|
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.
|
