16th Volume March 2014 Issue #2
Privatization of Public Enterprises Interview W. Odding
Column L. van der Lecq
Column G. Groeneveld
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fsrforum • volume 16 • issue #2
Privatization of Public Enterprises
Preface
Dear readers, Here it is, the second edition of the FSR Forum. We are already halfway through the academic year, but just in the beginning of 2014. I would like to use this moment to wish you all the best for this year. The theme of the second edition of the FSR Forum is ‘Privatization of Public Enterprises’. Privatization is the process of transferring ownership of a business, enterprise, agency, public service or public property form the government to the private sector. Since 1980 it is commonly seen in the Western world. In the beginning the reactions about privatization were positive nowadays criticism is growing. In particular the question how far you can privatize healthcare. After reading the articles you have a better understanding behind the reasons of privatization. In this edition we will have two scientific articles that will contribute to the creation of a better understanding of privatization. The first article is from mister Selvam. He reviews privatization as a global phenomenon rather than a forced policy on particular segments of the world and it exhibits that privatization has been implemented for different reasons. The privatization experimented across the globe offers not only a review, but also a lesson to many countries which are yet to go a long journey in privatization. The last article is from miss Bosch and mister Vergés. This paper provides an evaluation of the effects of privatization on the efficiency of firms in the case of large Spanish State-Owned Enterprises that had been privatized from 1990 onward. The comparative analysis carried out yields mixed results; most of the evidence points toward the conclusion that the firms’economic performance was not actually improved after privatization. In this edition you will also find an interview with Wolter Odding. Mister Odding is CFO of Vitens, a Dutch water company, which provides several provinces of drinking water. Mister Odding joined Vitens in 2005, where he worked as a Finance & Control Manager. In 2009 he became CFO. Furthermore, you will find a column written by a professor in this FSR Forum. The column is written by Prof. dr.S.G. Fieke van der Lecq. In this column professor van der Lecq talks about her opinion about diversity, since she thinks that there are equal opportunities for everybody. But minority groups, for example groups based on gender, ethnic backgrounds or body size, should exploit the opportunities they get, to move from equal opportunities to equal outcomes. In this edition we also have a column of mister Groeneveld. This time he writes about financial service providers. Mister Groeneveld explains the current image of financial service providers. The News-update in the FSR Forum is as always related to the topic of the FSR Forum. In this edition you will find that the subject of the Newsupdate is Europe’s transport infrastructure. In the News-update you can read all about the new possibility’s to fund the public transport.
2 • Preface
In the remainder of this FSR Forum you will find an overview of our activities that have taken place. You will find a short description of the Traders Trophy, The Audit, Financial Business Cycle and Female Business Tour. The edition ends with an Alumni letter from Ashmita Krishna. All former active FSR members can become an Alumni member and can join several activities that the Alumni Association organizes. I would also like to make you aware of the fact, although we are just six months on the go, that from now on we are going to look for our successors. So if you are interested or if you want to know more about a board year at the FSR, please do not hesitate to contact us. You can also drop by at our office to drink a cup of coffee and ask all your questions. I hope you will enjoy reading this edition of the FSR Forum and I wish to see you once at one of our many activities. Sincerely, Martine Nieuwenhuijzen Kruseman Editor in chief FSR Forum FSR board 2013-2014
Preface • 3
fsrforum • volume 16 • issue #2
Privatization of Public Enterprises
Table of contents
Privatisation Across the Globe – A Review J. Selvam
This paper sheds light on privatisation as a global phenomenon rather than a forced policy on particular segments of the world. A simple and comprehensive review of literature about the privatisation across the world exhibits that privatisation has been implemented for different reasons. Privatisation in developed economies is political, whereas it is usually economic cum 6 political in developing countries.
The effect of privatisation on companies’ economic performance: The Spanish case T. Bosch and J. Vergés
In this paper they provide us an evaluation of the effects of privatisation on the efficiency of firms in the case of large Spanish State-Owned Enterprises that had been privatised from 1990 onward. The firms’ efficiency is approached here by financial-performance indicators, through acknowledging, on the one hand, their shortcomings and, on the other, the advantage of their direct comprehensibility. 11
Colofon FSR FORUM appears four times a year and is an edition of the Financial Study Association Rotterdam KvK Rotterdam no: V 40346422 VAT no: NL 805159125 B01 ISSN no: 1389-0913 16th volume, number 2, circulation 1900 copies
4 • Table of contents
Editor in chief Martine Nieuwenhuijzen Kruseman Editorial department Lisanne Frijling Myrna Baadjou Editorial advisory Dr. M.B.J. Schauten Dr. W.F.C. Verschoor Drs. R. Van der Wal RA
With the cooperation of J. Selvam T. Bosch J. Vergés W. Odding L. van der Lecq Drs. J.G. Groeneveld RA RV J. Streng T. Verhagen
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Interview W. Odding
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CFO at Vitens Column professor
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L. van der Lecq Column Joost Groeneveld PhD
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Table of contents • 5
fsrforum • volume 16 • issue #2
Privatisation Across the Globe – A Review
By Dr. J. Selvam
1. INTRODUCTION Privatisation has commenced its function in India since 1991. Relatively, it is a delayed phenomenon in the country compared to advanced countries, but almost a contemporary to the privatisation programme of many developing economies particularly in Asia and Africa. Having passed more than one and a half decade, the programme lacks popularity among Indian masses owing to multi-party central government and volatile politics. The programme since its inception has faced heated arguments, antagonisms, agitations, demonstrations and whatever so other resistances causing the privatisation programme a dormant (Kapur and Ramamurthi, 2002) despite the commitment to economic reforms. It is evident that many a good number of policies when implemented in developing countries become political rather than logical. Politicians and bureaucrats always keep their upper hand on any policy, so that their self-centred ideas and vested interests would be advantaged. Saddening is the rise of misconceptions and misunderstanding in people about policies. For long, the people of India have been habituated to see and measure the genuineness and validity of any programme through political parties which are mouthpieces to disseminate information and knowledge designed to their political philosophies. Unfortunately, a significant number of our people belong to either one or other political party which undoubtedly prevents people from being aware of privatisation. The state should always see that there is adequate information disseminated among citizens as to what privatisation yields actually. Most of the time, privatisation receives antagonism
6 • Privatisation Across the Globe – A Review
from the people, which may threat the political sustainability. Tagema (2002), in New African, reports that in spite of accomplishing a large number of privatisation, the public opinion in Africa some times turns against the programme claiming that the government is selling the country to foreigners. Privatisation is a familiar economic concept experimented across the world and so is in India. Many are yet to know that it is no longer a puzzle or rhetoric. Surprisingly, some believes that as if it is a foreign element forced upon our economy in isolation. Hence, this article—with careful review of literatures and empirical evidences—serves a platform to authenticate privatisation a popular and a highly experimented programme than any other economic programmes in the world. The paper is organised into six sections: next section discusses experimentation of privatisation in developed countries; third section deals the same in the economies of transition; fourth section provides a glimpse about the African privatisation; fifth section peeps into the programme in Asia and Pacific region with special emphasis on Indian experimentation and finally the paper ends up with some concluding remarks.
2. PRIVATISATIONS IN THE DEVELOPED COUNTRIES The current surge in privatization has its roots in the period of deregulation in Canada and the United States in the late 1970s. The movement towards privatisation of public transport and utility companies in France and Germany, together with conservative ideologies in aid-giving Western industrial countries during the early 1980s, brought political pressure on developing countries to adopt market oriented economic
reforms. In the U.K, the privatisation programme gathered momentum from the early 1980s after the return of a Conservative government under Margaret Thatcher, who was so keen to open up markets to competition and in encouraging wider share ownership as part of the promotion of the enterprise culture. The privatisation programme, which was geared up exactly in 1979, passed through several phases. As a result, between 1979 and 1997 almost more than two thirds of the industries under State control which were transferred to private sellers had earned the exchequer Sterling Pound 60 billion with an average Sterling Pound 5.5 billion a year planned in the mid1990s. This expansion of the market economy has involved almost fifty major businesses in sectors as diverse as automobiles, steel, airlines, and utilities. The privatisation programme reduced the role of public sector in the sense that their share in the GDP and total investment was reduced by almost 60 percent (Cook, 1998: 218; Hoody and Young, 1999:253). The UK has more privatisation experience of major utilities than any other Western European economy. When the U.K. was in full gear of privatisation in the eighties, West Germany [before unification] was not so interested in privatisation, owing to less public ownership (Bös, 1992,) the better performance of state enterprises and less ideological conservatism comparing to the U.K. and in the U.S. Nevertheless, the initiative was visible here and there when the annual economic report in 1983 of the conservative-liberal government1 desired to work for a policy that would reduce the activities of the state to those that were appropriate. The debate on privatisation in Germany was again reactivated in the 1990s following the collapse of communism in East Germany. Eventually, the privatisation was successfully carried out by Treuhand’s (THA) (the largest industrial holding company) management, where about 15,000 firms or parts of firms with total of debts about DM256 billion and an income of DM67 billion were privatised. About 3,000 privatisations were ‘Management Buy Outs’ (MBO); while only 860 firms were placed in the hands of foreign owners. Eighty-five percent of the East German industrial assets are now in the ownership of West Germans, and is best characterised as a large-scale ownership transfer from the East to the West Germany (Esser, 1998). To conclude, it may not be exaggerated to say that the privatisation in Germany is nothing but a “symbolism in the social market economy”. Privatisation in Italy is one of those economic phenomena that surprised the world by their suddenness and by the strength of the swing which took place from a view that favoured a widespread public intervention in the economy. The strong motives that were observed behind the Italian privatisation are the increasing debt of public sector undertakings(PSUs)(Posner and Woolf, 1967), market and private property which are seen as the panacea to all inefficiencies and economic failures. By the end of 1995 over 25,000 billion lire (more than 1.5 percent of 1993 GDP) were raised by the sale of share of 21 enterprises. The most widely used technique of sale was private placement. Nevertheless, MBOs, POs (Public Offers) and IPOs (Initial Public Offerings) were used but in total with a few companies. The success of privatisation
in Italy was due to both its sequencing and to the intense restructuring process which took place before selling. Privatisation in the U.S. can be traced back to 1955, when the Bureau of the Budget issued (Nicholas, 2001) Bureau of the Budget Bulletin Number 55-4. It was a directive to the effect that government would rely on the private sector for commercial goods and services, so that it would not be competing with business. To be clear, what is seen as privatisation as applied in economies of transition and African countries is as not same in the U.S. Privatisation in the U.S. refers to the government’s use of the private sector[both for-profit and non-profit] to deliver public policies and improve the content and implementation of pubic programmes. The heavy use by American governments of the private and quasi-private sectors to implement public policies is a phenomenon peculiar to the United States— nearly a fifth of all federal expenditure about USD200 billion flows to private interests through contracts. It relates to some deep, underlying belief sets that may be unique to the American political culture (Nicholas, 2001: 321). In the United States, there exists a pervasive myth that ‘business is better’— that private enterprises is more efficient and effective in getting the job done than is ‘the incredible bulk’ of government. Empirical studies indicate that the main reason behind the U.S. privatisation is risk avoidance, particularly the avoidance of political risks.
3. EXPERIMENTATIONS IN ECONOMIES OF TRANSITION Post communist countries distinguish between ‘small privatisation’ and the privatisation of key sector enterprises. Privatisation of public utilities typically is not on the agenda. Small privatisation refers to shops, cinemas, restaurants and small hotels. Their privatisation was a relatively easy task unless problems of property rights interfered. The privatisation of key-sector enterprises refers to industry, wharfs, transportation, mining, energy, research and development printing offices and so on. Their privatisation was comparatively more difficult and time-consuming (Bös, 1992). One of the essential programmes of the transformation of the Czech economy is privatisation of state ownership. The implementation of the transformation process was launched by auctions of small operational units in 1991 within the “small-scale” privatisation, which was completed in 1994. The first phase privatised 42.9 percent of the slated enterprises—the fastest privatisation next to East Germany’s after unification—which transacted USD24.87 billion as well as 88.25 percent of the property scheduled for privatisation (Radomir et al., 1995). It was subsequently followed by “large-scale” privatisation in two basic waves by publicising lists of entities slated for privatisation. It is considered the ever-largest privatisation under voucher scheme, which is considered a distinct feature of privatisation programme of all most all transitional economies. Unlike Czech privatisation, the pace of privatisation in Hungary and Poland was modest (Dhameja and Sastry,1998:109-14). In Hungary, the reform of PSUs, although a continuing feature starting from its ‘New Economic Mechanism’ launched in 1968, its path to privatisation was really hammered out in
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Privatisation Across the Globe – A Review • 7
fsrforum • volume 16 • issue #2
privatisation in the developed countries aims at rebalancing the
power between the public and the private sector, whereas privatisation in economies in transition is part of a move from a centrally planned communist system to a market economy.
instance, Stock exchange initiatives were done in East Germany through the West Germany’s treaty on the Economic, Monetary and Social Union (July 1990) and by the subsequent treaty on German Unification signed on 3rd October 1990 (Bös, 1992). The worth deriving point from those economies of transition is the minimisation of disparity through the voucher system2 (it does not require the need for valuation) which played a vital role in distributing ownership and guarding against the danger of sale of state property at a discount to a privileged few. Another feature of privatisation in those countries was that shares were sold to mutual funds, who, in turn disposed it off later to the public. In a nutshell, privatisation in these countries is successful, whereas in the economies of transition, it was made successful which leaves a concrete lesson for those developing countries where privatisation is ongoing.
