STEVE MABB | from Australian Shareholders' Association

Steve Mabb is the Chair of the Board at the Australian Shareholders' Association. In this episode we explore a critical aspect of investing: trust in management. Trust in management is vital to a company's success, especially in light of recent governance failures.

Steve emphasises the importance of assessing management quality. He shares insights from his experience monitoring ASX companies, highlighting that while most companies are well-managed, there are exceptions. He urges investors to pay attention to red flags, such as a lack of transparency from management or decisions that seem misaligned with shareholder interests.

One striking example is the case of EML, a Brisbane-based company that faced significant challenges due to management failures. Steve recounts how the CEO's insistence on trust over understanding raised alarms for investors. This anecdote serves as a reminder of the potential risks associated with investing in companies where management may not prioritize honest and transparent communication with shareholders.

The conversation also touches on the volatility that often accompanies reporting seasons. Steve notes that while fluctuations in stock prices can be unsettling, they can also present opportunities for savvy investors. By staying informed and focused on long-term goals, investors can navigate these turbulent waters effectively.

Steve shares practical tips for evaluating management quality. He encourages listeners to delve into remuneration reports and assess whether management is being rewarded for performance or if they are receiving bonuses without meeting set targets.

He highlights the significance of measuring customer satisfaction through metrics like Net Promoter Score, which can provide valuable insights into a company's health. Steve urges investors to ask the right questions and seek out companies with trustworthy leadership.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Steve: Most companies are not doing a bad job. Most companies don't have terribly untrustworthy management. So it's not like every report you're going to read, there's immediate action to take, but when you do come across a report where there's something, you know, worrying happening, that might at least give you pause for thought and possibly, you know, give you a reason to think about whether you to stay invested or not in that particular company.

Phil: G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. As an investor, how can you trust the management of a company that you're invested in? How can CEOs be held to account after the spectacular failures in governance in 2024? I'm joined today by a man who's got a lot of interest in this area, Steve Mabb. G'day, Steve.

Steve: G'day, Phil. How are you?

Phil: Good, thanks very well. Thank you very much and thank you for coming on the potty.

Steve: Yeah, thanks for having me back again. It's been a little while since we last SPOK folks, so, uh, yeah, really looking forward to the conversation today. Hopefully there's some practical things that people will be able to take away from it.

Phil: And happy 2025 as well.

Steve: Yeah, you too, I guess. Uh, we're a few weeks in now, aren't we? So it's not quite happy New Year anymore, but yeah, still early in the year.

Phil: Yep. Steve Mabb is the chair of the Board of Directors of the Australian Shareholders Association. He's also a professional investor who sellils the murky waters of markets, keeping a keen eye out for dangerous shoals. So in terms of this navigation here in the new year, what are you looking forward to in 2025?

Steve: Well, there's a lot happening at the moment, isn't there, as we start 25 in politics around the world and then, uh, in turn what that might do to markets. So I don't tend to predict. I don't get kind of too carried away with what might happen in the future because it is so unpredictable. But there's certainly a lot going on. So I think investors probably need to be aware and following closely what some of those developments might mean for their investment portfolio, as maybe some of the rules change or some of the sentiment changes around those rules. But my personal philosophy is I tend to try and stay mostly invested most of the time and try and block out that noise and just focus on the things that I can control. And I know lots of the ASA members have that same approach of, uh, not getting too worried about predictions and forecasts and instead just focusing on what they can manage, which is their own portfolio and what's in their portfolio.

Phil: Because there's been so much volatility in markets. But at the end of the day, the market ends up in the same position as it was a few months ago. So those daily intraday movements and daily movements seem to all wash out in the end, don't they?

Steve: Yeah, I mean, I've been noticing that a bit over the last probably two or three reporting seasons that you're getting really big volatility sometimes in either direction the day or two after a company announces its results, but often within a week or two. As you say it, it's, you know, getting back to where it was before the results were announced a lot of the time. So yeah, if you're prepared and you know what you're looking for, maybe that volatility can be your friend as an individual investor, you might be able to take advantage of that. But I've certainly noticed, and I have read as well that the volatility has been increasing around reporting season, which is not far off. Again, we're about to head into the February, March half year reporting season for most Aussie companies. So I guess we'll keep an eye on it and see if that trend continues.

