Author Topic: Fairfax 2020  (Read 199853 times)

StubbleJumper

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1510
Re: Fairfax 2020
« Reply #500 on: July 21, 2020, 03:19:29 PM »
But, there is yet one more problem with an outfit that sometimes does not seem to respect its partners.  That problem is that the controlling shareholder has, until recently, only owned 7% of the economic interest in FFH but is likely now up to 9% ownership of the economic interest.  That arrangement once again creates incentive problems because it creates a situation where every dollar of FFH's money that the controlling shareholder channels to his pet projects only costs him personally 9-cents. 


i disagree with this comment specifically.
I think 9-10% ownership is a huge incentive. Sure, this is not BRK level of ownership with Buffet. But if i compare to many other companies their CEO ownership is as low as 1%, it is really high.
More so, what else is in Watsa's portfolio. Is it >90% FFH stock, if yes, than i think proper economics incentive is there on both dimensions.

Personally, i would preferred no dividends as it gives the optics of cash-cow that all it does is to ensure the cash inflows is just enough to cover the cash outflows + $10 per share for dividends.
But that is me.


Yes, the key difference is that the typical CEO with a 1% ownership stake is not entrenched by virtue of multiple-voting shares and is at risk of being turfed if he pursues too many visible pet projects.  That is possibly one reason why you will not see the CEO of Bank of America hive off $50m for his son to manage.  It is probably also the reason why the CEO of BAC will not nominate his son and daughter to sit on the Board.  If you are going to make use of multiple voting shares to retain control with a relatively small economic interest, you need to always be more Catholic than the Pope when it comes to using the firm's funds.


SJ

I think Berkshire and Fairfax shareholders know the difference between how these two companies are managed and the typical corporate structure of most corporations.  You get what you get with Berkshire and Fairfax...that you will be treated equal to management, and that management has interests that are aligned with shareholders long-term.  That some family influence or atypical culture will exist...be it Howard Buffett on the board of Berkshire or Ben Watsa on the board of Fairfax.  Otherwise investors are welcome to invest in other companies where the culture is more agreeable to them.  Cheers!


When Howie was appointed to the BoD back in what, 92 or 93, what was WEB's economic interest in percentage terms in BRK?  After donating shitloads of his shares, what is WEB's economic interest in 2020?  It's not even close to comparable.


SJ


EricSchleien

  • Sr. Member
  • ****
  • Posts: 466
    • EricSchleien.com
Re: Fairfax 2020
« Reply #501 on: July 21, 2020, 03:29:58 PM »
To feed the discussion, an interesting read on integrity and good leadership as per Prem Watsa:

https://www.ivey.uwo.ca/news/blogs/2020/july/prem-watsa-explains-integrity-is-the-cornerstone-of-good-leadership/

My colleagues and I just had a good laugh at this paper. I'd argue it's worthless and totally predictable based off the current awareness in the business world.

This is a nice description of integrity, however, it doesn't really get at the heart of the matter of the power of integrity. When integrity degrades into a morality conversation it loses its power. Also having a set of guiding principles will NOT inherently ground a good culture.

The Jensen/Erhard course taught at Harvard as well as 44 other Universities actually gets to the heart of the matter of Integrity. I've done this work and it's nothing that you can get from reading about integrity.

They give the program away for free online which you can get here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=920625

On a side note, businesses that get integrity as a distinction experience increase of profits of 600% within 1 year. Businesses that get their "guiding principles" actually aligned with their culture, takes about 2 days to do and 6-24 months to be seen into action and you get a result on average of 3-5x.

It's my hope that this work gets taught in every business school in the country one day. It's a HUGE missing in our society.

Just read that abstract.  It sounds like they are equating "integrity" with keeping your word and owning your shit.  Roughly speaking.  Not sure how that is teachable, I've always thought about integrity as something someone has or doesn't, but I'm interested enough that I think I'm going to read the whole paper.

