What Is Ethics?

Some years ago, a socialist by the name of Raymond Baumhart asked business people, “What does ethics mean to you?”  The replies were (and largely paraphrased below):

“Ethics has to do with what my feelings tell me what is right or wrong”

“Ethics has to do with my religious belief”

“It is what the law requires”

“It is those standards that society accepts”

“Not sure what you mean”.

We may somewhat sheepishly agree with some.  Views on this are both shifting and shaky.  Is it based on feelings, religion, society or laws?

Ethics refers to well-founded standards of right and wrong that prescribe what humans ought to do!  So if it is saving 13 lives in a cave, everyone comes together with one goal to save lives, rather than leave it to fate!  It is bringing people to account for their actions be it in Nazi Germany, Rwanda, Cambodia, Syria or Iraq.  It is those standards that reflect honesty (even in opinion), compassion and loyalty.  And that includes standards on various rights – life, freedom, and privacy.  So for a Communist or totalitarian regime this could be irrelevant or clearly not applicable (“the end justifies the means”)

Secondly, ethics refers to the development of one’s own ethical standards.  Are they reasonable or high today?  Are our own beliefs, conduct high enough to shape standards of institutions that we lead?  Do we examine ourselves, inwardly if these are acceptable or do we compromise for harmony?  Or, do we say love covers all – i.e. if the situation “feels” good then it must be alright!

John C. Maxwell suggests there are three reasons why people make unethical choices:

       i.          what's most convenient;

      ii.          we must win at all cost; and

     iii.          relativism – standards change with situations

And Maxwell also suggests five factors that undermine any ethical framework:

       i.          pressure;

      ii.          pleasure;

     iii.          power;

     iv.          pride;

      v.          priorities.

What is key is to have general approaches to ethics:

       i.          command (what do the rules say);

      ii.          consequences (what is the best outcome);

     iii.          character (what kind person do I want to become).

For a new Malaysia, the standards have to be re-drawn.  We need to reverse what was previously considered as white when it was actually black (and vice-versa).  We therefore rise and fall on standards that we expect from politicians, corporate titans or religious leaders.

Ref:

1.      Manuel Velasquez, Claire Andre, Thomas Shanks S.J., and Michael J. Meyer, Issues in Ethics IIE VI NI (Fall 1987) Revised in 2010.

2.      John C. Maxwell, Business Ethics

Another Market/ Financial Crisis?

Mark Mobius says, “There is no question we’ll see a financial crisis sooner later …”  In one sense, he is right!

Why?  Because classical tradition suggests business cycles occur in 3 shapes:

       i.          3 – 4 year cycle (Kitchin cycle) – for inventory investment;

      ii.          7 – 10 year cycle (Juglar cycle) – in equipment investment;

     iii.          20 year cycle (Kuznetz) – building investment.

Then there is the long-wave, the Kondratieff cycle of about 50 years.  But not every country will have the cyclical structure in the same frequency range.

In the last three decades, the world economy has become increasingly integrated.  So one economy’s problems could get translated into issues in another linked, open economy.

But the U.S. is leading a process of de-linking economies.  The Trump administration has actively taken a wrecking ball initiative to global cooperation (his favourite singer is Miley Cyrus – you guessed it!)  So G7, NAFTA, TPPA are either dying or dead!  Then there is populism of the far right or far left variant which leaves little room for cooperation.  Central banks are also tired of quantitative easing and may not agree for another new round, if a crisis emerges.  Then there is the record level of indebtedness in the global economy (total debt is now USD 237 trillion).  We are in a fragile place and it only takes a “black swan” event to send us hurtling into disaster!

So much for morbid news!  Let’s try to be positive – the banks are stronger today then before, policy makers have a better crisis toolkit, and pragmatism may still rule the day.  So let us be wise in our risk management, cautious in new investments and strong on our cashflows.

High-Speed Railways (“HSR”) in China: A Review of Project Costs

China leads the world in length of HSR, about 25,000 route-km.  Railways with a maximum speed of 250km/h or more are considered as HSR.

A World Bank report (Read more here) suggests the unit cost of a 350km/h project is between RMB 94 – 183 million per km and for a 250km/h passenger dedicated line is RMB 70 – 169 million per km.  And the weighted average unit cost for a line is RMB 129 million per km for 350km/h and RMB 87 million per km for a 250km/h project.

The railway projects which were supported by the World Bank in China are summarised below:

In terms of various cost elements, the World Bank projects showed the following:

Table 2: Percentage of Total Project Costs

Element	350km/h (%)	250km/h (%)
Land Acquisition	4	4 – 8
Civil Works	48	50 – 54
Track	9	9 – 11
Signalling & Communications	4	3
Electrification	5	4 – 5
Rolling Stock	15	3 – 4
Buildings/ Stations	2	2 – 4
Others	13	25 – 11
Total	100	100

Several factors influence cost of a HSR project.  The major factors include line design speed, type of tracks, topography, weather conditions, land acquisition costs, viaducts, bridges and stations.

According to the World Bank, HSR construction costs in China tend to be lower than in other countries.  Why?  Manpower, capacity and availability of supplies, low cost of land acquisition, localization of design and manufacture of goods and components besides geology.

It is remarkable to accomplish 25,000km of HSR network in a period of about 10 years with costs lower than other countries.

So what should Malaysia’s HSR project cost be?  Not RM 72 billion (excluding interest costs), but more like RM 20 – 40 billion for a 250km/h line to Singapore.

Hot Deals for Monday WW29'2018

Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

J-V for solar plants totalling above 1,000MW.  Terms for discussion.