Phil: Yeah, we spared the American model of, uh, four times a year of company reports twice a year. Seems to be plenty, doesn't it?

Steve: Yeah, it does. That's right.

Phil: Have you got a few examples of company crashes that were management failures that you can share with us?

Steve: I do, yeah. So I guess to set that up a little bit, I'm very fortunate as chair of ASA and also as an ASA company monitor that I do get to meet with boards and managements of big, uh, ASX companies regularly throughout the year. And it has been very helpful to me to kind of hone my investing checklist if you like the things that I'm looking for and the behavior is good or bad that I want to be aware of. And one of the things you do as a company monitor is you go out and meet with the boards, typically before their agm and you work through their annual reports and you work through the things that they're putting to shareholders and you get to ask them some questions and probe into what it is that they're doing and why they're doing it. And obviously these companies are all led by people. So you get see a little bit more about what the people are really like that are running the companies. And I'm um, happy to say most of the companies I've monitored or I've followed in general are doing a pretty good job and are listening to their shareholders most of the time. But I have had a few examples where that hasn't been the case. And this might be helpful for people because these reports that ASA produce, um, are free to look at. We'd love you to be a member that even if you're not a member, you can go to the ASA website and look at the company reports before and after these meetings.

00:05:00

Steve: And sometimes it'll give you a bit of a sign or a bit of an indication that there may be some things happening that you possibly, uh, aren't happy about if you haven't been following the company and the management closely. So probably the first example I'd give is it was a Brisbane based company called EML and at the time it's still listed, EML was an ASX 200 company at the time that we started to cover it. And I jumped in and started monitoring it. And if you don't know much about them, they do gift cards and payment cards for uh, corporations and employees and that kind of thing. And the business was going very well at this point in time. So as I dug in and got to know the chair and the head of the remuneration committee and listened to the CEO, I was having a bit of trouble understanding a little bit about some of their products and what they were doing. And they put on a really impressive investor day that particular year. Uh, and I came away very impressed with, uh, the marketing, but still not totally clear on some of the products. So the next day the AGM happens and interestingly the CEO got up and said, for investors out there that are having trouble understanding our products, I'd say to you, you don't need to understand them. You just need to determine whether you trust management. And if you trust management, you should invest in eml. That was a bit of a yellow flag for me. When you're not willing to explain to people that are having trouble what you do, you're just saying trust us. That same year, uh, the board decided to use discretion to pay out a big bonus to the management team, even though they hadn't hit the numbers that were required in their incentive plan that year. And the justification they gave was that it was a Covid year and it wasn't their fault that Covid had disrupted the business. And they'd also made an excellent acquisition and renegotiated the terms of the acquisition. So they deserved their bonus even though they didn't hit the numbers. So you had a couple of signs there, right, that things were happening that weren't really aligned with you as a shareholder. Very soon after this, the Irish Central bank announced an investigation into this acquisition that they'd made for potential money laundering. And the company's share price started to fall dramatically as a result of that. Then not long after, we find out that the CEO has sold, I think it was about $16 million worth of his shares through a loophole basically prior to that announcement coming out about the investigation into this acquisition. So that again, for me was a very clear sign that you didn't necessarily have management that were super clear or communicating well or uh, maybe aligned with you as a shareholder. So that's an example. I think the share price fell by 80 or 90% from its all time highs and it's still nowhere near back to where it was at that point in time. Lots of changes of management during that period. More announcements that have come out that haven't been great for shareholders. And if you had read the report, you would have heard some of those things, right? That there were some concerns we had with the way that they were communicating and some of the things that they were doing. So that's probably one example. Another company I've covered recently has been Star Entertainment, the casino group. And, uh, obviously there's been lots of media reports around what's happening at Stara over the last couple of years. But again, if you had'been reading those ASA reports, you would have been discovering more and more about the things that had been happening there. The changes to management, the changes to the board, you know, the fines that were coming in from regulators and what they were saying about it. And I think in particular at the moment there's some telltale signs you're getting from them around, you know, concerns around whether they're actually going to be able to continue on as a going concern or as ongoing business. So again, as an individual investor, you can make your own decisions there about what you do with that information. But for the sake of 5 minutes to read those company reports that are put together by a volunteer and individual investor just like you, probably you can learn some things that you may not be hearing about elsewhere or that you may not know about if you're not individually meeting with management. So a couple of bad examples there, obviously We've got, you know, uh, some ideas that we'll share with you during the episode today on ways that you can look ahead to and not just look in the rear view mirror.