Really good observation. Nobody "has" or "doesn't have" integrity. And it's taught through making distinctions. The distinction integrity is what creates the performance increases. The explaining of it does not and just makes for interesting dialogue at best.

Distinctions are made from abstractions. Principles get derived from distinction. Most people if they're lucky start with principles and most people don't even go that deep.

Integrity is often thought of conceptually as moral uprightness and steadfastness, or as you would say "having it"—making the “good” choices, doing the “right thing.” In fact, it is far more than that. Integrity is actually a experiential phenomenon in and of itself. It has to do with authenticity—being true to ourselves—and it is the foundation for power and effectiveness. It is a home, an anchor, a continuing commitment—a way of being and acting that shapes who we are.

When one distiguishes integrity as distinction, it opens up a completely new world. Kind of like if you've ever seen the movie "The Gods Must Be Crazy"...when the coke bottle drops from the sky...there is no distinction coke bottle for them so they interact with it differently. On the contrary, you and I have no access to the distinction called "not a coke bottle" so we actually are unable to have access to THEIR experience of the coke bottle. Same thing with trying to explain the color purple to a blind man..they have no distinction called purple or color. Also, if you show someone from an uncontested tribe a photograph, they will see a blob. They don't actually experience a picture.

So distinction is the access to the breakthrough performance.....and the business world is still in the stone ages by teaching these as concepts, it's actually pretty amateur hour...say unlike management techniques which business school has gotten masterful over the past 50 years. Probably because they are taught as techniques and you don't have to distuigish much..just teach someone a tool.

However, the natural space people get to through discovering this experience is integrity resides in the ability to constitute yourself as your word, to be true to your principles, and ultimately, be true to yourself. Seeing authenticity as the access to being authentic around where one is being inauthentic as nobody "is" authentic.

Integrity is not constrained by, nor does it reside in, rules, prescriptions, or imposed demands. Integrity creates an environment of freedom, power, and joy.

Of course the constraint here is that you can't explain a distinction just like I can't explain purple to a blind man. So explaining the distinction integrity will just land as a concept at best.

Cheers!
My book: https://amzn.to/2JFdVfz


EricScheien.com
Founder/CEO GSCM: https://www.gscm.co/

Partner, TLA: https://www.transformationalleadershipassociates.com/

Founder/CEO, Wyoming Warehousing & Safe Deposit Co

Founder, ProxyActivism.com

bizaro86

  • Hero Member
  • *****
  • Posts: 1537
Re: Fairfax 2020
« Reply #502 on: July 21, 2020, 04:13:38 PM »
The idea that being true to oneself could be the highest value in a belief system makes me sad.

Can I suggest the golden rule as a proxy for integrity - "Do unto others as you would have them do unto you."


Cigarbutt

  • Hero Member
  • *****
  • Posts: 2792
Re: Fairfax 2020
« Reply #503 on: July 21, 2020, 05:54:14 PM »
The idea that being true to oneself could be the highest value in a belief system makes me sad.
Can I suggest the golden rule as a proxy for integrity - "Do unto others as you would have them do unto you."
How you balance oneself with others is a personal matter inasmuch the opinion is not shared in social media. :)
The submitted paper has this section on page 52:
"In a critical sense, who I am for another is my word,39 i.e., my expression of my self. For a relationship to have integrity (to be whole and complete), one’s word must be whole and complete. As Shakespeare said, “This above all: to thine own self be true, it must follow, as the night the day, Thou cans’t not be false to any man.”40 When one is true to one’s word (which is being true to one’s self), one cannot be but true to any man."
Interestingly and as usual with this type of brain-washing activity, circular arguments and quotes taken outside of their context are used. The Shakespeare quote comes through one of his characters: Polonius, who is known for his bad judgement and hypocrisy. Also, assuming the quote has substantive value, in a Freudian slip type of way, the explanation of the quote does not correspond to the quote: cans't not be false to any man ---) cannot be true to any man!
While it's possible to go through the entire paper and references, the following personal growth parody related to the main author may be sufficient:
https://www.youtube.com/watch?v=T5XYNQv6F_o
---o---o---
To link with the FFH 2020 thread, over the last few years, i've come to conclude to an integrity drift and the last outcome from the Fibrek saga did not help:
https://financialpost.com/news/fp-street/watsas-mindboggling-reasoning-in-takeover-prompts-court-award

