Credibility is the issue
Stephen Vines
Date : MAR 27, 2001
Lying at the heart of the controversy surrounding Richard Li's educational qualifications is an issue encapsulated in a single word: credibility.
Whether Mr Li likes it or not he used to possess vast amounts of credibility for a reason which can be summed up in a single name: Li Ka-shing, a.k.a., Richard Li's father. No advanced degree in business studies is required to understand that the son of Hong Kong's most powerful businessman is going to have a head start in whatever business he chooses to enter. This is because having a rich father provides access to capital but more especially because the name of the father opens doors which are routinely slammed shut in the faces of other struggling start-up companies.
Richard Li was savvy enough to use the advantages of birth to create Pacific Century CyberWorks Ltd. (8) and launch a frenzy of deal making activity culminating last year in Asia's biggest ever takeover and the signing of Asia's biggest ever syndicated loan.
Let there be no doubt about what lay behind these deals. It certainly was not PCCW's track record for running a vast business - because it had none. It was not even that PCCW had a vast battle chest for making acquisitions, because that too was entirely lacking. On the contrary both these attributes were held by Singapore Telecommunications Ltd., PCCW's failed competitor in the race to buy Cable & Wireless HKT.
However SingTel lacked the Li connection and thus lacked the credibility required to consummate the deal. Mr Li greatly enforced his credibility by a slick public relations campaign and by persuading well established and high profile companies to enter into business alliances with PCCW. Thus deals were forged with the likes of Intel, CMGI and Credit Suisse First Boston.
In October 1998 'Time' magazine had Richard Li in 30th place of its global list of 'the 50 most important people in cyberspace'. Analysts were falling over themselves to talk up PCCW's stock and lavish praise on the company's boos. When the CWHKT deal was completed Lehman Brothers declared that PCCW was 'Asia's new media powerhouse'.
It all looks rather different now as PCCW's share price hits new lows and even the brokers who once were competing to sing loudest in their praise of Richard Li are timidly issuing 'neutral' or even 'sell' recommendations on his stock.
Questions are being asked about the company's gearing, about its ability to service its loans and about the residual value of its many dotcom investments. Into this pile of queries came the bombshell that PCCW had consistently misled the public over Mr Li's educational qualifications. His publicity material repeatedly stated that he had obtained a degree in computer engineering from Stanford University. In fact he failed to graduate.
This is not exactly another Watergate scandal but the discovery of mendacity at this stage in the game is hugely damaging to a company which was essentially built on the basis of credibility, albeit the credibility derived by virtue of the relationship between Richard Li and his father.
To make matters worse, infinitely worse, the company finally broke its silence on the scandal by saying that although it had been misleading in its publicity material it had stuck to the truth in its legal filings with regulatory authorities. This suggests that far from being an oversight, the incorrect publicity material was knowingly supplied to investors and anyone else caring to read it.
Although PCCW's credibility is shattered and the company is seemingly intent on doing little to repair it, there is an opportunity for a new start on August 28 with the announcement of the annual results.
PCCW is gaining an uncomfortable reputation as a supplier of selective information, this was the case well before the missing degree scandal. The results announcement provides a golden opportunity to strike out on a new track.
For a start PCCW could supply a clear picture of the true value of its investment portfolio. It could give a straightforward account of how it plans to treat write-offs. It needs to explain how it will handle the goodwill payment made during the takeover of Hongkong Telecom. And, maybe now would a good moment to come clean on the future of the ill-fated Network of the World, television and Internet project.
Some Quamnet readers will only see this article after the results announcement and will therefore be in a better position to judge how far PCCW has gone in restoring its credibility. I can only say that I will be greatly but pleasantly surprised if the sceptical tone of this article appears to be inappropriate in the light of a new period of Glasnost or openness on behalf of Mr Li and his associates.
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