruinous offshore expansion strategies, and a few successes, it has become pretty clear to me what works and what doesn’t.
“We have run out of growth in Australia so we need to expand offshore” is the path that guarantees destruction of shareholder capital. Usually, the lack of growth opportunities at home is a lack of management vision to begin with.
While ANZ (ASX:ANZ) was off pursuing its “supra-regional” strategy, Commonwealth Bank (ASX:CBA) increased its earnings per share by 60% since 2007 thanks to incremental, low risk growth in Australia. This compares to a modest 25% increase at ANZ.
And is it really that hard for Telstra to grow healthily in its domestic market? A mobile network that doesn’t break down would be a good start. Also, I can’t think of too many businesses I would rather be in right now than mobile telecommunications. More and more of our life is being connected to the internet and Telstra has a primary (and profitable) role in shaping and influencing how Australia uses a plethora of new technology.
Those that have been successful didn’t expand offshore because they had run out of growth opportunities at home. They did it because they identified an opportunity and it just happened to be in a different country.
Macquarie Bank is one of our most successful international growth stories and I’ve never seen them once mention international expansion as a strategy. They identify hundreds of opportunities, some of which happen to be offshore, throw a few smart people and some money at them, and then focus on the ones that work (most of the ideas come from the staff members themselves rather than any grand strategy being pushed down to the works). A warrants business in Hong Kong and an enormous infrastructure business in North America are just a couple of the initiatives that have been outrageously successful.
Successful international expansion starts with a good idea, not a need. Shareholders are right to be sceptical of grand global expansion plans from those boards bereft of any alternatives.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.