4. PRIVATISATION IN AFRICA 1985. Albeit its low pace, the transformation process (László, 1998) radically brought down the number of state owned enterprises from 1,841 to 823 at the end of 1994, a reduction of 70 percent, whereas the state assets on their book value had a reduction of only 36 percent. In Poland, from 1990 through September 1992, nearly 25 percent of PSUs were transferred to the private sector. This accounted for 43 percent of the total economy. Moreover, liquidation methods had been used most frequently, by mid 1992 as a measure to facilitate the privatisation process. As a matter fact, 1249 enterprises had undergone liquidation. Four methods of privatisation adopted in Poland are: Commercialisation, transformation of PSUs into corporations, which were later to be sold individually; sale of shares of corporations owned by the government; liquidation involving leasing of assets to other entities for a fee; and liquidation of an enterprise having poor financial performance. The adopted techniques were sale by auction, public offer to sell, private placement, and distribution of vouchers to citizens. The main difference between these two set-ups of economies for privatisation: privatisation in the developed countries aims at rebalancing the power between the public and the private sector, whereas privatisation in economies in transition is part of a move from a centrally planned communist system to a market economy. This distinguishing statement has both a quantitative and a qualitative dimension. Quantitatively, privatisation for the developed countries implies a reduction of the public sector by only a small percentage. However, in transitional economies, privatisation aims at a reduction of the public sector by two-digit percentages. Qualitatively, privatisation was embedded in the market economic system. In Transitional economies, privatisation signals the change of a system. The qualitative difference mentioned above is the reason why privatisation in capitalistic countries must be seen from a different perspective than privatisation in postcommunist countries. In capitalistic countries, there is a given framework, endowed with a convertible currency, wellestablished stock exchange, technologies and skilled labour. In post communist countries, all these features must be established as part of the transition. In many cases, even skilled labour is missing (this was one of the disappointing experiences in the course of German unification). For
8 • Privatisation Across the Globe – A Review
Privatisation in the name of the SAP supported by the IMF and the World Bank was implemented in many African countries in the late 1980s. The word ‘Privatisation’, almost unknown a decade ago in Africa, is now a key to unlocking private sector-led growth. Private investment has become the most important source of finance for developing countries in this region. This boom in private investment—though Africa particularly Sub-Saharan Africa(SSA) is reportedly a least player in the total receipt of private investment—has been the result of wide spread macro economic stabilisation and liberalisation. Africa was, however, lagging behind in the privatisation activity compared to other regions. On an average, African states privatised a smaller percentage —about 40 percent— of their PSUs than other regions, far less than in Latin America or the transition economies. Much of the African divestiture taken place was of smaller, less valuable, often moribund manufacturing, industrial and service concerns. In the 2000s, of the roughly 2300 privatisations in Sub-Saharan Africa, only about 66 were strategic ones. An additional 92 transactions took place in transport, some of which were classified as infrastructure. Moreover, activity has been concentrated in very few countries. Of the USD nine billion raised from the African privatisation between 1991 and 2001, a full third was generated by a handful of privatisations in South Africa (South Africa was in the first place in the African Privatisation with USD3.1 billion). Another 33 percent came from sales in a group of four actively privatising countries such as Ghana, Nigeria, Zambia and the Ivory Coast.
The word ‘Privatisation’, almost unknown a decade ago in Africa, is now a key to
unlocking private sector-led growth.
Ghana, launching privatisation in 1988, realised USD one billion through a sale of 212 PSUs as of 2001 (Nellis, 2003:8). Nigeria privatised substantial portion of its PSUs through the full or partial privatisation of 110 PSUs and the commercialisation of 35 others. At one point, the programme aimed at collecting about USD one billion a year (Business Africa, 2000). Zambia is one of the successful countries in privatisation. The Zambian Privatisation Agency privatised 253 out of the 254 firms privatised since 1991 which constituted 99.6 percent share in the total PSUs slated for privatisation (Nellis, 2003:16). The total proceeds collected from these transactions between 1991 and 2001 amounted to USD828 million. It is creditworthy to mention that the privatisation programme made satisfactory progress with a substantial attraction of foreign investors, including previous owners of some of the firms. African privatisation, with a little success, was found to be confusing, inconsistent, erratic and, above all, route-less. For instance, some enterprises were sometimes reported as sold when they were merely up for sale. Sometimes, sales were recorded as and when the privatisation agency and a buyer reach a preliminary agreement (World Bank, 1994: 105). Such errors were among many traced by various studies. Ideologically, in many African countries, the principal motivation of privatisation was to pacify the funding Agencies and major financial donors who forced those countries in the name of conditionalities (The Reporter, 2003). Eventually, the issue for them was no longer to decide whether to privatise, but when and how to do so. Finally, the African governments increasingly recognise the PSUs problems. Many African countries emptied their exchequer by spending huge amounts for rehabilitating those weaker PSUs which was considered a mere wastage of a country’s welfare budget. Now, numerous African leaders and observers preach the gospel of financial discipline and market-oriented reform. Yet, commitment to privatisation as the best way to solve PSU problems has been neither widespread nor strong. It accounts for many reasons inherent in Africa, but to be frank, the prevalence of a unique political set-up and the attitudes of politicians are still posing a continuous threat to the on-going privatisation process.
5. EXPERIMENTATIONS IN ASIAN AND PACIFIC COUNTRIES Many countries in the Asian region wanted to improve their international competitiveness and were keen to provide a more attractive business climate for private economic activity. However, East Asia and the Pacific are the only regions in Asia that showed an increase in privatisation revenues in 1993 when their transactions reached USD7.5 billion, up from USD5.2 billion in 1992. After a relatively slow start compared to other regions, privatisation picked up during the 1990s. As a result, the total privatisation revenues between 1988 and 1999 amounted to USD49.2 billion, which resulted in 25 percent of activity that took place in East Asia and the Pacific albeit the Asian financial crisis. The most intensive privatisers in terms of revenues from sales were Malaysia, Phillippines, and China. Between 1988 and 1993, Malaysia’s privatisation sales generated USD5.8 billion in revenue, more than one-third of the regions’ total.
The Phillippines substantially reduced state ownership, selling sixty-three enterprises for USD2.8 billion in the same period. Although the Government of China is not willing to use the term ‘privatisation’, which may be due to their political supremacy, it has reduced state ownership by offering shares to domestic and foreign investors on the Shenzhen, Shanghai, and Hong Kong stock exchanges. From 1991 to 1993 the government sold shares in sixty one state owned companies and collected a total of USD4.1 billion (Sadar, 1995: p.7). Privatisation efforts in Pakistan began in 1988 with the floatation of minority shares of Pakistan International Airlines Corporation. Between 1991 and 1997, the Privatisation Commission carried out 92 privatisation transactions, while by the end of 2000, the number stood at 106. Gross privatisation proceeds stood at about Rs.60.9 billion equivalent to USD1.8 billion. Telecom and power together accounted for over twothirds of the proceeds. The privatisation was very much a home-grown programme developed in response to the dismal performance of public enterprises. The pace of privatisation in the Gulf countries was found very steady as the drive to create greater room for the private sector in Saudi Arabia and the Gulf states (Pamela, 1999) appears to be escalating. In spite of the less urgency of scaling down the government role, the people are aware that the private sector is needed to create jobs, attract foreign investment and alike.
5.1 Experimentations in India The change in the international political and economic scenario, particularly break-up of the Soviet and emergence of globalisation paved a road for the privatisation programme in India as a pursuit of economic reforms. However, the direct cause owes to the inefficiency found in most of the public sector undertakings despite the advantage of their monopolistic environment on the product or service they provide. Most public sector enterprises were unable to generate the minimum resources to renovate and upgrade their produces processes and plants resulting in their technology obsolete. This phenomenon cautioned the economists, and even made appeal to the commonsense of bureaucrats and politicians that the public sector would not be able to survive without special support from government budgets and financial aid. Privatisation policy emerged in India as a result of the Industrial Policy announced in 1991. At the helm of privatisation programme, a Disinvestment Commission was set up in 1996 which subsequently made recommendations for privatising 58 PSUs through a shift from public offerings to strategic/trade sales with transfer of management. Eventually the country privatised about one hundred and twenty six enterprises over 1991/92-2003/04. Data set for the Indian privatisation is summarised in Table 1. Table 1 reveals that the total amount realised through privatisation proceeds was USD7,860 million which fluctuated extremely between zero value and USD1,495 million over the study period, 1991/92-2003/04. The programme started with forty six maiden-transactions, contributed USD1,172 million in 1991/92 fiscal year. The volume of privatisation proceeds went down to USD627 million and no transaction respectively for 1992/93 and 1993/94. In an average, the government disinvested nine PSUs for USD601 million every year.
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Privatisation Across the Globe – A Review • 9
fsrforum • volume 16 • issue #2
Table 1: Privatisation Magnitude, 199192-2003/04 YEAR
PSUs Offered
Privatisation Proceeds(PP) (USD Million)
GDP* (USD Million)
PP/GDP (In Percentage)
1991/92
46
1,172.08
315,966.06
0.37
1992/93
29
627.4
281,797.31
0.22
1993/94
0
0.0
294,341.73
0.0
1994/95
17
1,495.53
301,822.05
0.5
1995/96
4
47.42
301,270.11
0.02
1996/97
1
104.93
307,133.02
0.03
1997/98
1
219.58
286,476.00
0.08
1998/99
3
1,247.33
454,900.14
0.27
1999/00
4
406.99
453,248.78
0.09
2000/01
4
396.27
454,418.31
0.09
2001/02
9
1,158.61
457,169.31
0.25
2002/03
5
719.54
577,150.23
0.12
2003/04
3
219.11
576,235.66
0.04
2004/05
NA**
534.24
643,582.77
0.08
9.69
559.76
407,536.53
0.15
1991/92-2004/05 (Annual Average) Note: GDP at constant factor; **Not available Source: Government of India(GoI) (2005) & Asian Development Bank (ADB)(2006)
requisites and systems including the sophisticated capital market, stock exchange and labour market. Furthermore, these countries executed privatisation with a target precision. The economies of transition stumbled in the beginning, but picked up the right rhythm of privatisation as quickly as possible. In spite of the erratic process, privatisation was moderately successful owing to their will to privatise —no other alternative but privatisation to collapsing state-controlled market— coupled with a gradual development of the requisites for privatisation. Privatisation in Africa was surprisingly seen as a foreign element since many Africans considered privatisation a forced phenomenon of funding Agencies and developed countries rather than a justified policy with causes. Moreover, they viewed privatisation detrimental to their political power and personal interest. Their will and determination towards programme were in fact absent that caused sabotage to the entire process. The privatisation in Asia and Pacific was a mediocre success. The programme in many countries in this region was implemented in par with global economic and political changes. Albeit restrains from politicians, privatisation
Commitment and determination towards privatisation programme are major contributing factors for success of the privatisation programme in developed countries. Table 1 also shows the privatisation magnitude which is measured in terms of privatisation proceeds received in percent to Gross Domestic Product (GDP). The privatisation magnitude is taken for this study in order to measure the size of privatisation in the country. The annual average of magnitude was recorded for 0.15 percent over the study period. None of the fiscal years crossed even one percent, exhibiting its small size in magnitude. The highest magnitude of privatisation was found in 1994/95 with 0.5 percent, whereas, the lowest recorded for 1993/94 with zero magnitude, followed by 0.02 percent in 1995/96. Not only is the magnitude, there had been failure in realisation against the target as it realised in an average only 28.3 percent of the target fixed (GoI, 2005). It can, therefore, be said that the privatisation programme in India was small in proportion to the size of our economy. Although there are many reasons for the poor show, the significant barrier to privatisation stems from the multi-parry system and often volatile politics in the country. The critics are nobody, but the leaders within the government
6. CONCLUSION Commitment and determination towards privatisation programme are major contributing factors for success of the privatisation programme in developed countries. Privatisation in these countries has been economically and politically justified. The programme has been carried out with all pre-
10 • Privatisation Across the Globe – A Review
is strongly considered a major policy with a lot of potentialities yet to be explored in this region. India is also yet to go a long journey where multi-party governments with varied philosophies have been bottlenecks to privatisation. The lessons drawn across the globe will, no doubt help many developing countries to refine their privatisation programmes, so that they would probably meet privatisation with fuller confidence and zeal.
