Related Party Transactions - Poll

[billybobjovialdechicoutimi]

Just curious about this topic, so starting a poll here:

Question to all:

 

if a public company employs relatives, partners, spouses, etc. of its leadership (CEO, board members, etc.), beyond what threshold do you think related disclosures should be made to its shareholders (i.e. to YOU)?

 

a- if the combined amount paid to those folks exceeds $10,000,000

b- if the combined amount paid to those folks exceeds $1,000,000

c- if the combined amount paid to those folks exceeds $100,000

d- if the combined amount paid to those folks exceeds $10,000

e- no disclosures are required since the company's leadership should be implicitly trusted to do whatever is best for the company’s shareholders (and current US securities’ laws saying otherwise are just plain wrong)

Edited October 5 by billybobjovialdechicoutimi
typo

[Gamecock-YT]

D, would even push for lower - My first job out of college was working as an accounts payable accountant. The amount of grift the CEO did by employing his wife to do tasks such as decorating the office, catering for events, the company even paid her commission for art work, and she paid herself a very handsome hourly rate for her services. Even had her own LLC to keep things appearing on the up and up.

 

My bosses were all powerless to do anything about it. Just run of the mill petty corporate theft. I did manage to get the CFO to draw the line on her accompanying the CEO on his business trips to Europe. He was even wanting us to pay for a couples weekend in Venice that had nothing to do with any company business or was anywhere close to where the business meetings were taking place. And we also managed to ding him for trying to have the company pay for her round trip business class ticket as well. Plus the corporate policy was he, himself, was only allowed to take Premium economy given the length of flight. 

 

Needless to say I wasn't very popular with him after that. 

Edited October 5 by Gamecock-YT

[LC]

Agree with above. All should be disclosed.

 

Will it? Unlikely.

[Paarslaars]

2 hours ago, Gamecock-YT said:

D, would even push for lower - My first job out of college was working as an accounts payable accountant. The amount of grift the CEO did by employing his wife to do tasks such as decorating the office, catering for events, the company even paid her commission for art work, and she paid herself a very handsome hourly rate for her services. Even had her own LLC to keep things appearing on the up and up.

 

My bosses were all powerless to do anything about it. Just run of the mill petty corporate theft. I did manage to get the CFO to draw the line on her accompanying the CEO on his business trips to Europe. He was even wanting us to pay for a couples weekend in Venice that had nothing to do with any company business or was anywhere close to where the business meetings were taking place. And we also managed to ding him for trying to have the company pay for her round trip business class ticket as well. Plus the corporate policy was he, himself, was only allowed to take Premium economy given the length of flight. 

 

Needless to say I wasn't very popular with him after that. 

I am assuming the CEO owned the company? If not, contacting majority shareholders would do the trick here. If it is, well he's just stealing from himself so...

[Spekulatius]

4 minutes ago, Paarslaars said:

I am assuming the CEO owned the company? If not, contacting majority shareholders would do the trick here. If it is, well he's just stealing from himself so...

Sounds like a clear ethics violation. Most public companies have an anonymous number for that. As a regular employee, you can and generally will fired for much less than that.

 

As for disclosure, I think the answer is <$10k or <$100k. Below that, it’s a matter of corporate policies which should apply to everyone, including CEO‘s.

[Gamecock-YT]

36 minutes ago, Paarslaars said:

I am assuming the CEO owned the company? If not, contacting majority shareholders would do the trick here. If it is, well he's just stealing from himself so...

 

Was owned by 2 private equity companies as I recall. Easy to say in theory, but when you're an entry level employee just trying to get some experience on the resume before heading to greener pastures you try to keep your head down.

 

Also forgot we had the CEOs son on the payroll as a sales associate for Australia. He made far and above what the other sales people for the company did. Plus got the same sales commission that the rest of the team did. He also brought in the least amount of business for the company. We paid him a monthly wire and he'd kick and scream if it wasn't paid ahead of time if pay day was over the weekend. 

Edited October 5 by Gamecock-YT

[bizaro86]

1 hour ago, Gamecock-YT said:

 

Was owned by 2 private equity companies as I recall. Easy to say in theory, but when you're an entry level employee just trying to get some experience on the resume before heading to greener pastures you try to keep your head down.

