Author Topic: Value of FFH culture  (Read 8013 times)

FFHWatcher

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Re: Value of FFH culture
« Reply #20 on: February 20, 2018, 03:08:12 AM »
I noticed a month or two ago that Fairfax updated their website about Ben Watsa.  Ben left Lissom and started his own firm called Marval Capital Ltd.



Spekulatius

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Re: Value of FFH culture
« Reply #21 on: February 20, 2018, 04:11:12 AM »

Daphne,

With respect:

1) Ben was put on the board of directors when he was 35 years old.  That's a joke.  Look around and you'll look long and hard to find any other company that dedicates an outside board position to somebody with so little business experience and virtually no life experience.  Sorry, but it's true.  The fact that Prem owns about 7 percent of the economic interest of FFH doesn't mean that we should passively accept that his family members occupy board positions that should otherwise have gone to a more meritorious and experienced outsider (by the way, Ben's bio is what you would expect from a 38 year-old -- there are hundreds and hundreds of guys like him in Toronto, and thousands in NYC).


2) Prem's decisions about compensation were taken by himself.  No other shareholder suggested that he cap his salary at $600k.  As with many aspects of his life, Prem might be seeking inspiration from Omaha on his salary, but that was his choice.  As shareholders, all we ask is that he not portray himself as a selfless servant to FFH working for a pittance, and then shift money to his family using poorly disclosed preferential contracts.  Take appropriate compensation, but disclose it well.


3) Prem and his family definitely have skin in the game, which is mostly good.  However, it should never be forgotten that the Watsa family economic interest in FFH is only about 7%.  When Prem arranges a contract to have his son manage $50m of FFH's investments, $46m of that is OUR money and the Watsa family's economic interest is less than $4m.


4) Integrity is a matter of perception as much as reality and it is not a matter of degree.  If Prem is going to hold up the culture of FFH as something that is tremendously valuable, then he should at least walk the walk.  On that point, my opinion is that he has failed very badly over the past five years, particularly on the issue of modifying the terms and conditions related to his multiple voting shares.


In closing, I would state simply that Prem is a big boy.  This website is a well-known meeting place of FFH investors and if he has any interest on how they view FFH it's certainly not hard to find.  Every quarter he holds a teleconference and is effectively given an excellent platform from which he can address any of the concerns that are raised here. 


SJ

+1  to everything stated above. It is important to remember that Watsa has been able to cement his control of FFH with only 7% of the shares. This is less than Wynn owned of his namesake company, yet Wynns board was able to boot him. Watsa’s control of FFH is disproportionate of his ownership and he should exert his powers wisely.
To be a realist, one has to believe in miracles.

cwericb

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Re: Value of FFH culture
« Reply #22 on: February 20, 2018, 05:02:30 AM »
Anyone who held shares in Fibrek when Resolute took them over back 2011 knows that the “Fair and Friendly” Fairfax motto applies only to Fairfax self interest.

However, I would reserve criticisms of Ben Watsa until someone can show evidence of his performance or lack thereof.

If he does a good job I don’t care who his father is. But until someone can show that he is doing a poor job it is a bit unfair to criticize him simply because of his age or who his father is.

As far as PW’s salary is concerned, how many other companies of Fairfax’s size has a CEO with a $600k salary? Sure he also gets the $10 dividend, but so do we.

StubbleJumper

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Re: Value of FFH culture
« Reply #23 on: February 20, 2018, 05:51:58 AM »
Anyone who held shares in Fibrek when Resolute took them over back 2011 knows that the “Fair and Friendly” Fairfax motto applies only to Fairfax self interest.

However, I would reserve criticisms of Ben Watsa until someone can show evidence of his performance or lack thereof.

If he does a good job I don’t care who his father is. But until someone can show that he is doing a poor job it is a bit unfair to criticize him simply because of his age or who his father is.

As far as PW’s salary is concerned, how many other companies of Fairfax’s size has a CEO with a $600k salary? Sure he also gets the $10 dividend, but so do we.


Yeah, I didn't want to say anything about the fairness of the Fibrek takeover or the insider trading charges that were lodged against Prem.  But, suffice it to say, it wasn't a bright and shining moment for anyone involved.

To be clear, I mean no criticism of Ben Watsa.  He's probably a good guy, and if intelligence is genetic, he's probably been blessed with a keen intellect.  No problem there.  The issue is whether Ben's appointment to FFH's board is truly in shareholders' interest or whether it's simply in the Watsa family's interest.  Without a doubt, spending time on that board will be educational and a valuable development opportunity for Ben.  But, that's not what outside shareholders need.  What we need is a bright and experienced businessperson who can contribute to the guidance of the company and provide counsel to Prem when he itches to do something wacky.  Prem needs to have a couple of older, experienced guys or gals who say, "Prem, why are you doing XXXX?  Does that really have a prospect to move the needle?  Are you managing risk appropriately?  Do you realise how the investment community will perceive this XXXX measure?"

In short, I want that the board positions be used to direct the company rather than to be used as career development and training opportunity for the Watsa progeny.  Similarly I want the financial resources of FFH to be used uniquely in the interests of shareholders (the term, "fiduciary duty" comes to mind) rather than for career development and training opportunities for the Watsa progeny (irrespective of how bright and talented they might be).  Ben might be the greatest guy since Peter Lynch, but don't try to develop his career on my nickel, particularly when his dad has plenty of personal resources to do so.


