John Linton ......Only the Shadow knows.........and he's not really sure....
I mentioned that late last year I attended a DeLoittes function and over the lunch they served one of the DeLoittes people made me aware of "Shadow" or "Phantom" share schemes which are a variation on the stock option schemes widely used in the USA and in other countries by start up companies to give their early employees a share in any furture success such companies may enjoy when they reach their goal of a successful public listing.
Exetel has no plans for any sort of public listing so I never really considered that such schemes had any value for Exetel's employees just as the vast majority of such schemes have no value for the thousands of companies that put them in place but either don't survive or never reached a level where a public listing becomes possible. Mostly they simply involve fees to 'advisors' who set up the paperwork and that's about it.
However those schemes made hundreds, probably thousands of multi millionaires out of the early employees of companies such as Microsoft, Google, Yahoo, Apple, Sun, Cisco etc and also made the employees of other unknown start ups very handsome amounts of 'bonus money'.
As we contemplate either borrowing money or finding some sort of investment capital this issue has become something that could be considered by Exetel and so we asked DeLoittes to discuss it in more detail which proved to be quite interesting in several ways. As Exetel's current and future business and plans is a very unlikely 'vehicle' for a public listing most share option schemes for employees would simply involve cost for the company without any real benefit for the employees.
Some of the variations suggested by Deloittes are interesting and, as Exetel moves away, at an ever faster rate, from the 'director's hands on every aspect of the business' methodology towards the inevitable (due to personnel numbers) less skilled and certainly less personally driven management of employees by employees it becomes necessary to compensate for that dramatic loss of personal involvement - if that can be accomplished.
Exetel has never made very much money over the time it has existed - an inevitability of a start up company - and what little money we have made has had to be re-invested into the business to buy the routers, switches and servers needed to handle the growing customer numbers. Over the time we've been in business we have bought, at very carefully negotiated prices, over $A1 million of the equipment we've needed to run the business and have always paid cash for every purchase (apart from our office space we lease nothing).
This has meant that any 'profit sharing' scheme would have been as meaningless as any share scheme - both would have resulted in a minimal to zero return to the employees in each year of our existence (as it has done for Exetel's shareholders themselves every year of our 'life' to date).
Our business plan, like all business plans it must be said, 'shows' a quite real level of profitability in the coming year and, after allowing for our established and likely future, commitments to the support of various fauna, flora and environent protection projects would allow for some sort of 'real' profit that could be used for things other than the constant investment in equipment and facilities.
We will have a need to operate the business going forward with the same very tight restraints on spending money wisely and as little as possible as we have for the last four and a half years where I have scrutinised the spending of every last cent. The best personnel in the world, who have the best interests of the company at heart will never be as careful about expenditures as the person whose money is being spent - it just isn't likely to happen.
The main attraction of setting aside a percentage of the profit made by Exetel as a 'bonus' for some of the employees who are involved in spending the company's money seems a sensible way of adding some additional 'rigour' to spending decisions at all 'levels' of a small company like Exetel.
We've asked for a proposal from DeLoittes to set up a profit share and, perhaps, a share of any sale proceeds if one day we decide to accept an unbelievably good offer from someone to buy Exetel. I have my own ideas of what is required and how it could operate and will be interested to see what the paperwork looks like.
I am aware of the many downsides of such schemes, both from talking to DeLoittes, my previous business experiences and my, now, quite wide reading about these initiatives. I doubt that Exetel will be able to avoid all of those downsides. Personally I benefitted immensely from IBMs employee share purchase scheme, as does my youngest daughter today and on one other occasion I did extremely well out of anther start up's share allocation scheme and so my natural optimism makes me think that the many upsides will outweigh whatever negatives we might encounter should we proceed.
I have been wrong before.