 

Also forgot we had the CEOs son on the payroll as a sales associate for Australia. He made far and above what the other sales people for the company did. Plus got the same sales commission that the rest of the team did. He also brought in the least amount of business for the company. We paid him a monthly wire and he'd kick and scream if it wasn't paid ahead of time if pay day was over the weekend. 

 

I think the optimal play there (if it had been publicly owned) would have been SEC whistleblower. Pays out a portion of fines.

[nsx5200]

I haven't looked into it because I haven't had the need, but IMHO, I would look at the policies at Berkshire corporate office, and Munger, Tolles & Olson LLP as a starting point.  They've put in the work to have the 'correct' policies in place, so unless you can find flaws in their policies, you should just adopt them.

[Ver]

D, ideally lower. The fraud and cheating will usually start small but if they get away with it, they are likely to scale up, so it must be dissuaded from the start.

 

I have a friend who ran a private midsize tech company. His cofounder, who oversaw the financial side of the business, hired his secret mistress as an office manager and when they got larger, the controller. Over several years she embezzled many hundreds of thousands, possibly more than a million, including using corporate cards for family vacations and such.  The cofounder couldn't do anything because the mistress was blackmailing him, and my friend had no idea until they had an outside audit done. In the end she basically got a slap on the wrist.

[nsx5200]

https://25iq.com/2015/10/24/a-dozen-things-ive-learned-from-charlie-munger-about-ethics/

“Once you start doing something bad, then it’s easy to take the next step – and in the end, you’re a moral sewer.”

 

After chewing on it for a bit, the right thing to do is to disclose no matter what amount.  In law, they(judges?) purposely go out of their way to avoid even the appearance of bias (at least they're suppose to).  The difference between $1 and $1m can be explained away like a slow boiling frog, so if it might appear wrong, why do it?  If it's really an exception, disclose it at the minimum to the board, and let the board decide if it's really worthy of an exception.  Just merely putting up some roadblock (disclosure) to avoid such behaviour is a win in my book.  A small price to pay.

[billybobjovialdechicoutimi]

Hey all,

 

Thanks for the answers

 

I was informed a few days ago that the board of BTB REIT would not include my proposal asking for disclosure of related-party employments up for a vote.

 

I was pretty shocked, particularly because they refuse to volunteer the information in the first place, so I was wondering if I am the only one who thought such disclosures were important.

 

You can see my open letter to BTB unitholders in the ideas forum,

 

If you just joined this thread, am still very much curious to read your answers

 

[billybobjovialdechicoutimi]

 

Basically by refusing to disclose the amounts paid to employees who are relatives of the leadership, the Board implicitly states that their employment should not be of particular interest/concern to any shareholder, and that brush used elsewhere is kind of scary... who are the 'independent' property appraisers?

• How many relatives and/or spouses/partners of BTB trustees are employed by BTB? What is their total compensation and who monitors it?

• If BTB employing a relative or spouse/partner of one of its trustees does not warrant disclosure because transactions with such persons are deemed to be with ‘independent’ parties, can the Board define ‘independent’, notably when it states that BTB’s property portfolio is regularly valued by ‘independent’ appraisers?

 

If anyone knows the answers, by all means, for the love of God, please let me (and other BTB REIT unitholders) know...

[Saluki]

If they are unwilling to disclose there might be much more cockroaches in there. Think about WeWork and Adam Neuman when it all came out, or SBF and FTX. You don't find out everything until it's too late. Enron was another one with a lot of related party transactions. 

 

I periodically check in on a company that is cheap but with terrible management. There was an employee wrongful firing lawsuit that has allegations that are not in 10K and very disturbing. Hiring the brother of an insider to build the new factory (which sux and has lots of production problems), a CFO who was barred from serving in such a role at a public company who is there and making all the decisions with an empty suit who has the official title and doesn't ask any questions. Toxic behavior at the office. A special class of preferred stock issued that seems to be for the benefit of the CEO. and then a proxy fight. And now the CFO just resigned and they are investigating their financial statements for the last 3 years. 

 

There are plenty of REITs out there, why spend time on this when you see red flags?

