Archive for 2009

The Supreme Court ruling yesterday about new defences on libel claims has many in the media cheering. Journalists now have new latitude when it comes to chasing stories and defending their work against those who feel wronged and sue for libel. As a long-time journalist and author, I think what the courts have done is a grievous error and sets up a series of new ways of measuring the sting of libel that will be difficult to define.

The fact that we are now in sync with the United Kingdom, Australia and New Zealand gives me no ease. As someone who has been involved with libel as a writer and editor, I have always felt it was right and appropriate that what the writer or broadcaster produced be accurate and factual. Any straying from truth and a writer should suffer consequences at trial. Now a writer can get it wrong as long as he or she tried hard to get it right. What effort is required? A phone call or an email to a party from which there is no response over a few hours now seems to be sufficient.

And what precise meaning will the courts ascribe to “public interest” a phrase the Supreme Court used all too loosely for my way of thinking. A journalist can now publish allegations with impunity, with no need to prove them, if it’s in the public interest. Can such decisions really be made on a fair and even-handed basis in scores of newsrooms and by countless bloggers, not all of whom are good at much other than rushing something (anything) into public view.

Citizens, said Chief Justice Beverley McLaughlin, are not entitled “to demand perfection.” The new watchword is “responsible journalism.” I have seen up close how journalists act and I can tell you that too many of them are not responsible. Accuracy and getting the facts right, with a second or third confirming source, used to be a helpful weeding-out process. That fail-safe hurdle has rudely been cast aside.

Oh, but standards will evolve, said the court. I can tell you those standards will take years longer than anyone would like, will be much lower than aggrieved subjects of stories deserve and cause hurt to a lot of innocent people along the way.

The two most recent appointments to the Manulife board of directors show interesting new directions for corporate governance. In the past, most directors were picked almost solely for their management experience. Current and former CEOs, for example, were always favored for boards because they knew how to run organizations.

Under Gail Cook-Bennett as chair, the Manulife board wants new members to have similar experience but to bring some other helpful knowledge as well.

Not only is new board member Linda Bammann a woman, bringing the number of females on the board to three of seventeen, she has U.S. experience where Manulife has 60 per cent of its business. More importantly, she has held risk management roles at two banks, JPMorgan Chase and Bank One. The unstated hope: no more faux pas such as those nasty unhedged variable annuities.

The other appointee, John Palmer, has an equally targeted resume. His most recent jobs have been in Singapore, so his Asian knowledge is useful. But he was also Canada’s Superintendent of Financial Institutions from 1994-2001, so can offer advice and counsel on what plans the regulator might have in mind for capital requirements, among other issues.

I have my own history with Palmer. When I was researching my book “Who Killed Confederation Life?” that was published in 1996, I applied under the Freedom of Information legislation for documents that might explain the thinking of the government and the regulator in seizing Confed. When the thick pile of documents eventually arrived, I eagerly leafed through looking for insights. Line upon line, page after page was blacked out. The amount of useful information could have fit in a thimble.

I raised this lacuna during an interview with Palmer. “I can’t tell you how many hours I spent going through that material,” he said. He didn’t need to tell me, I already knew.

Let’s get this straight. Donald Guloien didn’t want to raise equity at $19.60, but $19 is OK. He didn’t want to do it in August, but November is fine even though the stock market is about the same level it was last summer. Shareholders who already took a hit when he cut dividends in half are being asked to suffer another wallop as he dilutes their holdings.

Guloien explains his activities by saying he is building fortress capital. If Donald Guloien were King Arthur, he would never have had time to meet with the Knights of the Round Table, he’d be too busy supervising more battlements.

Let’s face it. The foe he’s fighting, variable annuities, is minuscule. Of Manulife’s 22 million global clients, only 250,000 bought variable annuities, the cause of all this fuss. Why is everyone else paying so dearly for the difficulties involving 1 per cent of the customer base?

When I asked former CEO Dominic D’Alessandro what advice he had for his successor before Guloien took over in May, D’Alessandro said: “I’ve worked with Don for a long time. I think he’s got to become a little tougher. When you’re in these jobs, you can’t please everybody all the time.”