Also looking for new solar projects in Asia.


Opportunity 2

College in hospitality sector for sale (asking price RM 5 mil).  3 licenses (Penang, KL, and JB)


Opportunity 3

Client looking for profitable assets in consumer products - hair care, home care and personal care.


Opportunity 4

Client looking for confectionery manufacturing and stores in ASEAN - Cakes, Cookies, Ice-creams, Biscuits, Chocolates etc.


Opportunity 5

Client looking for RM 8 - 9 mullion against listed shares for 3 months only!


Opportunity 6

We at MP Capital Advisory have a funding institution who is interested to finance property projects of upto RM 30 million over 5 years and at an indicative interest rate of 8%.  Security required is property valued at 2 times or more of the loan.


If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my  or 603 - 2283 1170 for further details!

KLCI Performance after World Cup Month

We featured an article about KLCI Performance during World Cup Month in June previously (Read more here).  It has been proven that our prediction was correct that the KLCI would go south during the World Cup month.  Since the beginning of the 2018 World Cup, the KLCI has dropped 50 points by the time of this article.

Curiously, we are now taking one step ahead to look at the KLCI performance after the World Cup.  The following table shows the past KLCI performance during and after World Cup.

During the World Cup, the odds of KLCI going up versus going down is 30:70.  On the other hand, the odds of KLCI going up versus going down one month after the World Cup is 50:50.  Based on the past pattern, the KLCI is likely to trend sideways in the coming month.

Final guess, who will win the 2018 World Cup this coming Sunday?  Sadly, Paul the Octopus is no longer around.  Perhaps we should ask his friends?  The following video may have the answer.  Enjoy!

https://edition.cnn.com/2018/06/19/football/animals-predict-world-cup-achilles-cat-trnd/index.html

What is Fair Compensation for a CEO?

The U.S. Securities and Exchange Commission (SEC) has asked publicly traded companies to explain executives’ compensation amounts. Since the 1990s, CEO’s compensation in the U.S. has outpaced corporate profits, economic growth and average workers’ compensation. By 2006, CEOs made 400 times more than average workers’ wage – a gap that was 20 times more than in 1965. As a general rule, the larger the company the larger the CEO’s compensation.

The authors, Phillipe Jacquart and J. Scott, found that “... higher pay fails to promote better performance”. Another study by Prof. Lynne M. Andersson and Prof. Thomas S. Bateman found that highly paid executives are more likely to behave cynically and show tendencies of unethical performance.

More recent data suggests CEO’s pay to average workers’ pay ranges from 1,951 to 669 times (for ten companies) as shown below:

Company	Ratio
10.    Starbucks	669:1
9.    Gap Inc.	705:1
8.    Macy’s	724:1
7.    Bed Bath & Beyond	734:1
6.       CBS	862:1
5.       Target	939:1
4.       Walmart	1,133:1
3.    CVS Health	1,192:1
2.    Chipotle Mexican Grill	1,522:1
1.    Discovery Communications	1,951:1

                                                            Source: www.thestreet.com

In Malaysia, we have had some ruffled feathers on compensation received by CEOs of GLCs or GLICs.

And so what’s a fair ratio between a CEO’s compensation and that of an average worker? From a Christian business perspective, the ratio for a CEO in a listed company or a major corporation is 20 times that of an average worker and for an unlisted  or smaller company it is in the 8-10 times the ratio between the CEO and that of the average worker’s salary. The jury is, of course, still out! But what do you think?

Reference

1. Jacquart, Philippe, Armstrong, J. Scott, “Are Top Executives Paid Enough? An Evidence Based Review”

2. Batemann, Thomas, “Journal of Organizational Behaviour”

3. TheStreet, https://www.thestreet.com

The World in 2050

In a forecast of “The World in 2050”, PricewaterhouseCoopers (“PWC”) suggests growth of the world economy will average just over 3% per annum up to 2050. This is after accounting for a showdown in global growth after 2020 due to moderation of expansion in emerging economies and ageing population in more developed economies. But not accounting for “trade” wars.

In terms of purchasing power parity (“PPP”), China has overtaken the U.S. while India (in PPP terms) will become the second largest economy in the world by 2050. Mexico and Indonesia will be larger than the UK and France by 2030 while Turkey could be larger than Italy. Nigeria and Vietnam are anticipated to be the fast growing economies up to 2050

Top Ten Economies by GDP (PPP Terms)

The gap between the three biggest economies (China, India and U.S.) and the rest of the world will widen over the next four decades. It is projected that the third biggest economy (U.S.) will be 240% larger than the fourth largest economy (Indonesia). Indonesia (4^th) and Nigeria (9^th) will rise significantly by 2050.  But the great thing of this is that three of the four largest economies in the world are in Asia.  It can give the rise to the New United States of Asia ("USA").

However, income per capita will be higher in advanced economies than emerging ones – as the current gap is too wide to bridge by 2050.

What are the implications for a business strategy?

Malaysians and businessmen, in general, will need to focus on the three largest economies of the world – China, India and the U.S. The others that could provide good opportunities will include Indonesia, Vietnam, Nigeria and Mexico. Although emerging markets have considerable growth potential, it can be an institutional minefield. Local knowledge, key partnerships are the way to go. Opportunities will arise in infrastructure – rail, road, water, power – and in services such as technical, financial and policy settings. So, for Malaysia we need outward-looking policies that encourage trade and investments in key large economies of the future.

Reference:          The World in 2050: Will the shift in global economic power continue?

                                                                   PricewaterhouseCoopers, Feb. 2015