 

 

[billybobjovialdechicoutimi]

I believe that the profits possible over the long term by cleaning up this REIT are compelling and since (i) this REIT is right in my backyard in Montreal and (ii) the red flags are as bad as I have seen them in 25 years of following capital markets (you mentioned Enron, not me), I feel I have a responsibility to try to intervene to avoid this disaster getting too big...

 

Would it not have been better if Markopolos had been able to convince the SEC and others that Madoff was a crook earlier? I think so.

 

I am not comparing myself to Markopolos or anyone to Madoff, I am just saying that sometimes, it gets so bad and it's so close to home (and you're old enough to start caring about the world you leave to others) that you have to do something...

 

 

 

 

[LC]

Best of luck, friend. I read your posts when you post in the Ideas section. I am rooting for you. 

[Saluki]

11 hours ago, billybobjovialdechicoutimi said:

I believe that the profits possible over the long term by cleaning up this REIT are compelling and since (i) this REIT is right in my backyard in Montreal and (ii) the red flags are as bad as I have seen them in 25 years of following capital markets (you mentioned Enron, not me), I feel I have a responsibility to try to intervene to avoid this disaster getting too big...

 

Would it not have been better if Markopolos had been able to convince the SEC and others that Madoff was a crook earlier? I think so.

 

I am not comparing myself to Markopolos or anyone to Madoff, I am just saying that sometimes, it gets so bad and it's so close to home (and you're old enough to start caring about the world you leave to others) that you have to do something...

 

 

 

 

 

Madoff was another one with related party transactions and nepotism.  If you read Markopolos' memo that he submitted to the SEC, which you can find online or in his book, it's pretty obvious that Madoff was either committing fraud (which is what Markopolos thought) or that he was making money but lying about how he was doing it (which is what some of his customers thought). Some of his customers thought that he was front running orders using his brokerage. But it's pretty clear that the strategy he told the SEC he was using was impossible because his size would've required more than 100% of the volume on that exchange and the other people who trade their didn't know him. 

 

Funny story but I met Markopolos once, and while I do have a low opinion of a lot of the people I met at the SEC, Harry is pretty hard to take seriously if you see him in person. I'll be kind and say that he looked, well, eccentric.  His hair wasn't combed, he wore a polka dot tie and was wearing pants with cargo pockets that obviously had a lot of stuff in them. So combine their incompetence with his colorful appearance and the fact that he alleging a fraud against someone who was not only a competitor, which cast doubt on his motive, but who was also the former chairman of Nasdaq. The SEC has a lot of lawyers and accountants, but not finance people or quants.  It was only about a decade or so ago that they allowed their registrants to use portfolio margining.  And that was only after they lobbied Congress and threatened to move their trading to London or Singapore or Tokyo.  So I see why they didn't get it, but just because you're incompetent and not corrupt, doesn't mean that you're doing a good job. 

 

Good luck with the activism, I hope it works out. 

[billybobjovialdechicoutimi]

2 hours ago, LC said:

Best of luck, friend. I read your posts when you post in the Ideas section. I am rooting for you. 

Thanks @LC and @Saluki for the encouraging words... I read Markopolos' book and it is not really clear from it how eccentric he comes across, so thanks for that color

 

I do want to stress again that I am not comparing myself to Markopolos.

 

 

Right now, my ability to state more about the situation is limited due to a Quebec Superior Court ruling forbidding me from discussing OACIQ-related matters with BTB REIT unitholders (or even journalists). All I can say is:

 

1- I hope that I will soon be able to able to share details of the hell I have had to go through just because I naively believe that asking tough questions from public nonprofits and publicly-listed company leadership is a fundamental right Canadian laws entitle me to.