Phil: That's got to be such a, you call it a yellow flag, but I think it's more of a red flag. When management says to you just trust us, that just seems a terrible thing way to treat it because as you all know, we like to talk about our investments, you know, at shareholder meetings and so forth. And you really want to be able to talk authoritatively about what a company does and what it means to you.

Steve: Exactly, yeah. Now I agree. And look, I took my cues here from, you know, the great Warren Buffett and the late great Charlie Munger and they've, you know, penned a few things over the years on this topic. And I think it was 1989, I think Berkshire's AGM where Warren said, I think you can judge management by two yardsticks. One is how well they actually run the business. And I think you can learn a lot. And um, I'm reading this quote out so I don't mess it up, but I think you can learn a

00:10:00

Steve: lot about that by reading about both what they've accomplished and what their competitors have accomplished and seeing how they've allocated capital over time. Look at what they've accomplished considering what the hand was that they were dealt when they took over as management and compared to what else is going on in their industry. And then the second yards sticky cited was you also want to figure out how well they treat the other owners. So read the annual reports and the notice of meetings, see what they think of and see how they treat themselves versus how they treat other shareholders. The poor managers also turn out to be the ones that really don't think about other shareholders much. Those two things often go hand in hand. And then Charlie Munger also shared this in relation to how Berkshire assessed whether they do business or invest in a business or not. And he said, after some other mistakes, I learned to go into business only with people who I like, trust and admire. And later he added, we've never succeeded in making a good deal with a bad person. So Charlie and Warren are uh, incredibly successful long term investors. And obviously there's lots of different ways you can invest. But if you're someone that does like to own individual companies or own shares in individual companies, I think both of those gentleman's advice there is well worth heating around. The kind of management and the kind of people that you've got running the company and whether you want to actually be invested in that business as a result of how they behave and how they treat you as a small part owner in their business. Super is one of the most important investments you'll ever make.

Phil: But how do you know if you're.

Steve: In the best fund for your situation?

Phil: Head to lifesharpa.com.au to find out more.

Steve: Life Sherpa, Australia's most affordable online financial advice.

Phil: And having spoken with many company monitors over the last few years, I think it's really nice that you're going to get such insights that you're not going to get safe from management itself and you don't even get in the media because the media have got that urge to sensationalize things. But to get a company monitor with the ASA who's got their agenda is just to research and spend time and a lot of them are retired as well and they have a plenty of time to sit down and so we'd commend listeners going to the company monitor page on the Australian shareholders website and look for voting intentions. Is that the area that we're.

Steve: Yeah, that's right. Voting will give you a good overview, uh, of what we think about the company's performance for the year or what we recommend in terms of how you should vote on the various resolutions. And then after the agm you also get an AGM report. So that's where you get to hear about what actually happened at the meeting and how they responded to questions and anything else that interesting that might have come up. And again, I'll say most companies are not doing a bad job. Most companies don't have terribly untrustworthy management. So it's not like every report you're going to read, there's immediate action to take. But when you do come across a report where there's something, you know, worrying happening that might at least give you pause for thought and possibly you give you a reason to think about whether you want to stay invested or not in that particular company.

Phil: So, uh, trustworthy management, why do you think this is an important issue for investors to think about and who should it matter to?