SharperDingaan

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3851
Re: Fairfax 2020
« Reply #504 on: July 21, 2020, 06:19:53 PM »
"Not sure how that is teachable"

Friends in low places advise that it's very simple - in their world; the first one or two to forget sleep with the fishes, following which everyone remembers. In our world, it's the metaphorical heads on sticks - same message, but less clean up, and no flies to deal with.
African thing  ;)

SD
« Last Edit: July 22, 2020, 09:08:53 AM by SharperDingaan »

cwericb

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1944
Re: Fairfax 2020
« Reply #505 on: July 22, 2020, 06:17:29 AM »
“Integrity”?   Here are some quotes about Prem Watsa from the article about the Fibrek court case :

“Canadian investor Prem Watsa was “purposely forgetful” and offered a “mindboggling” explanation in court testimony explaining why he backed a low-ball bid for a pulp mill in a sale to Resolute Forest Products Inc., a Montreal judge concluded in the seven-year-old case.”

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony,”

Fairfax “was in a blatant conflict of interest situation,” the Quebec judge said”

“Fairfax agreed to sell its 33 million shares to Resolute for $1 apiece — locking in a price that dissenting shareholders considered too low. The judge considered the fair value of Fibrek shares to be $1.99, and found Watsa’s explanation for accepting less “mindboggling.”

Now that’s not a couple of cents per share in the difference. Nor is it a debatable difference. At the time I said on this board that the deal was dead wrong and that it made a joke of the Fairfax motto of  “Fair and Friendly” acquisitions.

Meanwhile, his defenders here tried to justify the buyout as “Watsa was simply acting in the best interests of Fairfax”. Or, I suppose you could put it another way since Watsa owns a sizable portion of Fairfax, “Watsa was simply looking after Watsa’s best interests”.

Rather putting Prem Watsa on a pedestal, perhaps consider that he simply stole $33,000,000 from Fibrek shareholders (myself included) and then got caught with his pants down.

So when you consider the present Rivett and Torstar situation ... well, there just seems to be an odd smell coming from the company.

Politicians and diapers must be changed often, and for the same reason. - Mark Twain

Jurgis

  • Hero Member
  • *****
  • Posts: 5778
    • Porfolio
Re: Fairfax 2020
« Reply #506 on: July 22, 2020, 06:20:53 AM »
Is it me or did a bunch of posts from last night disappear (in various topics)?
"Human civilization? It might be a good idea." - Not Gandhi
"Before you can be rich, you must be poor." - Nef Anyo
"Money is an illusion" - Not Karl Marx
-----------------------

cwericb

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1944
Re: Fairfax 2020
« Reply #507 on: July 22, 2020, 09:06:10 AM »
Thanks for that. I thought I was going nuts. I posted last night and this morning it was gone. So I essentially reposted.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

SharperDingaan

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3851
Re: Fairfax 2020
« Reply #508 on: July 22, 2020, 09:07:27 AM »
Keeps circling back to the trust, vision, and reporting thing. Everyone makes mistakes ... but when they keep coming up, and more frequently, it's a pattern. Fair and Friendly might have been the original vision, but it has devolved quite a bit since then.

Make your own assessments, but there are plenty of other fish.

SD

AZ_Value

  • Lifetime Member
  • Sr. Member
  • *****
  • Posts: 270
    • AZ Value
Re: Fairfax 2020
« Reply #509 on: July 22, 2020, 09:45:36 AM »
When someone shows you who they are, believe them.

IMO the right time to move on from FFH was many years ago and many instances of them talking from both sides of their mouths ago.

AZ