 

2- The muzzling ordered by the Quebec Superior Court was  driven by Michel Leonard (BTB REIT CEO) threatening to resign from the board of the OACIQ (months before he needs to leave that board by law anyway) if the latter did not sue me in court (yes, believe it or not, I am THAT powerful, despite having 60 facebook/linkedin friends/connections)

 

3- Because of point 2, BTB REIT trustees essentially believe they can ignore anything I say, arguing that I have a personal grievance, even though the facts only show that Michel Leonard has a personal grievance against ME (and trust me this grievance is kindergarden-level material and I cannot wait to share it with you considering how funny it is), so it appears to me that the only way forward is either (a) litigation to get the trustees to do their job or (b) for some other BTB unitholder who wouldn't have point 2 as a history to take over the effort from me, assuming the trustees would not find another self-serving excuse to ignore that other BTB unitholder as well

 

 

[HubbadaPow]

Devil's Advocate opinion:  I've seen some really great founders driven out of companies because the accountants get uptight about some petty stuff.  Imagine being worth 9 figures plus and having some intern quibble over a few thousand dollars of compensation.  These guys sometimes just decide it's not worth the aggravation and retire.  While I agree in principle that compensation should all be above board, it would not be productive to drive out Buffett over his personal use of his jet, even though that's a lot of money.  

[billybobjovialdechicoutimi]

Good point @HubbadaPow - but trust me, we are not talking about a Buffett-like character here

 

WEB keeps his salary steady (in fact ML's at $0) for years, this guy gets a salary increase every year, and in 2022 and 2023, double-digit increases even

 

WEB has delivered fantastic returns to his shareholders, not this guy...

 

I will stop here but yeah, folks voting against the trustees are not related to me, so irrespective of my opinions/questions, there is unitholder frustration 

Edited October 9 by billybobjovialdechicoutimi

[HubbadaPow]

6 minutes ago, billybobjovialdechicoutimi said:

Good point @HubbadaPow - but trust me, we are not talking about a Buffett-like character here

 

WEB keeps his salary steady (in fact ML's at $0) for years, this guy gets a salary increase every year, and in 2022 and 2023, double-digit increases even

 

WEB has delivered fantastic returns to his shareholders, not this guy...

 

I will stop here but yeah, folks voting against the trustees are not related to me, so irrespective of my opinions/questions, there is unitholder frustration 

I hope you have success cleaning up the company and their reporting.  Also their refusal to disclose reasonable information to owners is frustrating. 

[bizaro86]

One small suggestion - I think you'd have more success getting people to join you if you made a case for how undervalued the assets are as a result of current management. 

 

I think many aren't interested in getting involved to fix a wrong in the system, but would be more interested if they thought there was a big payoff to fixing this.

 

Just my two cents and I wish you well!

[billybobjovialdechicoutimi]

Excellent point @bizaro86 

 

What I'd tell those in your shoes is:

 

1- This thing is owned by exactly zero fundamental insitutional investor, despite ca. 20 years of various IR efforts from the current CEO, I am not saying that getting a few onboard would get this thing to double, but fyi

 

2- Investing in the S&P/TSX Capped REIT Index (the index the Board believes they should be compared to) would have gotten you 50% more over the 10 years ending 2023 than in this name (including all distributions), again its no guarantee that it's undervalued since this could just be a function of fundamental value having been destroyed on a relative basis, but fyi

 

This is a situation where the excessively poor corporate governance doesn't just hurt this REIT's unitholders, by overpaying a mediocre management team, its Board is contributing to CEOs at other REITs - those who are actually doing a decent job, who don't get their entire family on the payroll, who don't treat their unitholders like morons - telling their own boards: Well look if that loser can make X, I definitely deserve a huge multiple of X!

 

And so these basket cases are just hurting the whole ecosystem in my view... and I am not even factoring the unhappiness the undeserved pay causes internally within the REIT

 

So what do you do?

 

a- Ignore all these basket cases and hope that somehow they will see the light? Unlikely in my view

b- Short these basket cases? The dividend yield is 10%, and so I doubt many will have the patience to see this go through

c- Somehow nudge them into cleaning up their act? Am not saying that this is the best option, but it's the one I have chosen

 

It's chicken and egg, no one wants to get in until its cleaned, and no one wants to clean it up!...

 

I think the market should come up with a process to 'police' these bad apples, otherwise we will get the annual articles complaining about CEO compensation for the rest of time... We all know where the problem is: the compensation committees of boards, notably at the mediocre companies

 

Anyway... I realize that I am ranting a this point, but thanks for the comment for real @bizaro86...