NOTES 1
The conservative-liberal government in West Germany comprised of Christian Democrats of the
CDU-CSU[its Bavarian Sister Party] and the liberals of the FDP, which was the first to include in its programme its intention of reducing state influence on the private economy and of strengthening market forces. 2
Voucher is a legal right evidenced on printed certificates, which could be used to purchase shares
of stock in state owned business. The countries like Czech Republic used a voucher system to privatise over 2000 SOEs. Under this system, vouchers are issued to adult population, although in some cases children are allowed to participate, as a primary mean for transferring ownership rights in enterprises to be privatised. Usually vouchers are distributed free of charge, while in some other countries particularly in Czech, Russia and Romania, a small fee was collected to cover administration costs to weed out those not interested in the programme. See more about voucher system in Radomir Sabela, Terézia Hrnčíové and Josef Vais(1995).
fsrforum • volume 16 • issue #2
The effects of privatisation on companies’ economic performance: The Spanish case
By Teresa Bosch and Joaquim Vergés
1. Introduction With the present research we aim to evaluate what the effect has been of privatisation on the firms’ efficiency, analysing six cases of large Spanish State Owned Enterprises (SOE) that were privatised. We approach the firms’ efficiency in terms of economic performance indicators. The economic literature on privatisation, specially those works that are based on the property rights theory, tend to refer to improvements in financial results when speaking about the expected consequences of privatising a SOE; and that on the grounds that firms’ efficiency will increase by passing under private investors’ control. It can be argued that financial results indicators are not the best ones for assessing the efficiency degree of an enterprise, though they do have the advantage of their unambiguous, broadly well known meaning. Certainly, even if we rule out the use of the simple profits (or losses) figures and use relative values like the rate of return on capital employed (profitability) or the rate of return on sales (rate of margin), these are indicators whose values do depend on the level of firm’s efficiency but also on other variables; mainly: output prices, input prices, and company decisions (options) on investment in fixed assets vs. renting those fixed assets, as well as decisions on the product mix. Therefore, a change in, for instance, the rate of profitability can not be taken as the reflection of a parallel change in firm’s efficiency, but as the sum of a set of consequences, the change in efficiency being just one of them. Of course, the firm’s efficiency is understood in this context in its standard meaning: a given relationship between the quantity of output(s) and the quantity of inputs; that is, as equivalent to the idea of the firms’ productivity.
However, to evaluate an enterprise’s efficiency by calculating productivity indexes for a set of periods (years), requires – besides having data on quantities of every output and of every input, for each year- relying on assumptions, as is well known. Thus, when the option is to calculate properly firm’s productivity for a set of years, that leads us to the use of overall productivity indexes (total factor productivity, TFP); and these require some assumptions on how to homogenise, on the one hand, the quantities of the different firm’s outputs, and, on the other hand, the quantities of the various firm’s inputs, in order to determine TFP indexes for each year of the study period; (see, for instance, Bishop and Thomson, 1992; Haskel and Szymanski, 1993; Parker and Martin, 1995; Boussofiante, Martin and Parker, 1997; Franuelli and Erbetta, 2000, Estache, González and Trujillo, 2002). On the other hand, when the methodological option is to use a partial productivity index (usually one referring to some measure of the input ‘labour’) we face the problem that partial productivity indexes do not have a conclusive meaning regarding the evaluation of the firm’s efficiency. Thus, taking the most used partial productivity index, the labour productivity index, the change in its value from one year to another can not actually be taken as an indicator of how the efficiency of the firm has changed, because the value of that index come from comparing the total output with only one of the inputs: units of labour; therefore, an increase in such index does not necessarily mean that the firms’ efficiency have increased. So, for instance, the decades-long time-trend towards mechanisation and automating of production processes implies, by itself, the (relative) reduction of workforce in a firm; and, therefore, a formal –and substantial- increase in the labour
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The effects of privatisation on companies’ economic performance: The Spanish case • 11
fsrforum • volume 16 • issue #2
productivity index, however we define it. Yet, from these increases we cannot deduct that the productivity of the firm as such has actually increased (or not in the same proportion) since the consumption of capital and other inputs will have considerably increased.
they were taken over (absorbed) by the purchasing private companies (competitors). That leaves six large privatisation cases on which we focused on for our analysis:
3. Methodological approach These difficulties related to productivity measures most likely explain the relative preference given to financial results indicators in most research works on post-privatisation comparative efficiency/economic-performance of firms. Thus: Parker and Hartley, 1992; Megginson, Nash and Randenborgh, 1994; Martin and Parker, 1997; d’Souza and Megginson, 1999; Bourbakri and Cosset, 1998; La Porta and López de Silanes, 1999; Megginson and Netter, 2000; Laurin and Bozec, 2001; Wei, 2003; Florio, 2003; Comstock, Kish and Vasconcellos, 2003; Omram, 2004; Reeves and Palcic, 2004; Gupta, 2005. Looking at the findings from the above studies we can see that their conclusions do not always point in the same direction. Some of them conclude that economic performance –specially when measured by firm’s profitability- improved after privatisation (Megginson, Nash and Randenborgh, 1994; Bourbakri and Cosset, 1998; d’Souza and Megginson, 1999; Laurin and Bozec, 2001; Gupta, 2005); But other works find no remarkable changes in economic performance comparing previous to postprivatisation periods (Parker and Hartley, 1992; Martin and Parker, 1997; Wei, 2003; Florio, 2003; Omram, 2004: Reeves and Palcic, 2004). Therefore, more empirical evidence on the matter of post-privatisation comparative efficiency would be welcome. Following this line, in the present study we have chosen the above approach of using economic performance indicators for measuring the effects of privatisation in the case of large Spanish firms.
2. The analysed enterprises Focusing on the larger Spanish SOE that were privatised from 1990 onward, we have taken for our analysis the ones that fitted the following conditions: 1) company data for at least four years after privatisation are available; this condition also implies that the company has a continuity as such after privatisation; 2) firm’s activities mix and market regulation in the previous and post-privatisation periods are comparable. As a consequence, we exclude from the analysis some large SOE: Iberia (airlines) and Transmediterrranea (sea transport) because they were only privatised in 2001; so, not enough post-privatisation data are available yet; and Argentaria (bank), Inespal (aluminium), and Retevisión (telecommunications), because
Here we approach the economic performance of privatised companies by using financial results rates. Our base values are annual profits, revenues, and investment, but cleaning the usual raw accounting data taking out non operating and extraordinary expenses and incomes. To do this, we work on primary data from each firm, so as to determine ordinary operating profits (P”), ordinary operating revenues (R”), and capital employed or invested (K); and so to calculate the corresponding relative measures: ordinary operating rate of return on revenues (o rate of margin, m), and ordinary operating rate of return on capital invested (or profitability rate, p): me,y = (P”/ R”)e,y e= 1,2…6 (enterprises); y = 1,2,…(years) pe,y = (P”/ K)e,y ; K= owners’ investment + financial debt Usually, these economic performance indicators -rate of return on revenues and rate of return on capital invested- tend to be taken as two independent measures in the sense of alternative approaches to the enterprise’s efficiency (works by Martin and Parker, 1997, and Megginson and Netter, 2000, could be considered as representative in that sense). But, obviously, these measures, as is well known, are related, p=m·(R/K), and we use both indicators taking that into account because their relationship has a useful meaning for efficiency analysis. Thus, for instance, a change in enterprise policy towards leasing instead of buying fixed assets (equipment, machinery, buildings, etc.) will increase the rate of revenue per unit of capital invested (R/K), and, consequently -all the rest the same- it will increase the profitability index, p; but we could not say in that case that the enterprise’s efficiency has improved since no change in the output/input relationships have occurred. Furthermore, variable m as it has been defined above is in fact formally related to output/input relationships: m=1-
Σf (i•c)f Σg (o•p)g
(where if = quantity of input or factor f; cf = unit cost of f; og = quantity of output or goods g; pg = sale price of output g). Therefore, it can be said that variable m is a closer indicator to the standard concept of an enterprise’s efficiency (productivity) than variable p is. And we take this meaning-ranking of variables
Firm (sector, activity)
Annual turnover Privatisation year (last year as SOE) Million €
Firm’s market position b) before privatisation a) after privatisation
Market regulation
Aceralia (steel)
2.409
1997
b) Dominant, facing international competition a) Idem
None
Tabacalera (tobacco, plus stamp retail)
2.339
1998
b) From fiscal monopoly to dominant, in tobacco. Monopoly on stamps retail a) Dominant in tobacco; monopoly on stamps retail
Tobacco: price regulation to 1997; no regulation after. Stamps: price regulation
Endesa (Electricity; generation & distribution)
7.707
1998 (IPO, 20,4% in 1988)
Dominant domestic market share, in competition conditions. Significant international positions
On distribution prices.
Repsol (oil & chemicals)
19.287
1997 (IPO, 30,6%, in 1989)
High domestic market share, in competition conditions. Significant international position
None
Red Eléctrica Española (Electricity carrier)
553
1999
b) Monopoly a) Monopoly
On prices (electricity ‘transport’)
Telefónica (telecommunications)
14.885
1997
b) Dominant a) Dominant
On prices to apply to competitors for using ‘last mile’ Telefonica network
12 • The effects of privatisation on companies’ economic performance: The Spanish case
into account when applying both indicators to each privatised firm; especially where changes showed by the two indicators –comparing previous to post-privatisation period data- point out to a different conclusion. These two measures are calculated here –for each enterprise (e)- for a set of years (y) –four, o more if data are availablebefore privatisation and also four or more years after privatisation. As usual, the privatisation year is not taken here as part of either one or the other period. Then we calculate for each firm the average for each indicator, for the respective previous and post-privatisation periods, and determine the
control over the firm’s
manager and its results will change from government to a private principal difference between both means –after vs. before- for each indicator. And finally –after evaluating the statistical robustness of the resulting differences between means- we go on to draw conclusions on what appear to be the changes in economic performance of each firm brought about by its privatisation. As far as the moment of privatisation is concerned, we take –different from the standard option- the one when the firm actually passes into private control. That means not necessarily taking the moment when 50%-plus (or a lower but significant percentage) of firm’s shares passes to private investor ownership, but the moment when power upon the firm (i.e., control) actually goes outside the government. The prediction that privatisation will likely bring an improvement in economic performance is based –according property rights theory- on the argument that control over the firm’s manager and its results will change from government to a private principal, which –it is assumed- will control the firm’s manager in a more effective way. Notwithstanding, most of the research works referred to before comparing pre-post privatisation economic performance take a purely quantitative approach to place the year of privatisation: when a significant percentage of the shares pass to private investors. This approach creates a lack of consistency, especially in the case of SOE that have been privatised in stages, usually by means of POs in the stock market; which are precisely the dominant case analysed in the aforementioned available studies on post-privatisation’s comparative performance. However, as it well known in those partial POs cases the private ownership of the shares tend to become diluted on the stock market, which means that quite a lot less than 50% of public ownership (even percentages as low as 25% - 10%) may be enough to keep control of the firm in State hands.
It has been on the basis of that analysis that we have chosen to take as the privatisation ‘moment’ for each firm as the one (the year) that the firm actually passed into private control. This option, together with that of using ordinary operating rates of return as indicators, has led us towards an in-depth case study, approach. On the other hand, large companies –be they private or public- often own subsidiaries engaged in different economic activities; and in those cases the published annual accounts of the company are not always clear whether they refer to the group (consolidated financial statements) or to the parent company’s basic activity; (we have found that even companies’ annual reports are not always consistent over time in that sense). Not to account for all those issues implies ignoring possible inconsistencies in data among different years, which may result in false conclusions. The aim of avoiding this problem have reinforced our option of using primary data to enable an in-deep analysis for each firm.
4. Empirical results The comparative analysis carried out from the values of the indicators are shown and summarised in table 1. As can be seen, in the case of the steel company Aceralia, economic performance decreases after privatisation, according to both margin indicator (m) and profitability indicator (p), although the observed average reduction in both indicators show a low level of statistic confidence. However, what is clear from the analysis is that economic performance change dramatically in the pre-privatisation period (see Table 2): financial results passed from persistent losses (years 1991-93), to steady profits the years immediately prior to privatisation (1994-96). Table 2: Aceralia Year
Ordinary operating Mean profitability%
1989
7,00
8.14
1990
1,02
1,58
1991
-6,52
-10,53
1992
-15,70
-26,47
1993
-13,02
-13,83
1994
2,54
1,65
1995
16,32
14,66
1996
4,35
1994-1996
(sd) (se)
Ordinary operating Mean margin%
4,12 7,74
7,49
6,79
4,32
1997
4,48
4,79
1998
6,05
5,94
1999
3,47
3,42
2000
9,62
7,8
2001
3,62
4,41
2002
1,95
2,28
2003
1,35
1998-2003
(sd) (se)
6,88 3,97
1,52 4,34
3,06 1,25
4,23
5,72 4,23
(sd) = standard deviation; (se)= standard error (SDOM) Source: Self elaborated, from primary data from: Annual Reports of the firm.
It merits pointing out that the firm had in fact been restructured years ago, at a considerable cost for the State budget; firstly in 1984 and again in 1989, eight years before privatisation. This restructuring also implied a substantial reduction in the workforce, closing several mills, as well as huge new investments for modernising the others. Financial results then change dramatically from being in the red to substantial
The effects of privatisation on companies’ economic performance: The Spanish case • 13
fsrforum • volume 16 • issue #2
Table 1: Summary of changes in economic performance indicators Indicator: p = ordinary operating rate of ROI Privatised firm
Privatisation year
Aceralia
1997
Mean before privatisation 7.74
n1 3
Mean, after privatisation 4.34
(sd.)
7.49
3.06
(se.)