Steve: Yeah, so obviously if you're someone that just invests in the index or, you know, you just buy ETFs and you're not as worried about individual company performance, it's probably not such a big deal for you if you are very short term in your investing. Let's say you're a day trader or you're uh, a chartist. Possibly you're not as worried about what the company does and how they do it, that may be not such a big issue. But if you're someone like many of us that buys shares in a company and intends to hold it for a long time, then I think the question around do I trust the management of this particular company is critical. And it also seems to me to be, uh, an avoidable risk. So there's lots of things that we can't anticipate, the black swans, as they're called, that can come along and disrupt our investment or the market or whatever. You just can't know them in advance. But one obvious risk that you can have some idea about in advance is have you got a management team or a leadership team that are trustworthy, at least publicly? Are they doing things that uh, are good for you and aligned with you as an individual shareholder, or are they doing things mostly that are good for them and they're not necessarily concerned about you as an individual smaller shareholder? To me that's an identifiable or an avoidable risk. Doesn't mean if you don't stay invested in a company like that that it can't continue to do well. It's possible that even with average management or not totally align management, the company might still prosper and the share price might continue to go up. So not for a second would I suggest that it would work 100% of the time. However, at a portfolio level, I think the question is do you want to have a bunch of companies in your portfolio where you're not comfortable or completely aligned or completely trust the behavior of the management team? And for me that's a no.

00:15:00

Steve: I feel like that's an avoidable risk. There's more than enough companies on the ASX that for internationally that have got good, trustworthy, hard working management that I could be invested in instead of a company where I don't feel that's the case. So it's a probability basis or a thinking in bets type idea. It won't work 100% of the time. But where you know, you've got management that aren't necessarily completely trustworthy and you don't remove them from your portfolio. You shouldn't be surprised then if something bad happens down the track and the share price and the valuation of the company suffers. So for me it's an easy or a removable risk from my portfolio and that's why I ask that question and then try and figure out the answer to that question whenever I'm looking at an individual company.

Phil: And this seems to be an area where founder led companies Are uh, particularly at risk because there's these rockstar CEOs. I just don't want to name names at the moment because we're talking about trust issues here, but you know what I mean, uh, people do like to follow these inspirational leaders who've built fantastic companies. The window of forgiveness seems to be a lot wider for them than with other companies.

Steve: Yeah, absolutely. I mean we saw a lot of examples in 2024 of companies that were hit with some kind of trust or behavural or operational reputational issues and quite a few of those were founder led companies. I think to me the knee jerk reaction would be to go, well, I don't want to invest in founder led companies anymore because the founders are more prone to this behaviour. Uh, when you look at it, on average, founder led companies often outperform general management led companies. So it is a case of still digging into the detail I think and seeing what kind of founder you've got leading your company. Is it someone that's entrepreneurial and really cares about their business? Because in general those are good things, but also is willing to treat the other owners or the other shareholders and the other people within the company and their customers, et cetera, fairly and reasonably. And my answer to that is yes, there's still plenty of bound al led companies out there that are not only feathering their own nest or not only primarily worried about their own remuneration or their control of the company or whatever it might be. So to me the devil's still in the detail. You've got to look at the individual people involved. But again, when you start to see some of those risk factors, if you get a founder that's very confident, evasive when they're asked questions, dismissive when there's genuine issues brought up, perhaps they're often selling large chunks of shares down at the time that they're telling all the other owners that things are great. Those are uh, warning signs. It doesn't, again, it doesn't guarantee that things will go bad, but there's some warning signs to say is this person or is this team aligned with me and doing the right things for me as a part owner in the business or are they predominantly thinking about themselves? And look, we're all human, we've all got those kind of little biases and behavioural traits at times. We're talking about the extremes here where you're getting kind of extremes of behavioior that you may not be comfortable with. So yes, agreed, there's some founders that have been in the News for the wrong reasons. But equally there's lots of other founders that, you know, don't seem to be displaying some of those bad habits and are producing great results for their shareholders.

Phil: So there are other warning signs that you can look out for to check on the management of these companies and whether you can trust them or not.

Steve: Yeah, well, I've got a little checklist I use that I've kind of developed over time.

Phil: Yeah, that's right, you were referring to the checklist. We'd love to hear about the checkist.

