Corporate governance that reflects management acting in the best interest of shareholders is strongly favored by Ancora Advisors. Proper management incentives, limited dilution from the issuance of stock options, a shareholder friendly and active Board of Directors, and a lack of loans and improper pay packages to management are all viewed positively.

We look for a number of key indicators within a company's financial filings that suggest a company's leadership is shareholder friendly:

1. A company that controls pay packages to senior management (particularly in a period where the company has performed poorly) suggests a responsible Board of Directors focused on accountability. This analysis includes stock options. Stock option grants over the past decade have shifted a substantial amount of wealth from shareholders to management. While we believe management must have equity ownership in the Company, in certain cases management has gained control of inappropriate equity ownership through excessive stock option grants.

2. A competent, independent Board of Directors with an active role in managing the business is a key indicator of shareholder friendliness. Obvious relationships, such as family members, company investment bankers or lawyers, are viewed negatively. Additionally, Ancora looks at "cross-Board" relationships, i.e. situations where senior managers sit on each others' Board of Directors, to determine if Directors are truly independent. 

3. A prudent use of excess cash flow is often important to our investment thesis. Management that utilizes excess cash flow to pay down debt, repurchase stock, and/or make reasonable, strategic acquisitions is strongly favored and suggests a Board of Directors dedicated to capturing value for shareholders. Cash management strategies that are frowned upon include hoarding cash on the balance sheet, or making sizable, difficult to integrate acquisitions. Additionally, in many instances companies will make large stock repurchases, but only to acquire stock sold by management in coordination with a stock option exercise, resulting in no progress being made in reducing overall diluted share count.

While these corporate governance guidelines aid us in buying and selling securities, in certain cases very poor corporate governance may create opportunities for shareholder value were anything to change in the way the Company allocates its resources. Often a particularly poorly run company will trade at a significant discount to market multiples as most investors believe management will never realize value for shareholders.  We seek out opportunities where an activist shareholder is attempting to interject changes into the executive suite in order to unlock value for shareholders.