4.32
1.25
n2 6
(t) Tabacalera
(0.7548) 1998
7.89
6
17.09
(sd)
3.46
3.81
(se)
1.41
1.56
6
(t) Endesa
12.35
6
8.24
(sd)
1.67
1.54
(se)
0.68
0.63
6
(t) Repsol
7.53
7
9.35
(sd)
0.89
2.14
(se)
0.34
0.81
7
(t) Red Eléctrica Española
1999
10.91
7
10.37
(sd)
0.9328
1.796
(se)
0.3525
0.8033
5
(t) Telefónica
1977
8.7
7
10.75
(sd)
1.66
3.403
(se)
0.441
1.286
7
(t)
3.97
0.96
year
Endesa IPO
n1
1988
Mean before privatisation 8.58
n2
2
Mean, after privatisation 14.09
1989
8.39
2
7.07
3
3
(t) Repsol IPO (t)
5.84
0.70
2.38
6
+11.61
(4.672)*** 6
17.86
2.58
2.35
1.05
0.96
6
***
-9.44
(8.42)*** 7.31
7
10.58
0.60
1.63
023
0.62
7
**
+3.27
(-4.9765)*** 33.43
7
24.82
6.6258
2.1724
2.504
0.9715
5
*.
-8.61
(2.7689)**. 20.67
7
20.15
1.406
3.909
0.531
1.478
7
#
-0.52
(0.333)*
Indicator: m = ordinary operating rate of ROR
Difference in means (a-b) +5.51
l.c.
(-6.88)
***
-1.32 (1.6)
16.00
1.72
Indicator: p = ordinary operating rate of ROI Partial privatisation
6
Difference in means -0.84
(0.628)* 6
29.85
+2.05
(-1.511)
2.35
n2
***
-0.54
(0.685)
3
Mean after privatisation 4.23
6.88
4.39
+1.82
(-2.077)
n1
*
-4.11
(4.427) 1997
Mean before privatisation 6.79
+9.2
(4.389) 1998
Indicator: m = ordinary operating rate of ROR
Difference in means (a-b) -3.4
80%
Mean before privatisation 28.5
n1
Mean after privatisation 33.08
n2
2
9.40
2
7.03
3
3
Difference in means +4.58 (-2.71)** -2.37 (2.48)**
(sd) = standard deviation; (se) = standard error; (t) = t statistic from unpaired test for differences in means. ; n1 = number of years previous periodo; n2 = number of years post-privatisation period. (*) level of confidence: P < 50% ; (*.) level of confidence, 51%; (**) level of confidence > 90% ; (**.) level of confidence > 98%; (***) level of confidence > 99.5 % (#) level of confidence: 84%
profits four years before privatisation. Thus, it could be one of the cases where the announcement of privatisation seems to bring together a change in control and management practices which bring in a clear improvement in economic performance; to such a point that performance was actually slightly lower in the years after privatisation. Other cases of improvement in SOE economic performance within the years immediately before the privatisation (announcement period) have been reported (Green and Vogelsang, 1994; Martin and Parker, 1997; Reeves and Palcic, 2004); and precisely one of this cases refers to a steel company too: British Steel (Aylen, 1994; Beauman, 1996). An explanation suggested for these findings has been that from the announcement onward, annual targets for financial results are (more) tightly fixed by the Government on the firms’ managers as the main objective, if not the only one. Our results in the case of the Spanish steel enterprise –along with descriptions of organisational changes, drawn from company annual reports- would lend support to that hypothesis. In the case of the old monopoly on tobacco & stamps retail, Tabacalera, economic performance indicators show a dramatic improvement after privatisation: rate of margin was 11.6 percentage points higher on average; and profitability rate 9.2 percentage points. In fact Tabacalera exhibited a record of steady profits from its start as a mixed company in 1946 (54.4 % of state ownership). It is the only SOE analysed here that had enjoyed a legal monopoly. Its monopoly on tobacco, and regulation on its prices, were removed just one year before
14 • The effects of privatisation on companies’ economic performance: The Spanish case
its privatisation; though the company continued enjoying a de-facto monopoly position as far as the domestic market was concerned. And regarding stamp retail, its legal monopoly remained even after privatisation; nevertheless, at the time of its privatisation Tabacalera created a new company, Logista, and transferred the stamps retail activity to it. Therefore, Tabacalera’s economic performance data for the post-privatisation period refers only to tobacco activity. Assuming that stamp distribution very likely had a rather low ratio of margin to price as compared to tobacco , we could expect that the after-privatisation Tabacalera –thereafter centred on the tobacco business- would show a higher rate of margin than before privatisation. Therefore, this change in the activity mix simultaneous with privatisation means that the observed increases in economic performance indicators cannot be clearly attributed to firm’s privatisation. The analysis of Endesa, the largest Spanish electricity company, shows that its economic performance actually worsened after privatisation. Ordinary operating rate of margin –coming from quite high values during the pre-privatisation period- fell 9.4 percentage points on average (with a high degree of confidence, according to statistics test). No relevant changes either in market regulation or domestic market share from previous to after privatisation periods took place. Thus, we infer that explanatory causes for the observed dramatic downward trend in economic efficiency indicators after privatisation do not relate to market variables but to the firm’s own variables. Among these, it merits pointing out that Endesa’s strategy at
the time was of taking positions in foreign electricity companies; mainly in Latin America; a policy that was enhanced after privatisation. Since –different from the other two enterprises referred to above- there was an Initial Public Offering on the stock market (IPO) of Endesa’s shares ten years before its privatisation, we have also compared economic performance before and after this IPO. The current underlying assumption for that is that an IPO for a SOE will mean that the company’s annual profits will become more clearly a target (a must) for the firm’s managers, because some private investors will have a seat for the first time at the company’s board. According to that it could be expected that Endesa’s economic performance would improve as a result of becoming a ‘partially private’ firm. And this is just what we observe: the ordinary operating rate of margin increased 4.6 percentage points as a mean during the three years after the IPO as compared with the previous period. However, stretching the pre-privatisation period taken in table 1 to encompass also these years (that is, all the data-available years as SOE, 12), the conclusion on the worsening of economic performance after privatisation remains. Notwithstanding, we get different, opposite, conclusions from the analysis of the privatisation of the oil company, Repsol; one of the few relevant Spanish multinationals. Economic performance indicators –always on the positive side since the creation of Repsol as a SOE- improved significantly after privatisation: +3.2 percentage points on average in the rate of margin. Nevertheless, when years before an IPO had also been undertaken, and as a consequence more than 30% of the shares passed to private investors’ hands, economic performance measured with our two indicators experienced a negative change. In the case of the electricity carrier, REE, our analysis actually shows a lower economic performance after privatisation.
In our case (REE) there is even a decrease in economic indicators observed. Finally, for the case of Telefonica, the largest of the privatised firms we analyse here, we find contradictory results: economic performance measured by ordinary operating rate of profitability increased after privatisation by two percentage points, though measured by the rate of margin decreased slightly: half a point. It happens, though, that both changes (differences between average values) do not have acceptable levels of confidence according to statistics test. The empirical results rather point out as the most confident conclusion that no significant changes in efficiency were actually produced after privatisation. However, it must be taken into account that the monopoly position in cable telecommunications that Telefonica enjoyed came to an end just around the same time it was privatised. The cable market was liberalised in 1996 though the second cable operator (Retevision) started to operate in 1997, the same year as the privatisation of Telefonica. Assuming that competition could then have pushed prices somewhat downward, we may infer that the differences in performance indicators we find might in fact show a mix of changes in efficiency and the effect of market competition. But no data are available so far to try to properly separate both causes.
5. Conclusions Summarising the partial results from the six case studies, we see that for two of them (Endesa and REE) economic performance indicators are consistently lower on average for the post-privatisation period. For two other cases (Aceralia and Telefonica) no significant or consistent differences in performance indicators are observed. And for the other two cases (Repsol and Tabacalera) performance indicators are higher after privatisation; albeit for one, (Tabacalera) the available figures –it has been argued- imply an overestimate of compar-
it could not be said that privatisation brought systematic improvements in economic efficiency of the firms REE runs –since its was created as SOE- the national high voltage grid, in monopoly conditions (mainly because of natural monopoly features). Due to that, when it was privatised it continued to be a (regulated) monopoly, as it is at present (2006). However, economic performance indicators are lower, on average, in the post-privatisation period: Ordinary Operating rate of margin, albeit remaining quite high, decreases 8.6 percentage points ; though ordinary operating profitability rate is on average almost the same: it shows a slight decrease of 0.5 points. This finding would be consistent with the proposition that when a public monopoly is privatised and, for whatever the reason, the monopoly situation remains, we are not likely to see improvements in efficiency.
ative economic performance for the post-privatisation period. In addition to the above core analysis, we have also considered the two cases where an IPO took place well in advance of the privatisation moment proper. Carrying out a parallel analyses taking the IPO ‘as if it was a privatisation’, does not give concluding results: in one case-study economic performance improved and in the other it worsened (see last part of table 1). Summing up, as an overall conclusion from the analysed cases, it could not be said that privatisation brought systematic improvements in economic efficiency of the firms but, on the contrary, that rather a mix of non-significant and negative
»
The effects of privatisation on companies’ economic performance: The Spanish case • 15
fsrforum • volume 16 • issue #2
changes dominates in the case of large Spanish privatisation transactions. That conclusion, which could be seen as a surprising outcome, certainly does not lend proper support to the usual prediction (grounded on the property rights theory) that the economic performance of a SOE will tend to improve if they are privatised. Since this prediction stems from the assumption that either private control on managers will be more effective than previous State control or private owners will substitute the managers in charge of the SOE by better ones, we could conclude that perhaps these assumptions should be reviewed by the supporters of property rights theory. The empirical results of this paper point towards the convenience of broadening the scope of the available empirical research on the topic; mainly by including more cases of privatised firms. Specially those cases where SOE were sold not through POs but directly to a private corporation. Our analysis also suggests the convenience of introducing other variables and questions into the standard research approach in this field. Thus: were SOE’s CEO or senior managers actually changed after privatisation? The practices on the setting of annual goals, on incentive schemes for CEOs & senior managers, and on control (in the sense of overall supervision and evaluation by owners), were these actually changed after privatisation? And, what part of the observed change in efficiency indicators could be attributed to sector or general economic trends? These may be questions that suggest what could be the orientation for improving the research on the topic, in order to bring in conclusions with a broader scope and relevance as for offering a better understanding of the main issues that privatisation involves.
16 • The effects of privatisation on companies’ economic performance: The Spanish case
fsrforum • volume 16 • issue #2
Interview with W. Odding CFO at Vitens
Martine Nieuwenhuijzen Kruseman, Myrna Baadjou and Lisanne Frijling
Could you explain the daily proceedings of Vitens? How is Vitens organized and controlled? Vitens delivers 24 hours a day, 7 days a week, clean and tasty drinking water to 5,4 million people in the provinces Friesland, Gelderland, Overijssel, Flevoland, Utrecht and a small piece of Noord-Holland. We are pumping up this water, sometimes of great depth, and we are distributing it to our customers through a pipeline which is larger than one time around the world (48.500 km). We are trying to distribute the water as sustainable as possible. To achieve this we use the wind of the Princess Amalia windmill park, but that’s not all. When pumping the water we have residues such as iron, calcium and humic acid. This is more than 90.000 tons per year. We are committed to re-use these residues in a sustainable way. Furthermore, we expect to be able to operate completely cost-neutral and to close the recycling circle.
Wolter Odding has studied Business Economics at the Erasmus University Rotterdam. When he finished his study in 1987 he started working at Sara Lee, known from the coffee – Douwe Egberts. He worked as a controller, from 1988 till 1991. Thereafter he had multiple financial management functions in different companies within the CSM concern. As an example, he was Financial Director at RBV Leaf (gum and sweets), where he was responsible for the Finance and the IT department. In October 2005 he started to work at Vitens, as manager of Finance & Control. From that position he witnessed several mergers. In 2009 he became a director of Vitens, where he is involved in Finance, IT, Costumer Contacts and Realty departments.
About 1,500 people work at Vitens. The board of Vitens is formed by two directors, our chairman and myself. Above our executive board there is a supervisory board with the chairman Boele Staal. All shares of Vitens are entirely in the hands of the provinces and municipalities. Vitens could be seen as a semi-public company.
All shares of Vitens are in hands of the provinces and municipalities, but is controlled by its own board. Does this imply that Vitens is privatised? Yes and no. Just for your imaging: The water companies are from origin small businesses. The Dutch drinking water is among the best drinking water of the world, and it is traditionally self-regulated by the community. As of 1851 there arised multiple municipal or regional water companies, in the desire to provide good and safe drinking water to everyone in the Netherlands. These arose after a major cholera epidemic. After the world war the municipal companies merged or passed into other companies. This was quite a process and lasted until about the year 2006, so finally there were ten water companies in the Netherlands. Vitens is the largest water company, with a third of the market share in hands. The water companies are separate legal entities, with the structure of a limited liability company (N.V.). The Drinking Water Act states, that only qualified entities, in this case provinces and municipalities, can be the shareholder of the water companies. Vitens has approximately 100 shareholders. All these are the provinces and municipalities in the service area.
Interview • 17
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ben je gekwalificeerd registeraccountant en beëdigd
KPMG uitgegroeid van één Amsterdams kantoor tot
om de financiële rapportage (zoals jaarverslagen) van
een organisatie met ruim 152.000 medewerkers
grote (inter)nationale, veelal beursgenoteerde, onder-
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met meer verantwoordelijkheid.
Maar intussen profiteren je klant en jij natuurlijk wel van die gigantische bron.
Of als adviseur Bij KPMG Advisory begin je als junior adviseur en
…over ons werk
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gebruik van onze adviesdiensten (advisory).
satieadvies tot fusies en overnames, van het kwantifi-
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jou. Waar je ook voor gaat: kansen genoeg om samen met je collega’s aan iets moois te bouwen.
