Waikato Times, Friday, April 7, 2000
Wake-up call for businesses
Research estimating New Zealand companies destroyed $6.6 billion in shareholder value in 1998 is a “wake-up call” for senior executives, stock exchange chairman Eion Edgar says.
He said that as executive remuneration packages were renegotiated, they were more accurately reflecting the returns generated for shareholders through “at risk” performance bonuses.
ANZ Bank research showed 500 of New Zealand’s largest companies lost an estimated $6.5 billion of shareholder wealth in 1998, based on the economic value added (EVA) measure tax paid profits less the cost of capital.
The sharemarket’s top 40 companies excluding Brierley Investments lost $1.2 billion in shareholder value last year alone, taking their combined losses since 1991 to $14 billion.
In many cases, senior executives received salaries bearing little relationship to the erosion of shareholder wealth.
“You could argue around the edges about whether EVA is the best measure, but the general message is a reality,” Mr Edgar said.
“I hope this information becoming public is a wakeup call for the management of both listed and unlisted companies in New Zealand.”
ANZ corporate finance head Joseph Healy said the results were a huge concern for corporate New Zealand and the broader economy.
One third of’ the companies studied had not even covered their cost of capital in 1998.
Mr Edgar said some outstanding success stories among smaller New Zealand companies had been overshadowed by poor performing larger businesses.