Steve: Yeah, yeah. So look, series of like probably eight or nine questions that are pretty quick and easy to answer. It doesn't take a lot of work, but there's some things that I look at when I'm trying to assess the quality of my management team. So the first one is the remuneration report. Now this is complex for a lot of people. It's often a long part of an annual report and it's difficult to read if you're not used to reading remuneration reports. So again, you can have a quick look at the ASA report if we monitor that company where someone has done that hard work for you and made a judgment call on whether the remuneration reports fair and reasonable or not. But some of the key warning signs here around the awarding of the incentives when they haven't made the numbers. So let's think about this. A management team, particularly if it's a founder led company, has put together with their board or remuneration plan that's got specific hurdles in there that they need to hit. And if you have a board or a management team then that are awarded their incentives even though they haven't hit the numbers, that's telling you that A, they're not really aligned with you as a shareholder and B, you may not even have much of an incentive plan. You may just have almost some, um, guaranteed remuneration if you like, because they're going to override their own hurdles and use discretion to pay out incentives that have not necessarily been achieved. I think. Also in their ammuneration reports do they have some of the other things besides financial metrics that hopefully are important to the company? Things like customer outcomes. So are the customers really happy? Are they getting good

00:20:00

Steve: reviews, referrals, repeat business, whatever the m right metric would be from their customers? And also staff outcomes? Are their staff happier? Are their staff engaged? So they got low staff turnover? Uh, those are some things that are in some remuneration reports that are good signs where it tells you that the management team cares about or should be caring about the other stakeholders in the business, not just purely financial metrics where they're incentivised, maybe sometimes to do the wrong thing for the long term. So there's some things in the remuneration report in general, does the company measure staff engagement? So this is where a lot of good companies these days will use Gallup, for example, or other tools to assess how engaged or basically how happy and committed their staff are, uh, to the business. And a lot of companies will report on that and talk about staff engagement and staff retention. So that's a good thing to know. And it's an easy thing to ask if you're going to go to an AGM or send questions in on an ah, investor call, et cetera. Do you measure these things? And if you do, what are the results and then track that over time, is it improving or is it getting worse? Because again, if you've got really aligned and high quality management, they should be trying hard to make their staff happier and more productive every year. If they don't measure those things or the results are getting worse, that may be a sign that internally the management team's not doing a great job with the team. Do they measure customer satisfaction? Things like Net Promoter Score, where they're measuring how many customers of theirs are telling other people how great their product or their service is. Net Promoter Score is kind of the most used metric here and the higher a Net Promoter score, the higher, uh, the financial performance of the company over time often is within their industry. So that's a great thing to look at and again, a great thing to ask about. Do you measure Net Promoter Score or do you measure customer satisfaction? How do you measure it and what are the results and track that over time as well. If the customer results are getting worse and worse, then possibly the management team are not aligned, uh, or doing the right things in the eyes of their customers. And you might get away with that in the short term, but long term, if your customers are less and less satisfied with you, it's pretty unlikely that you're going to deliver great value. We've seen that in the airline industry, for example, in recent times. So there are a few examples. I think when it comes to some of the financial things, if they're a company that's raised capital, you know, have they actually gone out and done a capital raising? If they did, did they do it in a fair way to all their shareholders? So did all the shareholders get an equal opportunity to participate in the capital raising and take advantage of the discount that went with it, or did they only offer the capital raising to certain preferred shareholders? For me, that's a red flag. Now I don't want to own shares in a company that doesn't at least allow all their shareholders a chance to participate in the capital raising. Because if they don't, they're basically saying, we don't care about our smaller shareholders, we only care about the big guys and we'll give them a crack at our capital raising, but we won't give our smaller shareholders an opportunity. As I mentioned earlier, uh, do they sell down big parcels of shares if they're an owner or a manager that's got a lot of shares in the company, whether that's been through their remuneration or just outright buying shares or owning shares? Do they sell down big parcels of shares without a really good reason at the same time they're telling you everything's wonderful? Because that's a yellow flag a lot of the time too for some bad news or some bad results coming down the track. Do they only make, uh, commitments or forecasts when they're talking on investor calls or talking to the market that seem realistic and deliverable? You know, do they under promise and over deliver? I guess, you know, forecast as we talked about earlier, inherently difficult. It's hard to get these things exactly right all the time. But in general, they mostly delivering better results than their forecasting or predicting when people are asking them about the future. And are they also really humble about the things that go wrong? And this is one of the things I love about Buffet and Munger as well. Every Berkshire meeting, they normally start off with all the things they've messed up, all the things that have gone badly for the year that you should know about as a shareholder in Berkshire, and also what they're going to try and do about it. Because we all make mistakes. No companies are perfect. There's always things that aren't going to go right. So are they humble and honest about that or do they try and spin it, or do they try and gloss over it and not talk about it? That gives you a bit of a tell as well. And I think you know, a lot of those things you can check by reading the reports or sitting in on the investor call that most companies hold at half year and annual report time. They'll put on a 30, 40 minute Q& A. There'll be a bunch of brokers on there probably asking some questions. So you don't even necessarily to ask any questions. You can just listen in and hear how they respond to those questions and how they communicate. And you can also, as I said, read the annual report, kind of see how they communicate to people. And also if ASA covers them, read those company monitoring reports and see what the ASA monitor'saying about those things. So there's some