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KPMG Recruitment Centre Laan van Langerhuize 1 1186 DS Amstelveen (020) 656 7162 recruitment@kpmg.nl www.kpmg.com/nl/starten
We hebben een uitgesproken cultuur. Bij KPMG vind
Meer informatie
je gedreven en ambitieuze collega’s die aandacht
Ga naar www.kpmg.com/nl/starten of maak een af-
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spraak met het KPMG Recruitment Centre (020) 656
in plaats van persoonlijk gewin. Integere professio-
7162 of mail naar recruitment@kpmg.nl. Daarnaast
nals die elkaar in hun waarde laten en respect hebben
zijn er nog andere manieren om met ons in contact te
voor elkaars persoonlijkheid en vakmanschap.
komen. Denk bijvoorbeeld aan een (afstudeer)stage,
Die combinatie van passie en ambitie aan de ene kant
of onze internationale Business Course. We hebben
en teamgeest en collegialiteit aan de andere kant
ook regionale activiteiten, vaak in samenwerking met
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succes van ons bedrijf.
en contactmogelijkheden vind je op onze site.
© 2013 KPMG N.V., alle rechten voorbehouden.
fsrforum • volume 16 • issue #2
Social responsibility also means that you keep a basic product affordable
Currently there are ten water companies: 1. Brabant Water N.V. 2. NV Duinwaterbedrijf Zuid-Holland (Dunea) 3. Evides N.V. (Zeeland, Rotterdam) 4. N.V. Waterleiding Maatschappij Limburg N.V. 5. Oasen N.V. (Zuid-Holland) 6. N.V. PWN Waterleidingbedrijf Noord-Holland N.V. 7. Stichting Waternet (Amsterdam, Noord Holland) 8. N.V. Waterbedrijf Groningen N.V. 9. Waterleidingmaatschappij Drenthe N.V. 10. Vitens N.V. (Flevoland, Friesland, Gelderland, Overijssel, Utrecht)
What is privatization of public enterprises exactly? What are the responsibilities as a privatized company to the government and the obligations to society? Privatization of public enterprises means that tasks that were first implemented by the government are now being implemented by commercial parties. In the Netherlands this includes public transport, utility companies, postal- and telecom companies. There are always obligations to society, when you supply a basic need as Vitens does. Despite the fact that we are semi-public, we look with a business point of view at our company. We believe that it is our social responsibility to carefully deal with our activities, our money and our infrastructure. Social responsibility also means that you keep a basic product affordable.
The Drinking Water Act protects you against privatization. Do you believe that this is better for Vitens and society? The official purpose of the Drinking Water Act is to “promote public health through the provision of drinking water to all consumers to ensure a socially responsible manner. Drinking water is a basic need that we provide 24 hours a day, 7 days a week, delivered directly at home. Not only today, but for the coming 30 years we want to do this in good manner. We believe that public ownership of water companies is therefore well established in the Dutch Drinking Water Act. Privatization is often given as the reason for businesses to compete and correspondingly drive down the price. That would be better for the consumer and for the economy. We think the stimulus of the competition produces is outweighed by the long-term importance of good drinking water. For example you see in other countries, that commercial companies stop investing in the network. In the first few years you do not notice any of that, that makes it attractive to do. But you will be dealing with burst pipes, and the associated leakage in the long term. With a replacement cost of 4 billion euros, would you wish that we would stop investing and you encounter a huge investment hump? And: Can a commercial organization absorb such a blow? Eventually, the bill will end up at the taxpayer. We are now a stable organization with a cost recovery tariff and a solid investment policy, which does not push the costs to our grandchildren. A precondition is that we put ourselves on the incentive to continuously improve and to pursue efficiency. We do this, among others, by deciding with our shareholders, to not increase the drinking water prices.
20 • Interview
The long-term focus and the fact that this is an essential infrastructure, where you do not want to take any risks, made me realize that public ownership is the best in this industry
What are the pro’s and con’s of privatizing public enterprises according to you? For years I have worked in the business and I know the good aspects of competition. It keeps you awake and forces you to innovate. The long-term focus and the fact that this is an essential infrastructure, where you do not want to take any risks, made me realize that public ownership is the best in this industry.
Do you think there is a difference in efficiency between a privatized company and a public company? I find the way a company is managed more important than the ownership structure (private or public). This should be done in a professional manner with competent employees, whereby the customer perspective comes first. Vitens shows that it is efficient and professional, by high customer satisfaction (8.0). When we hold this perspective there will be no question to privatize.
Do you think there is a difference in earnings between a privatized company and a public company? It is not the intention of Vitens to increase the profit. Our profit is needed to strengthen equity for future investments in infrastructure and for a limited renumeration in the form of dividends to our shareholders. Therefore we look back at our profit and loss account. While maintaining a minimal result we try to reduce our costs, with the aim not to raise rates year after year for our customers. A commercial company will focus more on the profit, with the risk that rates can be increased quickly.
What do you think is the best way of managing and organizing companies that provide services in the public interest?
water is based on European standards. When it comes to privatization, it is theoretically conceivable that a EU services directive would enforce privatization in place. However this happening is unlikely since a directive would require a majority in the European Commission as in the European Parliament. Even if the European Commission implements a new directive, Protocol 26 of the Lisbon Treaty always applies, which states that Member States remain free to apply new directives. In short, the member state maintains its own autonomy when it comes to drinking water and must decide whether to proceed to privatize or not. At this moment, the vast majority of Dutch political parties are against further privatization. If the political mind changes in the future, the own drinking water law must be changed. This is why it is not simple.
Are the Dutch utility companies similar to utility companies of other EU Member States in terms of organization and administration? No, not at all. In Europe, the drinking water is regulated very diverse. In England, the water companies are fully privatized, with private shareholders. In France there is a structure of concessions granted to large private parties, such as a Veolia. These are often very large companies, but due to the concession structure local governments retain some control. On the contrary, in Denmark and Germany, there are lots of small municipal water companies. If you look at Vitens within Europe, you will see that a government NV’s like ours is rare, and that we are at the same time quite large compared with other water companies. In short, we are unique. Just as we are unique in the world that we have such good tap water in the Netherlands. We can be proud of it, just as of our national team and our cheese.
The success factor for me is ensuring a professional approach and a customer-oriented approach, with a long-term focus. This includes the development of (personal) leadership of our managers and employees in addition to nurturing the craftsmanship. The craftsmanship in a company like Vitens is the basis for ensuring an uninterrupted supply of water.
What is the impact of EU legislation on your business? This influence is substantial, because the drinking water law is based on the European Drinking Water Directive. This also means that the quality standards that we use for our drinking
Interview • 21
fsrforum • volume 16 • issue #2
Diversity as opportunity
Prof. dr. S.G. (Fieke) van der Lecq | PG chair Pension Markets | Erasmus School of Economics, Rotterdam
At the Erasmus School of Economics we are very lucky to have students and staff from all over the world. This allows us to mingle and collaborate with people from different language groups, ethnic origins, religious backgrounds, body size, and so forth. Usually we can only conjecture about other types of diversity, such as sexual orientation, lifestyles, food habits, and other traits people may have. With English as a Foreign Language (EFL) and a bit of tolerance, we manage just fine. After all, we are all linked to the school because of our interest in the workings of the economy and business world. This common ambition unites us. In 1986 an exceptionally good book on diversity was published. In A Tale of ‘O’, the first female management guru professor Rosabeth Moss Kanter gave a picture story of a world full of X’s. In this world all was well and fine, until an O arrived. Somewhat later, more O’s came in. Even nowadays, many people are inspired by the clear cut way in which this story describes what happens if someone is different from the group. On You Tube, you can find a video with a summary of the story. It shows the group dynamics and the adverse impact of them on equal opportunities for O’s. Just take ten minutes to watch and you will be aware for the rest of your life. Basically, diversity is about abolishing the standard and thereby including the exception. When we stop thinking in terms of the standard, we no longer denote others as exceptions. For instance, this university has stopped addressing female professors with Ms. without adding Mr. for male professors. Thereby they confirmed that men are no longer considered the standard and women the exception. However trivial this may seem, many instances of exclusion are subconscious. Everyone is aware that explicit discrimination is prohibited. What remains is implicit discrimination. By denoting people as the exception, their qualities are degraded. This is not only illustrated by the X-O story, but also by methodological research on duality (e.g. Dow, 1990) and feminist economics (e.g. Nelson, 1995). Although this holds for all kinds of diversity, let’s get somewhat more concrete by zooming in to gender diversity. After all, our economics school has only two female full professors and very few female research staff, so we are all familiar with a situation of gender imbalance. Now the issue of gender diversity can be discussed along several lines of arguments. One line
22 • Diversity as opportunity
of reasoning which is very popular, is the business case. In 2007, Catalyst launched their report on differences in profitability between firms with female board members and men-only boards. From 2007 through 2010, McKinsey has released their annual studies on the statistical relationship between women on the board and corporate performance. Whereas the Catalyst report indicates correlation, McKinsey even claims causality. This may point to a business case. If so, diversity is an opportunity for both women and their employers. Another approach to (gender) diversity consists of making clear what diversity policy aims at. Do we strive for equal opportunities or equal outcomes? Just declaring that women have equal opportunities is not enough. We all know that people tend to select new staff members who are like themselves, so there is work to be done in order to correct subconscious ideas on the image of a good new employee. This also holds for business leaders, who are usually visualised as white heterosexual men, at least in The Netherlands. In order to break through such limiting ideas, a critical mass of about thirty percent of people who are different is necessary. Not just one O, as she will be stigmatized, but a lot of them. For that purpose, quota can be useful. In order to move on from equal opportunities to equal outcomes, women need to exploit the opportunities they get. This implies that they exercise ambition, and not degrade ambitious women as un-feminine. It also implies that their partners support them while they pursue their career, instead of playing strategic games at home on childcare and housekeeping. In other words, the mind shift in business organisations needs to be accompanied by a mind shift within the women and men in the workforce. Only then can we attain true gender diversity – and many other forms of diversity, too.
References Catalyst (2007) The Bottom Line: Corporate Performance and Women’s Representation on Boards, report downloadable via www.catalyst.org Dow, Sheila C. (1990) Beyond Dualism, Cambridge Journal of Economics, 14, 143-157. McKinsey (2007 and onwards) Women Matter, reports downloadable via www.mckinsey.com Moss Kanter, Rosabeth (1986) A Tale of ‘O’: on Being Different in an Organisation, Harper Collins Childrens Books. Nelson, Julie A. (1995) Feminism and Economics, Journal of Economic Perspectives, 9(2), Spring 1995, 131-148.
fsrforum • volume 16 • issue #2
God zij met ons
K(r)anttekening | Drs. Joost Groeneveld RA RV
Zoal niet van nature dan toch door zijn praktijk van alledag heeft een accountant sterk de neiging om terug te kijken. Dat gevoel wordt sterker als de datum van 31 december nadert. En in het nieuwe jaar kan het bijna niet anders dan dat hij moet terug blikken. Dat heet dan soms letterlijk de balans opmaken. Iets overdrachtelijker is het: rekenschap geven: accountability. Een middel voor het hogere doel van responsibility: verantwoordelijkheid aanvaarden en verantwoording afleggen.
Drs. Joost G. Groeneveld RA RV is directeur van Wingman Business Valuators B.V. te Breda en voorzitter van de Stichting WBO (register van business valuators). Hij was hoofddocent aan de Economische Faculteit van de Erasmus Universiteit te Rotterdam.
En mocht die aandrang toch onvoldoende zijn, dan is daar nog altijd het Fiancieele Dagblad van 25 januari 2014 om ons over de laatste weerstand heen te helpen. Een bijlage daarin heet “Personal Finance; plus: mens en werk”. Kortom, dan gaat het over geld, en over de manier waarop je het verdient, spaart, belegt en uitgeeft. Dat moet wel interessant zijn. Zeker wanneer het zoals op 25 januari gaat over “Kruistocht tegen financieel broddelwerk”. Dat van die “kruistocht” vind ik een ongelukkige keuze. Moordend, verkrachtend en rovend naar een ver land. Als dat het ridderideaal is, zijn we op school verkeerd voorgelicht. Maar dat “broddelwerk” in de krant in iets grotere letters afgedrukt, is natuurlijk uit het hart gegrepen. Als top 5 van de 8.000 klachten die in 2013 bij het Klachteninstituut Financiële Dienstverlening (Kifid) binnen kwamen, wordt genoemd:
Schadeverzekeringen Levensverzekeringen Bankproducten Hypotheken Beleggingen
32% 27% 19% 15% 7%
Dat is op zich een beetje vreemd, want deze top 5 telt op tot 100%. En als top 5 zou je denken dat er nog een restgroepje is. Een kleinigheid. Als je dit lijstje overziet, zou je kunnen veronderstellen dat de belegger uit vrije wil risico aanvaardt.
