Pieces of the Pie

When profits are made, everybody involved wants a piece of the pie.

That’s ok, human nature.

And what’s wrong in distributing profits proportional to efforts?

Well, it’s not an ideal world. In today’s real world, investment banks have started billing clients for research and have used the money for prostitution and other recreation instead (see the docufilm “Inside Job”).

Your private equity executive will travel business or first class. He or she will stay in the executive suite. Hmmm, borderline, but still bearable if the fund generates an above market-average profit for you.

What’s unbearable is the high-roller life exhibited by disgraced Lehman ex CEO Fuld for example. You know, as in fool the public, eat their pie, and pull out personal funds before the ship sinks with an overload of public stake. Inexcusable behaviour. Deserving of extremely deterring punishment.

If a listed company regularly raises its dividend and generates steady capital gains for its share-holders, I frankly couldn’t care less if the CEO zips around in a company jet, pitches his tent in the presidential suite and orders in from the most expensive restaurant in town.

On the other hand, I do take serious exception to above behaviour on company expense if the company dishes out a meagre dividend and generates no capital gains. If I’m invested in such a company by mistake, with above CEO behaviour, I’d seriously look to exit at the next opportunity. If I see the CEO downsizing on lifestyle and if I still believe in the prospects of the company, I might still stay invested, but first I want to see some humility in the CEO’s living habits.

An exit is an ultimate thumbs-down a long-term investor can give to a loser CEO and his listed company. If a business is not generating profits and the management is living it up, such a business deserves the boot from its investors.

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