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Paul Scott is a smart investor and a good battler against boards which take the piss. Looming in his sights now is AIM listed property developer Inland (LSE:INL). The issue is boardroom pay versus shareholder return. And Scott is not wrong here. Inland is a good company but its directors Stephen Wicks and Nish Malde clearly have interests that are not aligned with those of shareholders. Let battle commence.
Inland floated at 50p in April 2007. The shares are now 18p. Dividends paid to date have been 0.067p paid recently ( at a cost of £122,610). Wicks and Malde are clever and would argue that in the face of a market that has not exactly been helpful they have started to deliver a material increase in NAV by turning around old brownfield sites. The last stated NAV was 27p per share.
The issue is that while the company pays sod all in dividends last year its three executive directors trousered bonuses of £246,000 – the annual report shows no information as to why these bonuses were paid. Were there performance targets and if so should they not have been linked to the share price in some way? If I was a shareholder sitting on a 5 year return of minus 64% I think I would rather resent that bonus payout?
But it gets worse. In 2011 Wicks and Malde trousered total packages (including bonuses) of £458,000 and £453,000 respectively. Add in Employers NI and the total cost to Inland was £1,025,000. Now I know that folks in property are well paid but for a CEO and FD of an AIM listed company capitalised at £34 million that is simply too high. It also shows a clear misalignment between the interests of directors and shareholders as they nurse their 64% loss.
Scott uses the word greed to describe the behaviour of Wicks and Malde. I must say that I agree. It is hard to argue that this company is being run for the benefit of shareholders as opposed to directors. An AGM at Inland looms and Scott plus other shareholders with a material stake will attend to argue their case. If there is no change Scott will form a shareholder action group and continue his battle. I would urge all Inland shareholders to attend the AGM at 10.00 a.m. on 27 November 2012 at the offices of the Company, 2 Anglo Office Park, 67 White Lion Road, Amersham, Buckinghamshire HP7 9FB to support Paul.
Scott wants the last bonuses to be repaid. I would agree with him that if the directors wish to be “incentivised” then they should be awarded options at a premium to the current share price ( shall we say, 23.5p). If directors really think that the NAV is a conservative one then they are getting in cheap. I would suggest that a way to close that chasmous discount to NAV would be to use the £246,000 to buy back shares.
Malde & Wicks really have only three choices:
1.Offer a fair price and take this company private and the do what they want.
2. Agree to the demands being made and start a small but steady share buyback programme to close the gap between the NAV and the share price.
3. Fight off Scott and carry on taking the piss. In which case shareholders will vote with their feet. I suspect that they are already which is why the NAV/share price gap is so large. It is large because folks already appreciate for whose benefit Inland is being run.
I know both Wicks and Malde and in the spirit of friendship I suggest that they go for option 2. Give yourselves shed loads of options at 23.5p. Hand back the £246,000 bonuses (after tax it is surely only just over £100,000 of your cash involved) and make a firm commitment to use the money saved to buy back at least 1% of Inland’s shares each and every year. Such a Damascene conversion would leave you guys viewed as being on the side of the Angels. You would win a lot of friends, new investors and I suspect your options might end up being worth more than the bonuses.
Scott makes a non Inland general point which opens up a whole new can of worms. He writes:
What about expense accounts? I hear that many Listed company Directors use their expense accounts to travel and entertain in lavish style, which of course is never reported to shareholders. So the total cost of Directors is often a lot higher than even the disclosed remuneration. I don’t have any specific information on the expenses of Inland’s Directors, so this is more a general point.
Paul your hearing is not faulty. You are bang on the money. I wonder for instance about Damian Conboy the CEO of AIM listed Alecto Minerals (LSE:ALO). I revealed over the summer how he had hooked up with Ms Lucy Sharp, a PR girl for the Playboy Clubs at a networking event. I am sure that this was of great benefit to Alecto shareholders. Did Conboy claim the expenses associated with attending this event and related travel back from Alecto or pay himself? I wonder.
Personally I would like to see all annual reports disclose the total expense claims for each director on the board. I would go further and say that an individual breakdown of expenses should be available at the company’s offices for all shareholders to inspect. I suspect that such a level of disclosure would be rather bad news for the Strip Clubs and wine bars of the Square Mile but it is needed.
Scott’s conclusion is:
AIM, and the London market generally, has become a cesspit of greedy, self-serving Directors who brazenly milk the companies they run for personal benefit. The zeitgeist has changed, and shareholders have had enough, and are now prepared to challenge errant Directors and remove them if necessary using an EGM or AGM. It’s not just private shareholders who feel like this, but Institutions too. There should be no rewards for poor performance.
He is correct. But should go further. The Nomads who are meant to supervise this sort of thing are so desperate to stay solvent by keeping retained clients that they simply fail to haul directors to account over obvious cases of corporate greed. There needs to be movement on that front too.
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that free material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
Tom’s premium share website The Nifty Fifty was launched on October 28th 2012. Having created and run the t1ps website for 12 year his average gain per tip there was 42.7% (over 241 tips) with an average holding period of 36 months. His new website promises more of the same & served up a HOT NEW TIP WHICH TOM EXPECTS TO TREBLE LATE LAST NIGHT– for immediate access click here
