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Shareholder interests vs Management Self-interest


Zorrofan
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I have been watching with some interest the recent interaction between AZN and PFE. PFE made what I thought was a fairly good offer for AZN, several large shareholders of AZN spoke in favor of the deal and yet management resisted. Now with PFE walking away the share price of AZN will likely drop quite hard tomorrow.

 

So, the question becomes "Did management really act in the best interests of the shareholders or did they act in their own self-interest?" How often does management really act in shareholders best interests? Witness the recent KO controversy with regards to management compensation.  If you use management integrity as one of your screening criteria the pickings are IMHO getting a pick thin.......

 

Looking forward to your thoughts,

 

cheers

Zorro

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I have been watching with some interest the recent interaction between AZN and PFE. PFE made what I thought was a fairly good offer for AZN, several large shareholders of AZN spoke in favor of the deal and yet management resisted. Now with PFE walking away the share price of AZN will likely drop quite hard tomorrow.

 

So, the question becomes "Did management really act in the best interests of the shareholders or did they act in their own self-interest?" How often does management really act in shareholders best interests? Witness the recent KO controversy with regards to management compensation.  If you use management integrity as one of your screening criteria the pickings are IMHO getting a pick thin.......

Looking forward to your thoughts,

 

cheers

Zorro

 

+1.

 

There are not very many companies at all who truly pass this high bar. BRK stands out here. (other names welcome). I view handing out stock options, year after year to management as failing the test. Would much rather compensate management for their real contributions (pay above market) and let them buy stock with their own money. Just like the rest of us. Why is that difficult to understand?

 

 

 

 

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MTY on the toronto exchange passes this test. It's run by Stanley Ma, who I think is the best CEO in Canada. The company rarely gives out stock options. In fact, I dont think they have in the last 5 years. The copany is definetly run for shareholders.

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Human nature being what it is, management will almost always in some way big or small put their own interests first. The best way to avoid this is to invest in owner-operators, though they still can over pay themselves. You have to look at their pay structure. Buffett has famously paid himself a low salary. Salidar Biglari has shown that he puts his own interests first via his hedge-fund style compensation package. Most owner operator CEO's fall somewhere in between those extremes. From my experience CEO's tend to make about 1% of net income and I usually weigh their track record vs how much and how they pay themselves. I do feel that a CEO can be worth a tremendous pay package if they deliver, but I'd rather they get paid that package after they have proven their abilities.

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I have been watching with some interest the recent interaction between AZN and PFE. PFE made what I thought was a fairly good offer for AZN, several large shareholders of AZN spoke in favor of the deal and yet management resisted. Now with PFE walking away the share price of AZN will likely drop quite hard tomorrow.

 

So, the question becomes "Did management really act in the best interests of the shareholders or did they act in their own self-interest?" How often does management really act in shareholders best interests? Witness the recent KO controversy with regards to management compensation.  If you use management integrity as one of your screening criteria the pickings are IMHO getting a pick thin.......

Looking forward to your thoughts,

 

cheers

Zorro

 

+1.

 

There are not very many companies at all who truly pass this high bar. BRK stands out here. (other names welcome). I view handing out stock options, year after year to management as failing the test. Would much rather compensate management for their real contributions (pay above market) and let them buy stock with their own money. Just like the rest of us. Why is that difficult to understand?

 

Because people inherently value themselves very highly!  No one ever stops to think...maybe I'm not worth that!  ;D

 

We've indirectly acquired about 20% of a company through a convertible debt deal we just made in Vancouver, and I added the caveat of a director's seat to close the deal.  We had our first board meeting last week, and I emphasized that the CEO should not be sitting on the compensation committee...they made me Chair of the Compensation Committee! 

 

Now this is a nano-cap company, just returning to form as they ran out of money to get their operations up and running.  The CEO is a large shareholder, but some of the costs that the company has been paying in compensation is mind-boggling.  I can't say much else, as we are in the process of dealing with this, but unfortunately corporations, big or small, are run with a culture of entitlement.  I'm already rocking the boat on this one and I know it.  Things are going to have to change.

 

I don't know how CEO's justify their compensation in such matters to shareholders.  Shareholders who have lost considerable money!  And then you have CEO's who create a ton of shareholder value, but inherently think they deserve a fatter and fatter piece of the pie.  It isn't enough to be well-compensated or enjoy your work...you just want more and more!  Sad really!  Cheers!

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