SJ

Cardboard

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Re: Value of FFH culture
« Reply #24 on: February 20, 2018, 05:57:13 AM »
For a company that prides itself on its great investment capabilities and has a decently large team to do just that, you should question why they outsource any of it?

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petec

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Re: Value of FFH culture
« Reply #25 on: February 20, 2018, 05:59:39 AM »
Anyone who held shares in Fibrek when Resolute took them over back 2011 knows that the “Fair and Friendly” Fairfax motto applies only to Fairfax self interest.


Also not something I paid attention to. Could you give me a couple of bullet points?

SharperDingaan

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Re: Value of FFH culture
« Reply #26 on: February 20, 2018, 06:44:43 AM »
There is nothing wrong with bringing your kids into the business, and we have all kinds of examples in Canada's business dynastys. But they all work their way up, and they cut their teeth in the board positions of subs first. Elevating family too quickly isn't fair on them, your partners (shareholders), or the people that elevation displaced.

The reality is that at 7% ownership FFH isn't Prems company anymore, and succession planning is everyones problem - not just Prems. Calling him out on it was valid. Might it have been done better behind a closed door? Probably.

SD
« Last Edit: February 20, 2018, 08:31:26 AM by SharperDingaan »

StubbleJumper

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Re: Value of FFH culture
« Reply #27 on: February 20, 2018, 07:35:15 AM »

What's the value of a culture that screws minority owners of ORH?  Seriously, Prem screwed us on taking it private.


Remind me what happened here? I don't think I paid much attention to this transaction.


Oh, this one was 8 or 9 years ago when Prem wanted to take Odyssey Re private.  So, right after the depths of the financial crisis when stock prices were low, he low-balled minority shareholders by offering a price that was roughly equivalent to book value for a company that was the second best sub (the best sub has generally been Fairfax Asia, or I believe it was called Falcon at the time).  The interesting trick about it is that the low-ball offer came right before quarter's end and FFH characterized the offer as being something like 1.16x BV, when Prem as an insider should have known full well that ORH was shooting out the lights and its quarterly earnings were high enough to make that low-ball offer roughly equivalent to book.  We all knew that ORH was shooting out the lights and was cashing in on the CDS, so we suspected we were getting screwed, but we didn't have the numbers for another 6 or 7 weeks when the quarterly came out.  FFH then bumped its offer by another 8 or 9 percent, but frankly that was still a pittance for ORH (by the time we actually got our money, another quarter had elapsed but I don't recall ever seeing the quarterly report that showed an updated BV).

So, read the principles of FFH's operations.  It's described as "Fair and Friendly" acquisitions.  What's fair and friendly about offering your partners 1.16x BV when you as an insider should have known that BV was soaring?  What's fair and friendly about 1.16x BV for something like ORH to begin with?  It was ridiculous, but fully legal.


SJ

petec

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Re: Value of FFH culture
« Reply #28 on: February 20, 2018, 07:46:25 AM »

What's the value of a culture that screws minority owners of ORH?  Seriously, Prem screwed us on taking it private.


Remind me what happened here? I don't think I paid much attention to this transaction.


Oh, this one was 8 or 9 years ago when Prem wanted to take Odyssey Re private.  So, right after the depths of the financial crisis when stock prices were low, he low-balled minority shareholders by offering a price that was roughly equivalent to book value for a company that was the second best sub (the best sub has generally been Fairfax Asia, or I believe it was called Falcon at the time).  The interesting trick about it is that the low-ball offer came right before quarter's end and FFH characterized the offer as being something like 1.16x BV, when Prem as an insider should have known full well that ORH was shooting out the lights and its quarterly earnings were high enough to make that low-ball offer roughly equivalent to book.  We all knew that ORH was shooting out the lights and was cashing in on the CDS, so we suspected we were getting screwed, but we didn't have the numbers for another 6 or 7 weeks when the quarterly came out.  FFH then bumped its offer by another 8 or 9 percent, but frankly that was still a pittance for ORH (by the time we actually got our money, another quarter had elapsed but I don't recall ever seeing the quarterly report that showed an updated BV).

So, read the principles of FFH's operations.  It's described as "Fair and Friendly" acquisitions.  What's fair and friendly about offering your partners 1.16x BV when you as an insider should have known that BV was soaring?  What's fair and friendly about 1.16x BV for something like ORH to begin with?  It was ridiculous, but fully legal.


SJ

Did minorities have a choice to accept or not? If so I'm not massively bothered by this. Personal opinion.

petec

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Re: Value of FFH culture
« Reply #29 on: February 20, 2018, 07:54:12 AM »
There is nothing wrong with bringing your kids into the business, and we have all kinds of examples in Canada's business dynastys. But they all work their way up, and they cut their teeth in the board positions of subs first. Elevating family too quickly isn't fair on them, your partners (shareholders), or the people that elevation displaced.


In fairness putting them on the board doesn't trigger these issues. They can be an observer without taking executive responsibility, they have limited power to do dumb stuff, and they don't displace anyone because the board isn't really on the career pathway for most operating execs, and can be as big as you like anyway.

Playing devil's advocate, I could argue that this is a better way than "working your way up" the organisation, given that there will always be question marks over whether you received a helping hand in that process.

Howard Buffett became a director of Berkshire at 38 and has been pinged to succeed his father as Chairman. Is this all that different? I have a bigger issue with the non-disclosure of Ben Watsa's fund management terms, and the fact that the multiple voters don't become ordinary voters on Prem's death, than I do with Ben being on the board.