Over de beleggingen wordt dan ook het minst geklaagd. Voor de andere dienstverleners geldt dat het om risicobeperking moet gaan. Kennelijk is er een risico waar de premie geen dekking voor geeft en dat zeer aanzienlijk kan zijn: je kunt je financiële dienstverlener niet vertrouwen. Het is zo als wanneer je een mooie wasmachine koopt. Je kunt er een garantie bijkopen. Zouden die financiële dienstverleners niet een voorbeeld kunnen nemen aan het witgoed? We zijn dus op grote schaal beet genomen. Door de daders en door hun toezichthouders. De daden waren niet zo geraffineerd dat hun baasjes en bazen met de toezichthouders het niet konden weten. En als het toch te moeilijk voor ze was, hadden ze daar niet moeten zitten. Soms zie je zo iemand later weer op televisie. Zijn mening geven. Alsof het er toe doet. Zo iemand zou zich moeten verstoppen: in Verweggistan of Afgelegerije. Waarom wordt er zo weinig “ontnomen”? U weet wel, dat is de juridische term om iemand te ontdoen van de opbrengsten van zijn wandaden. En dan liever niet alleen aan de instelling (want dat moet de belastingbetaler; spaarder; verzekerde toch weer bijbetalen) maar aan de eindprofiteurs. Op bladzijde 3 van hetzelfde nummer van het FD staat een plaatje van een stukje van een Amerikaans dollarbiljet: “in God we trust”. Op onze guldens-munten stond destijds als randschrift “God zij met ons”. Dat was een bede, op de rand van de munt, zodat je kon zien of die was bijgeslepen. Vooral van belang als het om gouden of zilveren munten ging. Dat laatste was al lang niet meer het geval. Wat bleef, was een bede die van enige wanhoop kon getuigen. Die is vooral van toepassing wanneer je niemand kunt vertrouwen. Toen al niet? Een voorbode? Cynisme? Of werkelijkheidszin als het om geld gaat? Terug naar de FD-bijlage. Op bladzijde 3 staat een column onder de kop “Geld & gevoel”. Wat mij betreft kan aan de bedenker van deze rubrieknaam de Nederlandse Staatprijs voor Poëzie worden toegekend. Bij de rubriek staat de naam
Als je dit lijstje overziet, zou je kunnen veronderstellen dat de belegger uit vrije wil
risico aanvaardt God zij met ons • 23
“Wat voor de sporter een beker in de prijzenkast is, is voor de ondernemer een goed banksaldo”. van Johan Marrink. Maar de tekst is van Annemieke Diekman. Wie is hier nu aan het woord? Hoe dan ook is de titel veelzeggend: “Geld meet je prestaties als ondernemer”. In de tekst: “Wat voor de sporter een beker in de prijzenkast is, is voor de ondernemer een goed banksaldo”. Langzamerhand begin ik iets te begrijpen: het is een sportieve prestatie om zoveel mogelijk geld naar je eigen bankrekening te krijgen. “Passie en plezier staan voorop”. Het zal niet lang duren – is het al zover? - of de dienstverleners spreken - zoals in het voetbal - over een “nuttige overtreding”. Een overbodige overtreding is dan de fout die je maakt. Daar win je niet mee. Maar de nuttige overtreding hoort tot het arsenaal. Die verdient waardering. De elleboogstoot waarbij de tegenspeler neervalt, was “niet zo bedoeld”. En dan speel je gewoon weer verder. Dat spelregels er zijn om je aan te houden, doet er niet toe. De nuttige overtreding berust op calculatie. De opbrengst ervan is groter dan de kosten. Ethiek is hieraan vreemd. Als je het goed doet, kom je er mee weg. En dan is er ook nog de pakkans. Waarneming kan veel beter, maar dat zou voor spelbederf zorgen. Na Marrings’ onthulling ben ik mij ervan bewust dat ondernemen eigenlijk veel eenvoudiger is dan ik altijd dacht. Ik heb altijd gedacht dat ondernemen veelkleuriger was. Niet zo eendimensionaal. Niet alleen maar geld. Ik ben Johan Marring dankbaar voor wat hij Annemieke Diekman liet opschrijven. Nee, ik vind het geen plezierige ‘wake up call’. Ik begrijp het opeens wel een stuk beter. Vertrouw dus niemand.
24 • God zij met ons
fsrforum • volume 16 • issue #2
Word of the chairman
Gijs Romer
Dear reader, On behalf of the FSR team I wish you all the best for 2014, even though the New Year has started some time ago. Together with the new calendar year we have kicked off the second half of our FSR board year. Christmas is always a wonderful opportunity to relax, evaluate the past months, reconsider every decision that has been made and look forward to all that is coming. I am proud to say that the organization of our study association has went very fluent so far. We also welcome two new members (Chico van Hemert and Richard van Leeuwen) in the FSR active members group since the beginning of February. As the organization of the FSR Banking Congress has started we have assigned the Congress Committee to attract the best speakers on our congress topic.
FSR News
Column Jordy Streng
27
The FSR members that have been selected for one or more of our events have experienced that our events for the year 2013-2014 have been very successful. We strive to meet the expectations of all our members and our partners and due to the commitment of the other FSR board members and the active members we are fairly able to reach that goal. Moreover, we hope to further improve the relationship we have with all teachers at the Erasmus University by assisting them with all that is within our reach. Keep an eye out for the upcoming events, deadlines will take place gradually throughout the rest of the year. When you have any questions or suggestions regarding our activities, you are very welcome to come by our office. Furthermore, soon we will start with the first introductory activities for all students that want to know more about becoming an active- or board member at the FSR. These are excellent opportunities to talk to (former) FSR members in person in order to get to know your opportunities at the FSR.
Column Tim Verhagen
30
I look forward to seeing you at one of our events or drinks.
Female Business Tour
Financial Business Cycle 2014
31 32 FSR news • 25
fsrforum • volume 16 • issue #2
Europe's transport infrastructure: the road to privatisation European countries are exploring new ways to fund public transport Most recent news update about the subject.
Innovation must be applied to transport infrastructure systems, such as roads and railroads, if we are to meet future challenges. Since the mid 20th century roads and railroads have been managed by governments in most European countries. Funding has been dominated by fuel taxes and taxes on vehicles. Railroads have been heavily subsidised with general tax revenues while road traffic has more or less paid its costs through the taxes. In some European countries roads have been organised as private corporations with government concessions, but in general that has been the exception. But this seems to be changing fast. Lately transport infrastructure investments and buzz-words like sustainability and livability have been on the lips of politicians and corporate leaders. In a time of financial austerity transport infrastructure is seen as both a way out of the crisis and as a problem – how to financeand how to adjust to the new technology that is coming online. The introduction of IT-based solutions is making information on capacity more accessible than before. Vehicles and infrastructure will also become able to communicate in the future. Suddenly new methods to reduce congestion, to improve safety and limit environmental impact seem to be within reach. The development and use of more fuel efficient vehicle technology must also be taken into account. Electric vehicles and alternative fuels to gas and diesel are gaining market shares. This in turn introduces a threat to traditional government funding: fuel tax suddenly erodes. And governments must look either for cost-savings or alternative sources of revenue. A new report for the Swedish Ministry of Finance's expert group on public economics shows that the UK, Sweden, other Nordic countries and Germany have chosen different ways to handle the new situation. The UK seems to be among the most innovative having launched a road reform earlier this year, which aims to introduce an independent more business-like organisation for roads.
26 • FSR news
The Nordic countries, except Sweden, are experimenting with public-private partnerships, fee funded projects and toll-financing. Norway is introducing an extensive toll programme for local and regional roads, and the government is open for additional partnerships. Denmark is experimenting with a number of fee-financed tunnel and bridge projects in separate government corporations and new financing from oil-industry taxes. Finland has set up an inquiry to look into the introduction of GPS-based road-charging. Germany has used public-private partnerships for its large motorways. Sweden seems decoupled from many of these current trends. Even if congestion charging has been introduced in Stockholm and Gothenburg, in addition to some fee-funded motorway sections, government-managed and tax-financed transport infrastructure is still the dominant model. The report concludes that there are many interesting signs of an increasing innovation rate in transport infrastructure. And there are different ways of handling the challenges. This industry might once again become a driver for increased productivity and change, as in earlier periods of growth and creative destruction. Source: http://www.theguardian.com/public-leaders-network/2013/oct/30/ europes-transport-innovations-private
fsrforum • volume 16 • issue #2
FSR Former board member
Jordy Streng
PASSPORT Name Jordy Streng Age 24 years Residence Seeking an apartment in Amsterdam Employed at ING Current position Analyst Corporate Investments Which FSR Board XIVth Board 2011-12 Board function Secretary Study Financial Economics Year of graduation 2013 Which car do you drive I take the passenger seat What do you drink on a Friday night A beer and when it’s getting really exciting Southern Comfort-7up Life motto Energy is the power of life
It has already been almost four years ago since the first time I got acquainted with the FSR. I participated in a corporate valuation course called ‘Investment Banking Masterclass’, currently known as ‘The Valuation’. During the drinks afterwards, two very enthusiastic board members who had organized the event, were recruiting for committee members for the next year. The professionalism and quality of the event made me curious to dig deeper into the association. After some weeks I decided to apply for the International Banking Cycle Committee. In this committee, I not only gained a lot of experience about the practices of investment banking, but I also noticed that the FSR is a really pleasant, high-grade and friendly organization which is well known at companies and other parties. During my year as committee member I participated in other FSR events such as the International Research Project and the Corporate Finance Competition, but I also benefit from the privileges that an active member has of the FSR: the diverse (free) social drinks, the active member’s day (paintballing) but the icing on the cake was the active member’s weekend where we spend a weekend in Liverpool. After that weekend I was really convinced that my history at the FSR wouldn’t end there. Because I was still orientating about which direction to go after my study and I would develop my soft skills more, applying for a board position at this association was inevitable. Now I can tell you that this decision has been the best decision in my life ever! The board year at the FSR was not only a year of personal development and opening opportunities for my career, but also with lots of fun and joy. I have become really good friends my fellow board members! During my year as secretary of the FSR, I was responsible for amongst others the member records, external communications, and the organization of several events. It was really amazing to see the member records growing by 25% during our year, a record that would not stand for long fortunately! The increasing number of members was the right feedback about the way we were operating. It was a great feeling that kept the team spirit amazing during the year! As a secretary you can express your creativity by maintaining the website, designing promotional material and inventing new ideas such as our promotion plan including using social media and a new website design, but you are also the hub of the board since you are involved with every event.
Furthermore, I had the main responsibility for several events such as the Accountant Firms Day (which is now known as The Audit), Banking Diner, Finance Day, the Alumni Drink, but the nicest of all was without doubt the active member’s weekend! Together with chairman Wessel Ploegmakers, we gave 30 active members the time of their life in Prague, despite temperatures of minus 20 degrees. As said before, a board year is more than organizing events or determining the association’s strategy. During informal events I had a lot of fun with students, companies, active members, former board members or other association’s board members, but most of all with my fellow board members! I cannot count the number of times I was laughing my ass off. Maybe the summit was the weekend to Antwerp with my fellow board members. The hilarity we experienced there is indescribable. So a board year at the FSR is not only good for your career but also to enjoy the student life! But my history of the FSR didn’t end after training your successor in the summer and the formal transference at the general members meeting in September 2012. After my board year, I continued my study Financial Economics and I decided to join the supervisory board to stay connected with the FSR and to use my experience for advising the current board. Furthermore, I did an internship at ABN Amro Corporate Finance last year, before graduating and starting my professional career as an analyst at ING Corporate Investments in September 2013. ING Corporate Investments is part of ING Commercial Banking and is responsible for providing risk bearing capital (from subordinated loans to private equity) to mid-size and large companies in diverse sectors in the Netherlands. All in all I can conclude that the FSR has contributed extensively to my personal development, to my career opportunities and friends. I still see most of my fellow board members frequently and we share a strong connection. Therefore I would strongly recommend to join the FSR board or any other FSR committee as that would probably be your highest value-added investment of your student life!
