True talent is priceless

I’ve sought numerous jobs through this column. When financial advisers were in vogue I applied to become one, touting my innovative several-basket egg-dispersal theory of investment. I didn’t get the job. When life coaches first emerged from the ooze, I applied to become one. ‘‘Breathe in, breathe out,’’ I coached. ‘‘Move one foot forward then the other. Repeat.’’ I didn’t get the job.

In 2005 I applied for the papacy. My pitch was that I’d bring the church into the 21st century. But the College of Cardinals chose the beady-eyed German, whose pitch was a return to the 15th.

He yearned for the glory days of thumbscrews and inquisitions, while shuffling his more handson priests around so as to keep them out of the American law courts where the bill for damages might cost the Vatican bank its triple-a rating. Then, when the legal winds threatened to ruffle his own skirts, he resigned and withdrew to a nunnery, to brush up on his theology.

Last year I applied to lead Fonterra. It was my bid to cash in on the cult of the global corporate executive. I claimed no skill. I merely promised to do better than the then CEO Theo Spierings. For despite being paid $8 million a year Mr Spierings had led Fonterra to a half-billion-dollar loss.

Again I didn’t get the job. But the chap who did get it now tells us that we didn’t know the half of it. Fonterra’s made another huge loss and to add to the amusement it seems that it’s still paying Mr Spierings. Despite his catastrophic performance as CEO, and his resignation from the post close to a year ago, he’s about to get another million smackers. How could that be? The answer as always lies in the language.

As you climb the corporate ladder the language of money changes. You start on wages. Then wages swell to a salary. Then a salary swells to a remuneration package. And if you make CEO, the language explodes. Mr Spierings’ million bucks is called

(and I am not making this up) a ‘‘velocity leadership incentive payment schedule’’.

Why? Because if you called it wages everyone would see through it. And the farmers might start throwing gumboots.

Fonterra justifies vast executive salaries by saying it ‘‘generally aims to pay at the median rate in the markets in which we operate’’. In other words the old schoolboy excuse: everybody’s doing it.

But, adds Fonterra, ‘‘for roles that are deemed critical … Fonterra may choose to benchmark at the upper quartile rate. This is particularly true for certain international markets where securing key talent can be difficult’’.

The language is as inflated as the salaries, but the fundamental argument is that you have to pay millions to get the best people. And the fundamental flaw in that argument is that they paid millions and got Mr Spierings.

The fallacy lies in the word talent. Talent is a god-given ability. Dan Carter had a talent for playing first five. Such talent can’t be taught. Only Dan Carter can be Dan Carter. But lots of people can be CEO.

The notion that a CEO is some god-endowed wonder-child who alone can lead a corporation to the promised land of monstrous profits is one of the great delusions of our time, as the story of Mr Spierings illustrates.

A good CEO needs intelligence, knowledge, courage, leadership. These are valuable qualities, but they’re far from unique. I have no doubt there are dozens of New Zealanders who could competently run Fonterra and you wouldn’t need to pay them $8m to do so. I have no doubt either, in case you’re wondering, that I am not among them.

Congratulations to the Express for shining a light on the hidden-in-plainsight world of banking August 5.

Anything written by Rob Stock is the good oil; ‘‘Banking Bad’’ by Adele Ferguson promises to be a good source of information for those of us who enjoy learning about how the world is run.

The banking industry, like the legal industry, has made itself an indispensable and, yes, a productive component of society.

We see the premium prices that its shares command, and the princely rewards showered on its leaders.

What is not obvious is the astoundingly simple basis of banking, so simple that, as J K Galbraith remarks, ‘‘the mind is repelled’’.

Banks do not actually lend money; they allow the taking on of debt.

For every seven or even less thousands of shareholder funds, not depositor funds, they can write a ‘‘loan’’ measuring $100,000.

The term ‘‘capital asset ratio’’ expresses this relationship.

Quite naturally, the bank takes ownership of the asset against which the ‘‘loan’’ is taken out, and retains it until the debt plus interest is paid up, in real, earned, cash, naturally.

The threat overhanging this wonderful goldmine is hubris, the writing out of loans on worthless property, to people of no financial ability, ends up bringing hardship for everyone except those at the top of the heap, who are bailed out by, of all things, the wonders of socialism.

This phenomenon is as regular, and to those who study finance, as predictable, as the cycle of the tides.

What we call wealth has given the banking industry enormous power, which governments question at their peril.

The public needs to stand strongly behind our regulators in these matters.