Well, Brave Sir Donald has certainly taken that advice to heart.

Suncor Energy Inc. has announced that Dominic D’Alessandro will be joining its board. Suncor will pay the ex-CEO of Manulife a $140,000 annual retainer, but half of that goes to buying Suncor shares until he owns $420,000 worth. Fees for attending the full board and committee meetings might add another $20,000 in income.

Rumor has it that D’Alessandro will also be joining the CIBC board where his annual retainer will be $100,000. Again, a portion (in this case $60,000) goes to buying shares. Meeting fees are higher at the bank than at Suncor so he might earn $40,000 for showing up, more if he’s named chair of a committee.

D’Alessandro has said he’ll be joining three boards. So, assuming a similar emolument, he’ll earn a total of $300,000 a year (plus the payment in shares) from the three. Not bad, but nothing like being CEO of Manulife where he earned $300,000 a week. (Company rules did not permit him to remain on the Manulife board.)

When all is said and done, compensation from board appointments doesn’t really matter. It’s all about staying connected and keeping the gray matter functioning. Or so say many appointees.

Of course, D’Alessandro receives a handsome pension from Manulife of $3 million a year, more than most individuals earn in a lifetime. In such a world, board fees are just pocket change.

The notice in the newspaper legal section was easy to miss, just one column wide by 10 cm. high. In the ad, Manulife Bank announced an application to the Minister of Finance for a licence to open a trust company, Manulife Trust.

Manulife has owned trust companies before. When Tom Di Giacomo was CEO, Manulife bought a handful of small trust companies and then gathered them all together to create Manulife Bank in 1992, the first insurance company to do so after the rules changed granting such entry into banking.

Why are you applying for a trust company licence, I asked? To offer retail savings products and mortgages, replied a Manulife spokesman.

But, I said, you can provide those through the bank. Is there something about a trust company charter I’m missing?

With that, Manulife clammed up, saying for the near future they would be concentrating on getting the licence. News about products and services would follow later.

To me, it all seemed a bit weird. After all, the things that a trust company can do that a bank cannot do are minor and inconsequential.

Then it stuck me. Manulife wants two institutions falling under the Canada Deposit Insurance Corporation’s provisions that insure $100,000 in eligible investments. High net worth individuals who have more than $100,000 invested with Manulife now have to shift any additional money to another financial institution for CDIC protection. That must have galled Manulife, to see money going to a competitor’s Guaranteed Investment Certificate, money that could have stayed in house and been put to work being loaned out on a profitable five-year mortgage.

With both a bank and a trust company, Manulife clients will have twice as much by way of CDIC backups. Call it doubling up at someone else’s expense.

If anyone has a better explanation, I’d be happy to hear it.

In his Streetwise blog Andy Willis today has a rumor that Dominic D’Alessandro will be named to the CIBC board of directors. The whole idea resonates with ironies. After D’Alessandro left the Royal Bank in 1988, everyone assumed he did so because he was passed over for the CEO role. As I say in my book, there were other reasons, but that move set in motion a years-long belief by others that D’Alessandro always felt jilted and longed to be a senior banker.

At Manulife, one of the deals he did not pull off was a merger with CIBC in 2002. Again, I won’t go into details that are in my book. Suffice to say that he would have been CEO in the combined institution. Another brass ring lunged for and missed.

So here he is, on the verge of joining the CIBC board. What will happen when the CIBC directors go looking for a successor to CIBC CEO Gerry McCaughey? What if they take a look around and decide the right man is right in their midst?

For D’Alessandro, it would be the back door to the job he almost had. Or, given the terrible track record of CIBC (a.k.a. The bank most likely to walk into a sharp object) it could be the trap door.

The third quarter numbers came out this morning and they ain’t pretty. Manulife lost $172 million in the three months ended Sept. 30 despite increased sales, two excellent acquisitions and improved stock markets.