00:25:00

Steve: pretty easy things, might take you half an hour to an hour a year to check in on a few of those things and just keep tabs on what's happening at your company if you've got a reasonable number of shares in that business. So there'd be some suggestions that I'd give people that are hopefully practical and doable. If you are someone that own shares in individual companies and wants to hold them for a long time.

Phil: A lot of what you've talked about is quite qualitative, isn't it? Where especially staff and customers really they seem to be so important for any business. And it was interesting. I've never heard that Net promoter score that you referred to, which is, is that something that shows up in annual reports or is it something you can check away from the company as well?

Steve: It does, yeah. I mean it is something the company has to measure. And the way that it works normally is when you see customers giving reviews or ratings of a particular company. Like we see on Google for example, right? Google reviews either uh, 1 through 5 or 1 through 10 star or point system. Normally the people that rate a product or a company a 5 on the 1 to 5 rating or a 9 or a 10 on the 1 to 10 rating, that's someone you call a promoter. So that's someone that's obviously very happy with what you do or what you've sold them and they're likely to go and tell other people about how great it is. So those are the kinds of customers you want really happy, satisfied customers that spreading the word about what you do. On the other end you've got the one or two star ratings or the one to five on the ten star kind of scale. They're detractors. They're people that are not happy, that are not satisfied, that are likely to tell others that you, you didn't do a good job or you don't have a good product and uh, that you shouldn't do business with this particular company. So you obviously want a lot more promoters than you want detractors. If you've got lots more people happy with your service and telling others much more likely to grow your business than if you've got a lot of detractors telling others that you're not so good so that's where the general idea of net promoter score comes from. More fans than detractors. And lots of companies measure this. They don't all necessarily disclose it in their annual report. Some do, but you can at least ask the question or put the question to them in an email or however you want to raise it. Are, uh, you measuring net promoter score? Are you measuring customer satisfaction? And if so, what are the results? And then make your qualitative assessment from there around whether it's good or not. Now, different industries tend to have different net promoter scores. So for example, the banking industry, probably not super surprising, but they don't have a high net promoter score. In Australia where some of the online retailers, for example, that are giving great service, really fast Turnaround, great pricing, etc. A lot of those types of retailers often have high net promoter scores where they've got a lot of really happy customers. We're thinking about the Amazon Primes here, for example, of the world. So yeah, every industry can be a little bit different on what the average net promoter score, average customer satisfaction is. And if you're in that industry, you obviously want to be seeing how well your company's doing compared to others in that industry because that'll tell you whether they're likely to keep gaining some market share or continuing to grow their business faster than the industry is going. For example, if their customers are happier.

Phil: And also in terms of employees that don't want employees who are working in sououl destroying jobs that they're going to move away from as quickly as exactly uh, are.

Steve: Yeah, and most employees want to work at a company that's doing a good job and has happy customers. So those two things are interlinked. If you've got engaged and productive team members that are kind of aligned or in sync with the goals and the strategy of the company, they're more likely to look after the customers well. But vice versa, if you've got really happy customers, then the employees are often happier and more maybe prouder or feel a better sense of purpose about what it is that they do every day at the company. So yeah, those things are often interlinked and where they're both high, that's a really good sign that the future is more likely than not to be good for that company.

