Martin Lawrence spends his days analyzing governance risk in Australia’s biggest companies as co-founder of advisory firm Ownership Matters. But he has no interest in trading shares himself or investing in managed funds.
“When it comes to my own financial affairs I’m one of the most risk-averse individuals you would ever find,” he says. “And I guess it has come out of just observing a lot of really smart people who spend their entire lives doing nothing but attempting to work out what markets are going to do (or what individual shares are going to do) and get it wrong a lot of the time.
“I’m well aware of my own limitations and so part of me goes if they do nothing but this and get it wrong quite often what chance do I have?”
Lawrence began his career as a journalist working for an investment magazine but has never been tempted to tinker as a trader. His superannuation has always been invested in the default option (“If it was up to me I’d probably be sitting entirely in cash for 40-45 years and not do very well at all.”) and his forays into debt have been kept to a minimum.
“I just have a completely irrational terror of debt, which I’ll happily admit is an irrational terror of debt, and I have no idea where it comes from … my personal finances tend to reflect that. I remember when I got a mortgage and worked out what I was paying and nearly fell over. It took me two to three weeks just to recover from what it was costing a day.”
After several years working as a journalist, he made the leap into corporate governance in 2004 working for BT Governance Advisory Service and later ISS / RiskMetrics. He then launched Ownership Matters with colleagues Dean Paatsch and Simon Connal in late-2011 and the business quickly found a wide audience among investment firms.
“It was a calculated risk but I started it with people I knew very well and trusted so if I was ever going to take a risk like that, that was the risk to take.”
Ownership Matters’ advice has the power to sway shareholder votes on issues such as executive remuneration and the election of directors at annual general meetings – issues which should ultimately lead to more sustainable companies and higher shareholder returns.
Lawrence says his time analyzing companies has taught him that there are many factors beyond the control of executives which can derail a corporation.
“Look at a company like Blackberry – that was the absolute dominant provider in its industry five or six years ago – now it’s ‘will the last person to leave please turn out the lights’.”
Multi-million dollar executive salaries remain a contentious issue in the community. Lawrence says people should be rewarded for genuinely taking a risk and building their own business. However, executives are rarely taking a risk by normal community standards: they are often already wealthy, the risks of litigation in a public company are small and the worst thing that can happen is you can get fired with 12 months pay.
“When you have a look at the rewards which will get showered on people who happen to be in the right place at the right time versus the rewards that someone who is actually taking a risk with their own capital, it’s quite startling.”
• Make your money work hard even if you’re risk averse. “Setting up a high-interest online savings account is ridiculously easy. Every dollar that you don’t need to lay your hands on today – put in there. If you’ve got a mortgage put every dollar that you don’t need right now into that mortgage.”
• Avoid the fees that come with money: credit cards, banks, ATM fees. “Don’t give other people your hard-earned just for the pleasure of it.”
• Be wary of seeking financial advice from the financial planning industry, which is still grappling with conflict of interest issues. “If you look at the people where things have gone spectacularly wrong for them – and they have to take some responsibility for this themselves – it has usually been with the assistance of so-called expert financial advice.”
• If something is too good to be true it is. “Someone once said ‘if the financial services industry is so good where are all the customers’ yachts?'”
Brendan Swift is a business journalist based in Sydney.