How can you lose money when things are going so well? The answer lies in the first sentence of the news release: actuarial assumptions. Actuaries run a black box operation at all insurance companies figuring out such mysteries as mortality rates so life insurance policies can be priced properly.

Actuaries, it has been said, are accountants without a sense of humour. As such they’re deeply involved in financial results and have tremendous latitude. In this case, if the actuaries so chose, they could have taken the same circumstances and declared Manulife profitable.

But they didn’t because they’re taking the view that all problems should be blamed on the ancien regime led by Dominic D’Alessandro. The new CEO Donald Guloien, argue the actuaries, should have a few “bad” quarters, then they’ll declare he’s achieved a turnaround and start posting positive results.

Hang in investors, better days are ahead. As soon as the actuaries say so.

The powers that be at Manulife extol share price performance by noting that any investor who owned shares since the company went public in 1999 (and has reinvested dividends) has enjoyed a compound annual return of 12 per cent.

I’ve cited those numbers myself when I promote my book in media interviews and speeches. After all, they are very impressive. Bernie Madoff had to commit fraud to produce similar results, I always add, tongue firmly in cheek.

But how many investors have actually held shares for ten years while reinvesting all dividends?

I imagine many individual investors are like me and hold Manulife shares in an RSP. The company didn’t pay dividends until 2000 and didn’t offer a dividend reinvestment plan (DRIP) until 2006, so for a long time individual shareholders could not make arrangements for their holdings to grow automatically. So how has the average investor done who followed a buy-and-hold strategy but did not reinvest dividends? Thanks to a handy calculator provided on the Manulife website, the answer is readily available.

The results? Surprisingly poor.

If you bought shares in MFC on the Toronto Stock Exchange in mid-October 1999 and still own them you’ve done just fine, even without reinvesting dividends. Your original investment is up 146 per cent. If you bought in mid-October 2000, 2001, 2002 or 2003, you’re up a lot less, between 10 per cent and 23 per cent, depending on the year of purchase. But at least you’re ahead of the game.

Anyone who bought in mid-October 2004, 2005, 2006, 2007 or 2008 is down between 18 per cent and 48 per cent, depending on your timing.

Montreal money manager Stephen Jarislowsky, one of the largest shareholders in Manulife, has predicted that share price will double in the next two years. We suffering shareholders can only hope he’s right.

Last night’s CBC National news was the first with Peter Mansbridge standing. I found myself checking his suit for wrinkles far more than necessary. I found none, not even in the crotch area, the usual worst place.

In what is clearly a rip-off of Wolf Blitzer’s CNN Situation Room, the entire hour is done with everyone standing. At times, they went to ludicrous lengths to stick with the awkward format. Mansbridge and a reporter stood facing each other on a riser the size of a ping-pong table with a rear screen in between them that projected points they were making.

For other stories, the reporter joined Mansbridge at a high-boy desk that only works if you’re a certain height. I can’t wait to see what happens later in the week with the three-member panel (Gregg, Coyne and Hebert) standing in three different locations.

At the end of the newscast, I realized that I couldn’t remember the main elements of any story they broadcast. Did the long line-ups for flu shots all get inoculated? What was that about the amber alert? How close was Wendy Mesley standing to her ex?

Maybe tonight I’ll stand to watch.

It’s hard to believe that Edgar Bronfman Jr. has just been charged, along with Vivendi executives, with misleading investors. First of all, the $34-billion Seagram-Vivendi merger in question took place in 2000. Surely the statute of limitations has run out long since.

Second, poor Edgar Jr. was not exactly on the inner circle with Jean-Marie Messier, the Vivendi CEO who bought everything in sight except the Arc de Triomphe, which was visible out his office window.

Once he got fed up with Messier, Edgar Jr. worked with other directors to oust the megalomaniac in 2002. Not exactly how you pass the time if you’re busy misleading investors.

Third, Edgar Jr. blew three-quarters of the family fortune on that ill-fated deal. The family’s net worth fell from $8 billion to $2 billion. He’s been trying ever since to redeem himself, so far unsuccessfully, at Warner Music.

Hasn’t he suffered enough?