Phil: So, uh, the asa, what's its role in cracking the whip to ensure good behavur from companies?

Steve: Yeah, look, there's a lot of things that we do. We obviously contribute to the general governance principles that the ASX recommends listed companies follow so each time that document is updated and those recommendations are made to as listed companies, ASA is a part of that consultation process. And we share our views on how companies should be governed and how they should be interacting and treating their retail or their regular shareholders. That's one part of what we do. Obviously, we do that with regulators in government as well to make sure that hopefully you're getting a fair go in general. We've also obviously talked a lot about company monitoring. So for roughly the top 200 companies, we will go out and monitor them every year. We'll meet with their boards where they're willing, and we'll produce reports for you as a shareholder or a potential shareholder and give you a bit of an insight into how they are, uh, thinking about these things, how they're treating you as an individual

00:30:00

Steve: shareholder, and whether it's fair and reasonable or not. Sometimes those things are judgment calls. Sometimes we have to agree to disagree. It doesn't necessarily mean the company's bad. Just because we might be recommending an against vote on something. We may just have a different opinion on what the best way to do something is. So you have to read, you know, read between the lines a little bit sometimes and work out whether it's just a disagreement on substance or whether there's a genuine intent not to look after, uh, their small shareholders and not to do the right thing by their small shareholders. And then our CEO, uh, Rachel Waterhouse, she is regularly in the media these days. She's a, uh, frequent contributor when issues are arising or companies are running into problems or in the media for maybe some of the wrong reasons. And you'll hear from Rachel either on our website or in the media around what our views are and what's happening at that particular company at that point in time. Just because a company's in the media doesn't necessarily mean that ASA think everything is bad. Sometimes we may agree with the positions management have taken that maybe others in the media have not. So you still need to look at each case on its merits and try and make a judgment call on, uh, whether it's good, bad or neutral.

Phil: And the membership of the association is a broad church, let's face it.

Steve: Absolutely.

Phil: Many of them have very different opinions and stances on particular issues and the way companies should be run. Uh, that's right. Yeah. Many of them are just looking for the good returns and making sure that the management is doing that. Rather than these days, where there's a lot of talk about a social license that a company needs to operate under.

Steve: Exactly And ASA doesn't typically wede into those things in great detail. We don't take super strong positions on some of those issues that are more debatable or are more in the eye of the beholder. We like to focus more on the financials, obviously that are uh, typically black and white or pretty close to it, and then the behaviourss or the actions that they're taking that directly affect their individual shareholders and whether those are fair and reasonable and balanced and aligned. Again, there's a little bit of judgment sometimes on those things, but most of the time most members and most individual investors are fairly aligned around those kinds of things. So that's where you'll see us weighing in most conclusively. We always take feedback from members and from retail investors in general and try and take positions that uh, are generally aligned with the majority of shareholders. There might be the occasional person that disagrees with something, but if you've got overwhelming support from the retail investor community for a certain position, that's typically the way that ASA will go as well.

Phil: Okay, just a question without notice, Steve.

Steve: Sure.

Phil: Artificial intelligence. That seems to me, and I've noticed this urge that's been building up and playing out at the moment where a lot of companies are now using AI to automate what used to be, let's face it, soue destroying jobs, wrangling a lot of data. Now there's a couple of things here. You know, there's whether a company's performance is going to be enhanced by this, whether labor costs are going to be reduced. But how do you personally feel about companies doing this? But then there might be employees who will be left by the wayside because of this.

