Foxes Guarding Hen House

“Show me the incentive and I will show you the outcome.” – Charlie Munger

It’s no secret that I am staunchly opposed to a new share authorization in excess of exactly what is needed for a split. It is my belief that any excess shares will be either used for 1) management and director compensation or 2) M&A.

1) In the case of increased compensation, it is a natural human instinct and incentive is to want more. The incentive there is obvious. It is up to you as the shareholder to determine if the D and O team is worth that extra comp.

2) As to M&A, have you ever met a board member or a C-suite employee that didn’t want to be part of a larger market cap company? Regardless of how they arrived there (stock price appreciation or otherwise), there is personal benefit in presiding over a larger empire. Whether that larger empire (if we get there via buying assets with stock) is good for you and me, that is your decision. Does career building enrich shareholders? You decide.

In the case of M&A, what evidence do we have that this team is actually good at it? How have recent purchases fared? What about the recent sales? Where is proof that the team has a solid core competence in asset trading? Do you want them using your stock to do that?

With the board having 22% of the vote (10 board members voting the economic stake of the 2 of the board members), the temptation to give into the incentives outlined above is huge. And it will be done on your dime. Said another way, 8 board members (Stahl and Oliver excluded) with a combined total stake of 3,326 shares (0.04% of shares outstanding) have a supermajority to vote 22% of YOUR company in accordance with THEIR incentives.

Can you count on them to do the right thing? Sure. The right thing for them personally. Not the right thing for you.

Don’t let yourself get diluted.

We’ll see what the numbers look like when the final proxy looks like. I’d love to be pleasantly surprised by a number that isn’t in excess of 3 to 1, but my base case is higher. I’ll be sure to let readers know where it lands.

3 thoughts on “Foxes Guarding Hen House

  1. I know how I’m voting my shares that outnumber directors 4 through 10. I encourage others to vote against the new share authorization as well.

    Liked by 1 person

  2. Can you say “Agency Problem?”

    I have had issues with how they have done things in the past, and they are continuing the pattern of trying to do what is best…..for themselves first.

    Other than Stahl and Oliver (who own sizable amounts via investment vehicles), the board’s ownership is laughable. I especially am irked at the shares owned by Tyler Glover which were just given to him.

    We are the long run shareholders who really own the company, being co-opted at every shareholder annual meeting by these kind of board attempts to get more.

    Am fine if they want to split the stock, as long as its just a split, and nothing else. I have not seen any compelling reasons why a split is necessary. Give the shareholders a straight split, otherwise I will fully oppose.

    I only own 2000 shares, but its more than the bottom 7 directors on your Bloomberg ownership report, combined. See the problem?

    Liked by 1 person

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