FSR news • 27
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&
ůŽǁ dƌĂĚĞƌƐ
ŽƵŶƚƌŝĞƐ ŵƐƚĞƌĚĂŵ ;ŚĞĂĚƋƵĂƌƚĞƌƐͿ͕ EĞǁ zŽƌŬ ĂŶĚ ^ŝŶŐĂƉŽƌĞ EƵŵďĞƌ ŽĨ ĞŵƉůŽLJĞĞƐ͗ ϮϬϬ WŽƐŝƚŝŽŶ͗ :ƵŶŝŽƌ dƌĂĚĞƌ tĞďƐŝƚĞ͗ ǁǁǁ͘ĨůŽǁƚƌĂĚĞƌƐ͘ĐŽŵ &ůŽǁ dƌĂĚĞƌƐ͕ ŶĂŵĞĚ ͞ d& DĂƌŬĞƚ DĂƌŬĞƌ ƵƌŽƉĞΗ ďLJ ƚŚĞ ŶŶƵĂů 'ůŽďĂů d& ǁĂƌĚƐ ĨŽƌ ƚŚĞ ůĂƐƚ Ɛŝdž ĐŽŶƐĞĐƵƚŝǀĞ LJĞĂƌƐ ŝƐ ĂŶ ŝŶƚĞƌŶĂƚŝŽŶĂů ůĞĂĚŝŶŐ ƚƌĂĚŝŶŐ ŚŽƵƐĞ͘ KƵƌ ŽĨĨŝĐĞ ŝŶ ^ŝŶŐĂƉŽƌĞ ǁĂƐ ĂůƐŽ ƌĞĐŽŐŶŝnjĞĚ ĂƐ ͚ d& DĂƌŬĞƚ DĂŬĞƌ ƐŝĂ WĂĐŝĨŝĐ ϮϬϭϮ͛ ǁŝŶŶŝŶŐ ƚŚŝƐ ĂǁĂƌĚ ĨŽƌ ƚŚĞ ƐĞĐŽŶĚ ĐŽŶƐĞĐƵƚŝǀĞ LJĞĂƌ͘ &ŽƵŶĚĞĚ ŝŶ ϮϬϬϰ ĂŶĚ ŚĞĂĚƋƵĂƌƚĞƌĞĚ ŝŶ ŵƐƚĞƌĚĂŵ ǁŝƚŚ ŽĨĨŝĐĞƐ ŝŶ EĞǁ zŽƌŬ ĂŶĚ ^ŝŶŐĂƉŽƌĞ͕ &ůŽǁ dƌĂĚĞƌƐ ƚƌĂĚĞƐ ĞƋƵŝƚŝĞƐ ĂƐ ǁĞůů ĂƐ ĚĞƌŝǀĂƚŝǀĞƐ͕ ĐƵƌƌĞŶĐŝĞƐ ĂŶĚ ďŽŶĚƐ ŽŶ ĞdžĐŚĂŶŐĞƐ ĂƌŽƵŶĚ ƚŚĞ ǁŽƌůĚ͘ &ůŽǁ dƌĂĚĞƌƐ ŝƐ Ă ƉƌŝǀĂƚĞůLJ ŚĞůĚ ĨŝŶĂŶĐŝĂů Ĩŝƌŵ ƚŚĂƚ ŬĞĞƉƐ ƉĂĐĞ ǁŝƚŚ ŐůŽďĂů ŵĂƌŬĞƚƐ͘ KƵƌ ďƵƐŝŶĞƐƐ ĞdžƉĂŶĚƐ ĞĂĐŚ ĚĂLJ ďLJ ĂĚĚŝŶŐ ŶĞǁ ƉƌŽĚƵĐƚƐ ĂĐƌŽƐƐ ĂŶ ĞǀĞƌͲďƌŽĂĚĞŶŝŶŐ ƌĂŶŐĞ ŽĨ ŵĂƌŬĞƚƐ ĂƌŽƵŶĚ ƚŚĞ ŐůŽďĞ͘ &ůŽǁ dƌĂĚĞƌƐ ƐƚĂLJƐ ĂŚĞĂĚ ŽĨ ƚŚĞ ĐŽŵƉĞƚŝƚŝŽŶ ďLJ ĨŽĐƵƐŝŶŐ ŽŶ ƚĞĐŚŶŽůŽŐLJ ĂŶĚ ŶŝĐŚĞ ĐŽŵƉĞƚĞŶĐŝĞƐ ŝŶ ŵĂƌŬĞƚƐ ǁŚĞƌĞ ĞǀĞƌLJ ƐĞĐŽŶĚ ĐŽƵŶƚƐ͘ dŚŝƐ ƌĞƋƵŝƌĞƐ ĂĐĐĞƐƐ ƚŽ ƚŚĞ ďĞƐƚ ŝŶĨŽƌŵĂƚŝŽŶ ĂŶĚ ƚŚĞ ĂďŝůŝƚLJ ƚŽ ƌĞƐƉŽŶĚ ŝŶƐƚĂŶƚůLJ͘ dŽ ĂĐŚŝĞǀĞ ƚŚŝƐ͕ &ůŽǁ ĚĞǀĞůŽƉƐ ŝƚƐ ŽǁŶ ƐŽĨƚǁĂƌĞ ŝŶͲŚŽƵƐĞ͘ KƵƌ ƚĞĂŵ ŽĨ ƐŽĨƚǁĂƌĞ ĚĞǀĞůŽƉĞƌƐ ǁŽƌŬƐ ŝŶ ƉĂƌƚŶĞƌƐŚŝƉ ǁŝƚŚ ĞdžƉĞƌŝĞŶĐĞĚ ƚƌĂĚĞƌƐ ƚŽ ŝĚĞŶƚŝĨLJ ĂŶĚ ĞdžĞĐƵƚĞ ƚŽŵŽƌƌŽǁΖƐ ƐƚƌĂƚĞŐŝĞƐ͕ ŵĂŬŝŶŐ &ůŽǁ Ă ĚĂŝůLJ ƉŝŽŶĞĞƌ ŝŶ ƉƌŽĨĞƐƐŝŽŶĂů ƚƌĂĚŝŶŐ͘ dĞĂŵ ĞĨĨŽƌƚ /Ŷ ŽƌĚĞƌ ƚŽ ŵĂdžŝŵŝnjĞ ŽƵƌ ƉĞƌĨŽƌŵĂŶĐĞ ĂŶĚ ĨĂĐŝůŝƚĂƚĞ ŽƵƌ ŝŶƚĞƌŶĂƚŝŽŶĂů ŐƌŽǁƚŚ͕ &ůŽǁ dƌĂĚĞƌƐ ŚĞĂǀŝůLJ ŝŶǀĞƐƚ ŝŶ ŽƵƌ ĞŵƉůŽLJĞĞƐ͘ dŚĞ ďĂĐŬďŽŶĞ ŽĨ ŽƵƌ ƐƵĐĐĞƐƐ ŝƐ ƚŚĞ ĐŽůůĞĐƚŝŽŶ ŽĨ ĐƌĞĂƚŝǀĞ ĚŽĞƌƐ͕ ƚŚŝŶŬĞƌƐ͕ ĂŶĚ ĂďŽǀĞ Ăůů͕ ďĞůŝĞǀĞƌƐ ǁŚŽ ĨŽƌŵ ŽƵƌ ĐŽŵƉĂŶLJ͘
tĞ Ăƚ &ůŽǁ ďĞůŝĞǀĞ ŝŶ ƚŚĞ ƚĞĂŵ ĞĨĨŽƌƚ ĂŶĚ ǀĂůƵĞ ŽƵƌ ƉĞŽƉůĞ͘
dŚĞ :ƵŶŝŽƌ dƌĂĚĞƌ WŽƐŝƚŝŽŶ Ɛ Ă ƚƌĂĚĞƌ ǁŝƚŚ &ůŽǁ LJŽƵ ŵĂŶĂŐĞ ĂŶĚ ŽƉƚŝŵŝnjĞ ŽƵƌ ĚĂŝůLJ ƉŽƐŝƚŝŽŶ ;ƉƌŝĐŝŶŐ ĂŶĚ ƚƌĂĚŝŶŐͿ ŝŶ Ă ǁŝĚĞ ƌĂŶŐĞ ŽĨ ĨŝŶĂŶĐŝĂů ƉƌŽĚƵĐƚƐ͕ ŝŶĐůƵĚŝŶŐ ĞƋƵŝƚŝĞƐ͕ ďŽŶĚƐ͕ ĚĞƌŝǀĂƚŝǀĞƐ ĂŶĚ ĐŽŵƉůĞdž ƐƚƌƵĐƚƵƌĞĚ ƉƌŽĚƵĐƚƐ͘ zŽƵ ĨŽƌŵƵůĂƚĞ ŝŶŶŽǀĂƚŝǀĞ ƚƌĂĚŝŶŐ ƐƚƌĂƚĞŐŝĞƐ ĂŶĚ ʹ ŝŶ ĐůŽƐĞ ĐŽůůĂďŽƌĂƚŝŽŶ ǁŝƚŚ ŽƵƌ ƐŽĨƚǁĂƌĞ ĞŶŐŝŶĞĞƌƐ ʹ ĚĞǀĞůŽƉ ƚƌĂĚŝŶŐ ŵŽĚĞůƐ ĂŶĚ ƚŽŽůƐ ƚŚĂƚ LJŽƵ ǁŝůů ŝŵƉůĞŵĞŶƚ ŽŶ ƚŚĞ ƚƌĂĚŝŶŐ ĚĞƐŬ͘ dƌĂŝŶŝŶŐ Θ ĞǀĞůŽƉŵĞŶƚ ĞĐĂƵƐĞ ŽĨ ƚŚĞ ƐƉĞĐŝĨŝĐ ŶĂƚƵƌĞ ŽĨ ƚŚĞ ǁŽƌŬͲ ĞŶǀŝƌŽŶŵĞŶƚ͕ ǁĞ ĚŽ ŶŽƚ ĞdžƉĞĐƚ LJŽƵ ƚŽ ƉůƵŶŐĞ ŚĞĂĚĨŝƌƐƚ ŝŶƚŽ LJŽƵƌ ŶĞǁ ũŽď͘ /ŶƐƚĞĂĚ͕ LJŽƵ ǁŝůů ƐƚĂƌƚ ďLJ ĨŽůůŽǁŝŶŐ ŝŶ Ă ƚŚƌĞĞ ŵŽŶƚŚƐ ŝŶƚĞŶƐŝǀĞ ŝŶͲŚŽƵƐĞ ƚƌĂŝŶŝŶŐ ƉƌŽŐƌĂŵ ƚŚĂƚ ĐŽǀĞƌƐ Ăůů ƚŚĞ ŝŶƚƌŝĐĂƚĞ ĚĞƚĂŝůƐ ŽĨ ƚŚĞ ƚƌĂĚŝŶŐ ƉƌŽĐĞƐƐĞƐ͘ Ɛ Ă ŵĞŵďĞƌ ŽĨ ĂŶ ŝŶĨŽƌŵĂů ƚĞĂŵ͕ LJŽƵ ǁŝůů ƚŚĞŶ ŐƌĂĚƵĂůůLJ ƚĂŬĞ ŽŶ ŵŽƌĞ ƌĞƐƉŽŶƐŝďŝůŝƚŝĞƐ͕ ƐƚĂƌƚ ŵŽŶŝƚŽƌŝŶŐ ŵĂƌŬĞƚƐ ĂŶĚ ŽŶůLJ ƚŚĞŶ ƐƚĂƌƚ ŵĂŬŝŶŐ ƐƉůŝƚͲƐĞĐŽŶĚ ƉŽƌƚĨŽůŝŽ ĂĚũƵƐƚŵĞŶƚƐ ƚŚĂƚ ĂƌĞ Ăƚ ƚŚĞ ŚĞĂƌƚ ŽĨ ŽƵƌ ƐƵĐĐĞƐƐ͘ &ƌŽŵ ƚƌĂĚŝŶŐ ƚŽ ĚĞǀŝƐŝŶŐ ƚĂĐƚŝĐƐ͕ ĂŶĚ ĨƌŽŵ ĐŽŶƚƌŝďƵƚŝŶŐ ƚŽ ŶĞǁ ƚŽŽůƐ ƚŽ ŝŵƉůĞŵĞŶƚŝŶŐ ĂĐƚƵĂů ƉƌŽŐƌĂŵƐ͗ LJŽƵ ŚĞůƉ ƐŚĂƉĞ ŽƵƌ ƚƌĂĚŝŶŐ ƐƚƌĂƚĞŐLJ͘
tŚĂƚ ǁĞ ŽĨĨĞƌ &ůŽǁ dƌĂĚĞƌƐ ŽĨĨĞƌƐ LJŽƵ ĂŶ ĞdžĐŝƚŝŶŐ ũŽď ǁŝƚŚ ĂŶ ĞdžĐĞůůĞŶƚ ĐŽŵƉĞŶƐĂƚŝŽŶ ƉĂĐŬĂŐĞ͘ tĞ
ĞŶĐŽƵƌĂŐĞ ĞŵƉůŽLJĞĞƐ ƚŽ ƚĂŬĞ ĂĚǀĂŶƚĂŐĞ ŽĨ ŽƉƉŽƌƚƵŶŝƚŝĞƐ ƚŽ ǁŽƌŬ ŝŶƚĞƌŶĂƚŝŽŶĂůůLJ ǁŝƚŚŝŶ ƚŚĞ Ĩŝƌŵ ƚŽ ŵĂŝŶƚĂŝŶ ĂŶĚ ŐƌŽǁ ŽƵƌ ƐƵĐĐĞƐƐ ĂƐ Ă ǁŽƌůĚǁŝĚĞ ůĞĂĚŝŶŐ ƉƌŽƉƌŝĞƚĂƌLJ ƚƌĂĚŝŶŐ ŚŽƵƐĞ͘ tĞ ƉƌŽǀŝĚĞ ŽƵƌ ĞŵƉůŽLJĞĞƐ ǁŝƚŚ ƚŚĞ ďĞƐƚ ǁŽƌŬŝŶŐ ĞŶǀŝƌŽŶŵĞŶƚ͕ ĐŽŶƚŝŶƵŽƵƐ ƐƵƉƉŽƌƚ͕ ƚĞĂŵ ŽƵƚŝŶŐƐ͕ ƐƉŽƌƚ ĞǀĞŶƚƐ͕ ĐŽŵƉĂŶLJ ƉĂƌƚŝĞƐ ĂŶĚ ƚƌŝƉƐ͘ /ƚ͛Ɛ Ăůů ƉĂƌƚ ŽĨ ƚŚĞ ĚĞĂů͊
fsrforum • volume 16 • issue #2
FSR Member
Tim Verhagen
It was at a birthday party that the financial markets fascinated me. Friends of my parents were bragging about the killer they were making in the stock markets, and questioned why my parents didn’t join this “real” party. For your understanding, the party was held at the beginning of 2000, at the time America Online announced its merger with Time Warner and World Online was busy promoting its public offering. Both events happened at the absolute top of the so-called “dot-com bubble” and still serve as probably the best examples of this amazing bubble. At the time, internet companies were valued at incredible high multiples based on an even more astonishing cash flow forecast. My fascination for the financial markets wasn’t the result of the successes some investors made during this bubble, but was more about the underlying drivers of corporate valuation. How was it possible that investors were so wrong about the future of these companies?