Steve: Yeah, it's a really tricky question, isn't? And I actually have been thinking about this a little bit because like as an individual shareholder, if a company can become more efficient and more productive, generally that means they'll become more profitable and generally that'll be good for us as shareholders. Probably also good for us as customers as well. Like if the company is s doing a better job and is more productive and more efficient, we're probably likely to have a better experience with the company. So there's lots of potential positives I think that come from maybe the where AI is heading. But like you, I do worry a little bit, or I'm assuming you're worried a little bit about what that might mean for employment in general. I don't know is my honest answer to what that might mean longer term. But I am thinking about with each of the companies I own is AI likely to benefit this company or not? So for example, we talk about retail again, which is something that I know fairly, fairly well. If you're a retailer, uh, and you could use AI to understand your customers preferences better, understand the kinds of products they're most interested in, understand what their buying patterns are, uh, you could start to get really targeted and productive with the types of emails or marketing that you then send to those regular customers and you wouldn't need as many individual people trying to work all those things out on spreadsheets, for example. So I can see some real benefits for example from using AI to become more uh, targeted and specific and productive with your marketing and also with your stock levels, the kinds of products and the amount of inventory you might need then to support those campaigns or those targeted messages to your existing customer base. So I can see AI being a really big benefit,

00:35:00

Steve: for example to retailers that use it in that way. So that's the way I've been thinking about it for now at least. Is, is using AI likely to benefit for this company or possibly might it disrupt or be a negative for this company? And that's practically how I'm trying to tackle it. I have no idea who the winners will be in AI as service providers or uh, inventors or innovators in AI in general. So I'm not trying to play that game at all. I'm just thinking about whether utilizing AI will be beneficial for the companies that I own or not at the moment.

Phil: Yeah. That's one of the things I've been feeling about AI for a long time is that people are asking how can I invest in artificial intelligence when it's going to be one of those technologies that. So uh, all per. Pervasive. You're investing in it everywhere basically.

Steve: Yeah. I mean I've heard some people talking about this recently around the Internet for example. Right. And when the Internet was first, you know, created there was a lot of hype and excitement around, you know, listed companies that might have added.com to their name or whatever it might have been. And lots of those companies subsequently didn't do so well or were delisted. So we yet a similar point in time here where it's a very exciting innovation and it's possibly going to change the world. But trying to predict who the winners are going to be is pretty difficult. I think at this point in time and over a longer period of time, AI may not even be a huge competitive advantage. It might just be something you need to do or utilizes company for example, Every business pretty much now needs a website. It doesn't give you a competitive advantage to have a website. It's just part of what you need to do to run a business is to make it easy for people to find you, discover you, shop with you, whatever it might be. But in and of itself, having a website these days isn't a big advantage over competitors that don't have a website, for example. So, uh, I wonder if that's where we might end up with AI long term, where nearly every company needs to use it and it's just part of doing business. But it isn't in and of itself an enormous competitive advantage long term because everybody else is using it. So that's my hunch or my guess at this point in time, but no idea. And not trying to pick individual winners at this point.

Phil: So a bit of plug for the asa. And we've got the annual conference coming up in Sydney this year again in May, haven't we?

Steve: We do, yeah. Yeah, we had a wonderful conference last year in Melbourne. So we're going to repeat most of the things that worked really well in Melbourne last year, which was individual ASX company leaders coming along and presenting on their businesses and giving investors a chance to see them in person and ask them the hot questions. We'll have some really good panel discussions. One of the new initiatives for this year is going to be a M Meet the Regulators session, where we'll have representatives from asic, from the atc, from apra, from the ato, hopefully where you can come and ask you hot questions of the regulators and what they are or, uh, aren't doing to oversee markets and investments in general. We'll obviously have some interesting keynote speakers and economists talking about where they think the market and the economy might be heading in the next year. So, yeah, really looking forward to that. And excitingly, we're also going to have, uh, a second conference this year on the Gold coast later in the year. So you've actually got two choices this year to come along to our flagship investor events. And the Gold Coast Conference will probably be a bit more focused on retirement issues. So obviously we'll be talking lots about investing, but in particular around retirement or pre retirement and some things you might need to do to get set up there better if you're not already. So lots of details there that will be on the website. The Sydney conference is planned for May and the Gold Coast Conference will probably be August, September, something like that. So two beautiful locations and great options for people to come to.

Phil: Steve Mapt, thank you very much for joining me today.

Steve: Thanks Phil. Really appreciate it. As always. Thanks for listening to Shares for Beginners.

Phil: You can find more@sharesforbeginners.com do if you.

Steve: Enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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