Inside The World Of Business
To lose one chief may be regarded as a misfortune . . .
TO BADLY paraphrase Oscar Wilde, to lose one chief executive may be regarded as a misfortune; to lose two looks like carelessness. But that’s how recent events at venerable technology giant Hewlett-Packard could be viewed.
Mark Hurd, the steady but straight-talking executive, resigned under a cloud late last Friday. It followed an investigation into Hurd’s relationship with HP contractor Jodie Fisher. Both Hurd and Fisher have denied they had an affair; instead Hurd stepped down due to filing expenses that were judged personal.
If this were a one-off it could be said this was out of character for the board and senior management of the 71-year-old company. However the 2005 departure of Hurd’s predecessor, Carly Fiorina, one of the most high-profile female executives in the early years of the last decade, also suggested that corporate ethics at HP are not all they should be.
Fiorina, currently bidding to became a Republican senator for California, was ousted due to a lacklustre share price and board misgivings over multibillion acquisitions. A year later the Spygate scandal broke after it emerged that the board had sanctioned phone taps and other monitoring of senior managers, board members and journalists, prior to Fiorina’s departure. The scandal resulted in an investigation by the US Congress with board chairwoman Patricia Dunn ultimately taking the fall.
Hurd’s departure over a relatively minor indiscretion shows the HP board is still struggling with ethical issues at a company that was dominated by relatives of its iconic founders, Bill Hewlett and Dave Packard, until the late 1990s. Hurd not only steadied the ship at this Silicon Valley institution, which is one of the larger investors in Ireland, he also made competitors such as Dell, IBM and Cisco feel some real pain. With HP leaderless, they will be looking to return the favour.
Some good press for BoI
A "brighter day" lies ahead for bailed-out lender Bank of Ireland, if respected US investment magazine Barron's proves correct. In an article last weekend, the publication picked out two banks it believes are poised to perform well: Lloyds Banking Group and Bank of Ireland. Both institutions received state-backed bailouts during the financial crisis and both, it says, are attracting the attention of investors again, but this time for the right reasons.
“The two banks are seen as proxies for the health of the British and Irish economies, and both appear poised to perform well as long as the countries’ recoveries continue to flourish and avoid double-dip recessions,” it said. Apparently their improved fortunes even offer hope for institutions in places like Greece and Spain.
So why is Barron's so bullish on Bank of Ireland? Firstly the lender has already transferred its worst loans into the National Asset Management Agency (Nama) and has also been recapitalised. It has passed another hurdle in the form of the European stress tests.
Added to that, it has a strong balance sheet and has been able to “tap into” bond markets to raise capital. The magazine quotes Paul Casson, director of pan-European equities at Henderson Global Investors, as saying that all of Bank of Ireland’s competitors are “stymied in one way or another”.
Barron’s believes that Bank of Ireland’s share price could be worth between €1 and €1.10. It closed on the Dublin market yesterday evening at 87 cents. Therefore, if Barron’s is right, the stock offers an upside of about 26 per cent. “No bank can offer account holders that kind of return,” it says. Try telling that to retail investors who invested in what they thought was a blue chip stock before it tanked from its peak at over €18, however, and you might get a slightly less rose-tinted outlook.
Paying the price for policy
Energy regulator Michael Tutty was being a little misleading yesterday when he said the proposed 5 per cent hike in electricity bills reflected actual costs and was not simply a result of somebody just deciding to increase prices.
Tutty chairs the Commission for Energy Regulation (CER), which is recommending the increase – a levy designed to cover the cost of supports for renewable energy and peat-fired power plants. The levy will come to a total of €157 million. This means the cost of supporting renewable and peat-fired electricity comes to €157 million more than what the market is willing to pay for electricity, and thus, the State must step in and impose the charge.
So Tutty is right in one respect, the levy reflects this particular cost. But he is wrong in another: somebody did decide to impose the charge – the Government. It is government policy to guarantee minimum prices for renewable energy in order to encourage its development and it is policy to support peat-fired plants, as peat is an indigenous fuel, which makes us less reliant on imported energy. The levy is – pure and simple – the price that consumers and businesses pay for those policies.
We have not had to pay the levy for the last two years because wholesale electricity prices, determined by oil, gas and coal prices, have been high enough to support renewable and peat-fired electricity. But they have slipped.
To offset the impact of the levy on large energy users, many of whom are big employers, the Government plans to impose a carbon windfall tax on electricity generators, which it expects to raise €175 million. In a bizarre example of robbing Peter to pay Paul, the Government intends redistributing this to employers who face huge hikes in their costs as a result of its own energy policies.
Today
The Central Statistics Office will publish figures on industrial production and turnover for June 2010
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