Each of the participating advisory firms focused on a different aspect of the transaction process. Some firms emphasised more on the negotiation phase, while others were more focused on the valuation of a company. As a participant you will not only get a glimpse of the real corporate finance practice, but you will see the whole picture of doing a transaction. It isn’t only number crunching. A lot of other factors need to be taken into account. For instance people skills are very important in this sector, just as understanding the financial markets and look for alternatives instead of simply merging or buying another company to grow further. Next to the cases, you will have enough opportunities to ask questions to the members of the advisory firms. Personally, I used this opportunity to ask questions regarding the real advisory practice. Do they really use all the formulas the university taught me?
To find an answer, I started my quest by choosing to study Business Economics, just like most of you. As a bachelor student, I admit, I wasn’t really busy finding the answers on my questions raised during my youth. I became a member of a fraternity, and was more into having fun and enjoy life then finding the underlying drivers of corporate valuation. It was only after finishing my bachelor program that I picked up my initial quest. How was it possible that the valuation of a company could swing by the amazing magnitude seen at the dot-com bubble and the later credit crisis? Was the market just plain stupid from time to time or are there other factors, probably overseen, which should be taken into account when valuing a company?
My initial thought about this event was that the participating firms were just teaching their practical experience to run away from office. However, be aware that companies use this type of events to scout for new employees. For instance, after the event ended, within a week I received an invitation from EY: if I was interested in having a chat with one of the attendees at the CFC to have a better understanding of the diverse services offered by EY and to discuss any possibilities within the firm. It resulted in my application for an internship, which I started roughly a year ago. This ended in a job offer last summer.
During my master Financial Economics, I chose a wide variety of corporate finance related courses in the hope to find and understand the underlying drivers of corporate valuation. The courses provided me the broad understanding of the general valuation theory and the much needed valuation framework. However I was still questioning if all the advisors just replicated the formulas tough or if it was more complex in real life. The more courses I followed, the more curious I became in how things got done in the real world. As a result, I subscribed to the Corporate Finance Competition (CFC), an event organized by the FSR which gave participants the opportunity to solve real life cases presented by multiple well-known corporate finance advisory firms.
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It feels still a bit strange typing this column for you. It wasn’t so long ago that I was at the other side of the page, looking for events to come in contact with companies of my interest. Looking back, I can honestly state that the CFC was the actual beginning of my career at EY. My hope is that the upcoming CFC will be the beginning of yours.
PASSPORT Name Tim Verhagen Age 25 Residence Rotterdam Study Msc Financial Economics; Bsc Economie & Bedrijfseconomie FSR event Corporate Finance Competition 2012 Job at EY Transaction Advisory Services Department of job Valuation & Business Modelling Life motto “Try to really understand what you see and hear, will make the world looks less complex”.
fsrforum • volume 16 • issue #2
Female Business Tour
On the 23rd and 24th of January the Female Business Tour took place in cooperation with PwC, APG and ING. A group of highly motivated students visited three different companies with a focus on finance. All these companies recognize the importance of women at the top and female leadership. After checking in at the hotel and a quick brush up, we visited PwC in the afternoon, where we started with a presentation of the Advisory department. Afterwards we had a styling workshop about all the do’s and don’ts when it comes to business wear. During the afternoon we had the opportunity to meet four employees of various departments. At the end of the first day the twenty female students and the companies gathered at restaurant Freud for drinks and a diner. During the diner there was a switch after every course so the companies could get to know every student. After the closing drinks, we returned to the hotel to deliver high performance on the second day. Next day we started at APG, where we were told all about APG and our possibilities to join the company. After the presentation it was time for us to show our skills with an asset allocation game where we had to invest the APG pensions. After a nice lunch, it was time to move to ING. At ING a female manager told us about how she experienced having a career in a men’s world. Enthusiastic about the possibilities, it was time for the case where the students had to find the optimal balance position of a bank. Afterwards there was a speed date with trainees where the students could ask all of their questions. The afternoon was closed with a drink. We can look back on two amazing days where we all learned a lot and where we had the opportunity to have an unique view into three completely different companies. We want to thank all participants and ING, APG and PwC for this great event.
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fsrforum • volume 16 • issue #2
Financial Business Cycle 2014
In the months of December 2013 and January 2014, the Financial Business Cycle of FSR took place. Being part of FSR’s Finance Committee, we paid a visit – together with a selected group of ambitious and finance-driven students – to eight well-distinguished and prominent financial companies, involving two banks (Kempen & Co and Rabobank), two consultancy firms (OC&C and Bain & Company), two trading companies (Flowtraders and Optiver), one multinational (Shell) and one insurance firm (Achmea). FSR’s Financial Business Cycle (FBC) is a financial event encompassing eight in-house days over a period of six weeks, giving dedicated third year bachelor or master students with a deep and growing interest in Finance or Accounting the opportunity to get a taste of the major players and different financial institutions that make up the Financial World. By doing so, we hope to give students insights into what specific career path they would aspire to follow. The program of each single in-house day generally includes an introduction to the firm, an introduction to starting career-possibilities, a lunch, the “cracking” of the case that is based on real firm-issues and that is specifically designed for the students taking part in the in-house day, and informal drinks to close the day. Let us take a close look at each of these days:
SHELL: 28 NOVEMBER The first company we visited is the worldwide-known multinational – Shell. The in-house day took place at Shell’s technology centre in Amsterdam, the STCA (Shell Technology Centre Amsterdam). Within this centre, around 1300 researchers work to solve problems concerning current energy issues. After being informed about the safety instructions and the construction and operations of the centre, several presentations were given by recruiters and trainees. After a good lunch, we were presented an interactive case – indicating the difficulties of the multicultural environment Shell has to deal with every day. Hereafter, more information was provided on the application procedure at Shell, as well as possible starting career opportunities. A short presentation was also given by Cederic Cremers, the Global Commercial Finance Manager at Shell and a truly dedicated and experienced employee at Shell. The day ended with drinks at an external location.
FLOWTRADERS: 29 NOVEMBER The second company we visited during the first week was
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Flowtraders, a Dutch trading company. After a warm welcome we were introduced to the company by its recruiter and a trading employee, sharing his personal experiences within the company with us. After the introduction, a trading-game was presented to us in which we could participate. It was a bid and offer game and one of the participants went home with a bottle of champagne. In addition a tour on the trading floor was provided in order to give the participants some sense of Flowtrader’s working atmosphere. Again, the day ended with drinks where we got the opportunity to speak to some trainees and traders.
ACHMEA: 2 DECEMBER In the second week we went to see the insurance company Achmea, a company that was added to the selection of companies of the Financial Business Cycle for the first time this year. The day kicked off with a welcoming introduction, coffee
and cake and a short presentation by two working trainees describing their working experiences. During presentations on Achmea’s history and daily major operations, information was provided on its Finance Department. After the presentations, a case was introduced which all participants had to solve and present in groups. Hereafter, we had informal drinks – with the possibility to ask questions to recruiters of Achmea.
BAIN&COMPANY: 3 DECEMBER On December 3rd we had a look at one of world’s most prominent consultancy firms: Bain & Company. Being located in the Rembrandt Tower in Amsterdam, we took the Fyra to Amsterdam and were kindly welcomed by Bain & Company’s staff. After a short introduction and delicious lunch provided to us at a trendy bar just outside the Rembrandt Tower, the case was introduced to us by several associates currently working at Bain. Within only one hour, we had to crack the case and present our findings within groups to working employees of Bain – who presented themselves as Bain’s Board of Directors as part of this game/case. After two hours of case cracking, developing potential strategies and presentations, we were invited for a drink at a cozy bar.
KEMPEN & CO: 4 DECEMBER The in-house day at Kempen & Co started with a lunch, followed by presentations on Kempen’s main divisions: Asset Management, Corporate Finance, Securities, and Investments. In addition, a case was presented in which we had to employ several valuation techniques and were learned how to successfully negotiate in the situation of a merger in which both parties may have conflicts of interest. The day ended with drinks at one of the top floors of the building, having a great view of business district Amsterdam Zuid.
RABOBANK: 8 JANUARY The in-house day at Rabobank Utrecht started with an official tour through its building. The day kicked off with a tour through the “Rabobank Museum” where we were explained about Rabobank’s history within The Netherlands. Hereafter, a presentation on the main operations and divisions of Rabobank was given. Also, we got the chance to ask trainees, managers and employees about the different trainee programs offered by Rabobank through a process which is called “Speed Dating”. Trainees and managers working in different programs were standing at different tables, where participants got the opportunity to ask them any question. These programs are: the Global Financial Markets Traineeship, the Corporate Management Traineeship and the Young Professionals Program. Hereafter we had an interactive case where we had to value companies, and make buy/sell-decisions based on these valuations. Around 6 P.M. we had some drinks and the winners of the case were presented with a small gift.
OPTIVER: 10 JANUARY Optiver’s in-house day started with a short introduction on the company and career-path possibilities as a starter at Optiver. This introduction was followed by presentations provided by two working traders. Hereafter all participants got the chance to crack their minds on the famous Optiver math application-test – or sometimes known as the “80 questions in 8 minutes” test. This was followed by a tour on the trading floor and then there was a trading game in which the participants could test their “Bid/Ask” spread skills. The day ended with some drinks, pizza, snacks and some relaxing billiard-pooling.
OC&C: 7 JANUARY The in-house day of OC&C took place at the 7th of January, the first week after the Christmas Break. During this day, we had presentations on the working possibilities at OC&C, the culture and on what kind of work you will do as a consultant. Hereafter we were introduced to a case in which we had to employ real-based strategy techniques. This case gave us a general view of what kind of decisions you have to make as a consultant working at OC&C. Afterwards we had some drinks and snacks within the office building, and were able to ask the recruiter and consultants any question.
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fsrforum • volume 16 • issue #2
Traders Trophy
The approach of the Traders Trophy this year was quite different than in the academic year 2012-2013. Some have found out that it was no longer possible to join the University Finals without having played the qualification online. It still was possible to play the demo online for practice though, but eventually everyone was ought to play the qualification round. In every competing city in the Netherlands there were 60 contestants in the finals on average. The winner of each round was awarded with a game of “koehandel”. However, the real competition started on 16 December at the National Finals at the NYSE Euronext Exchange. Participants from Groningen to Maastricht came all the way to Amsterdam to compete for the 1st prize of €1.000,- and two tickets around the world! Furthermore, the finalists had the chance to close the exchange at the end of the day. We would like to thank Oxyor and Optiver for the collaboration and of course we congratulate the winners, including Systse Boonstra from Rotterdam. We wish all of those wanting to pursue a career in trading good luck, we hope that we were able to enthuse you a bit more yet again.
34 • FSR news
fsrforum • volume 16 • issue #2
The Audit
The FSR organized the Audit in cooperation with Baker Tilly Berk, BDO, Grant Thornton and Mazars on the 11th of November. During this day students had the opportunity to get acquainted with some of the mid-sized accounting firms, during an intensive and practical case workshop. The audit took place at café Engels. A group of thirty students was selected to participate. The day started off with a speech by dr.sc.ind. A.H. van der Boom about the accountancy world and the mid-sized accountancy firms. Each company had two employees present, a recruiter and an auditor, who could answer all the questions of the participating students. During the speed date round the students got to know what it is like to be an accountant at one of these four accounting firms and the differences between them. After the introduction, the students had the chance to get to know more about the firms and their employees during the informal lunch. After the lunch, the students were divided into four groups. During the case, the groups had to conduct interviews with the management and other departments of the company they were going to audit. The management was acted out by one of the employees of the accountancy firms, giving them a chance to observe and interact with the students. This led to some interesting results. Each group presented their conclusions at the end of the day, after which the companies got a chance to comment. After this intensive and informative day it was time for some drinks and snacks. This gave the students the opportunity to ask more questions that had not been answered during the day and to get more information about the participating firms. After the drink, the day had come to an end and the accountancy committee can look back on a very successful event.
FSR news • 35
fsrforum • volume 16 • issue #2
FSR Alumni Association The multiplier which leads you to synergy!
Dear FSR Alumnus or Future Alumnus, We do not need research to show us that nowadays you need a network… …To find a job …To find a house …To find a significant other Therefore, if I and my new fellow board members Maaike, Karen and Justin have not seen you at our last activity, the FSR Alumni Amsterdam Drink, you probably already have all of them (or are not interested). If you are just interested in drinks or catching up with your fellow FSR colleagues/friends we would like to welcome you to our next event: the FSR Ketel 1 Drink in Rotterdam. Keep an eye on your mail as to when this will take place! Maybe you are not active anymore because you can not find us, in that case look for us on LinkedIn or the new FSR Alumni Facebook page. If you are a prospective alumnus, send us an e-mail to alumni@fsr.nu. Concluding, I and with me my fellow board members look very much forward to meet with you. We organize activities for YOU and want to connect with YOU as well. No alumni network without members and no members without a network! On behalf of the Xth FSR Alumni Board, Ashmita Krishna Chairman FSR Alumni Association ***Connect with us***
36 • FSR news
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