Overly Aggressive Retrenching Is A Western Disease

Every time recession hits, its the MNCs who will be the first to retrench workers. Yes, you can argue that on an export destruction platform, but that is just part of the real story. Generally, local companies "are not as quick" to fire or retrench staff than say MNCs.

If you look at what has been happening around the world, almost all listed companies have enforced some sort of retrenchment or cost cutting exercise. From the GMs to the Sonys to even pharmaceuticals and construction firms. No industry is spared.

Don't you find it interesting that Malaysian companies, in general, list and unlisted, are not quite so trigger happy. Companies in developed markets tend to follow the mantra that the CEO is responsible for the fortunes of the company. The big movement over the past 15 years to tie CEOs compensation (and those of senior management) to the share price returns has produced a magnifying glass effect on management's behaviour and financial figures.

Everybody knows that American and some European companies are the quickest to retrench and downsize at the slightest hint of uncertainty or diminished orders coming in or inventory piling up.

The biggest culprit is the emergence of the quite silly Quarterly Earnings Results and the subsequent Quarterly Earnings Guidance. Needless to say, this kind of short term managing will result in a very difficult operating environment. Long term objectives and strategy will be compromised to attain short term goals and targets. QEG will not just affect the top layer of management, but will work itself down to the nuts and bolts of every organization, especially sales and marketing. Constantly doing, re-doing, re-working, re-stating QEGs will create a damaging focus on meaningless short-term performance and undermine a company's ability to manage for the long term. This re-working, re-stating, re-doing will have to be re-communicated down the line re-peatedly. Re-diculous!

Wall Street's relentless focus on whether companies hit or miss quarterly earnings targets encourages balance-sheet manipulation and discourages long-range planning. A consensus is growing among CEOs, regulators and analysts to go against QEGs. Many CEOs despise giving such guidance but are afraid to stop because they think they would be punished by Wall Street analysts and shareholders.

The unfortunate consequence of these excessive focus on short term numbers is that retrenchments and downsizing are textbook plays when things are starting to look bad. When things are bad, the management is EXPECTED to quickly do SOMETHING, and firing and downsizing are the quickest to pacify the markets.

In many ways, we should be glad that Malaysian companies are not there yet. We do not yet have that magnified focus on quarterly numbers every few months. We do not see CEOs being fired every now and then for not meeting numbers (maybe we should fire more CEOs actually). Is that good or bad? But of course the local CEOs payscale and reward structure are nowhere close to those of the Western world.

I think companies should be managed not quarter by quarter but rather based on a 3 or 5 year plan with visible and measurable milestones being communicated to all. At the moment probably less than half of all companies have a proper strategy going forward - they have little idea of how their industry will pan out 3 years or 5 years down the road, and how they are positioning themselves. They do not know where their critical strengths are (if they had any) and where they have critical competitive advantages in order to leverage on them. They have no idea on scalability, organic growth strategy and growth via acquisitions. But I digress...

p/s photos: Linda Chung Ka Yan

Blue Christmas For Finance Staff

CLSA Asia-Pacific Markets, the regional brokerage unit of Credit Agricole, asked 500 senior bankers and executives to accept pay cuts of as much as 25 percent next year to avoid getting rid of jobs.

The voluntary salary reduction program that was proposed for one-third of the staff last week would reduce basic pay by 15 percent to 25 percent starting in January. The participating employees would be paid the salary they forgo and may also receive a bonus payment, when profit meets certain targets. The proposed pay cut package is similar to the one offered by CLSA in 2003 when SARS led to faltering economies in Hong Kong and China.

Merrill Lynch & Co. has laid off 10% of staff in its Asia trading division and 10% of its Hong Kong employees, Ming Pao Daily News reported Tuesday, citing unnamed sources. Merrill Lynch has axed its Asia-Pacific structured finance and structured credit teams as part of its cull of 100 jobs in the region. Merrill Lynch has about 6,000 employees in Asia, hence the cuts have not been severe at all. In May when Merrill cut 4,000 jobs worldwide, Asian offices lost just 100 employees then as well.

Singapore-based Rajiv Garg, Merrill's head of structured finance for Asia ex-Japan, left the bank on October 21 with nine members of his team. Merrill has kept three structured finance bankers in Hong Kong and Korea to manage existing exposures, but they are likely to leave in a few months.

Last month, HSBC slashed 1,100 jobs in its global banking and markets division globally, including 100 jobs in HK, while UBS also made hefty cuts to itsu fixed income and real estate teams and those focused on China IPOs in the past few months.

Merrill Lynch & Co., UBS AG and JPMorgan & Chase Co. are telling senior bankers in Asia to fly coach on short-haul flights and reduce non-essential travel as they step up cost cuts, officials at the firms said.

UBS advised bankers this month to travel economy class for flights of up to five hours, two officials at the biggest Swiss bank said, asking not to be identified because it’s an internal policy. Merrill employees have been told to travel economy for flights of as much as three hours since mid-September, two executives at the firm said.

JPMorgan, the biggest U.S. bank, has requested senior bankers fly economy on flights of less than three hours since late August, said an official who declined to be identified.

Royal Bank of Scotland Plc, which ceded majority control to the UK government this month, in an Oct. 16 memo asked workers worldwide to fly economy on regional routes and to cut back on travel.

HSBC Holdings Plc.’s Asia unit asked its Hong Kong department heads and branch managers to cut travel expenses by 15 percent to 20 percent next year, two officials at the bank said, citing a Sept. 23 memo sent by Chief Operating Officer Jon Addis.

HSBC is recommending China Eastern Airlines Corp., the country’s third-biggest carrier, over Hong Kong Dragon Airlines Ltd. for business trips to Shanghai, the memo said, according to the people. Europe’s biggest bank by market value cut 1,100 jobs at its global banking and markets division last month.

A round-trip business class ticket from Hong Kong to Shanghai with Dragonair costs HK$6,110 (US$788), excluding tax, almost double the best coach fare. An economy class traveler on China Eastern would pay HK$2,650.

p/s photos: Nozomi Sasaki