- The Washington Times - Friday, May 1, 2009


In the past few months, there has been a combination of concern and scrutiny about whether or not corporate management teams are working with the company’s shareholders in mind or simply running the company in their own interest. I suspect the reality of the situation falls somewhere in the middle.

As an investor in public companies and a shareholder in those that meet the grade and become part of our portfolio, I favor companies that have management teams that are not only motivated and properly incentivized to run a profitable and growing business but are also responsible stewards of the business for the long run rather than ones that focus on risky, short-term benefits.

At the same time, we have to recognize whose job it is to oversee the management team of a public company, and that responsibility falls on the shoulders of the board of directors. These individuals are elected as not only stewards of the company from a financial and business perspective but also to serve as overseers of the management team. However, there are times when board members are not as independent as shareholders would expect.

When they are not, it calls in question the board’s ability to fulfill its fiduciary responsibility to company shareholders as well as the trust that they will make prudent, though difficult, decisions that are in the company’s best interest not just that for the management team. This is as true in today’s environment as it was in previous crises.

As Barbara Franklin, chairman of the board of the National Association of Corporate Directors and former secretary of commerce, has shared, “We who are directors have a key role in restoring trust in Corporate America.”

Restoring trust is a difficult challenge, especially for directors who have limited contact or dialogue with the shareholders they represent.

Imagine a world where the only contact between voters and their elected officials is an annual open-forum shouting match. This is essentially the situation we face today in Corporate America. It does not serve anyone’s interest.

One need only to look to the example of Bank of America’s annual shareholder meeting Wednesday: The level of frustration was a clear indication of a broken communication system.

Luckily for investors both professional and individual, there is a new company that is helping boards and shareholders better communicate with each other. This company is Owners Research Group (ORG) and it anonymously surveys shareholder opinions, aggregates the data and presents its independent findings directly to the company board of directors.

ORG’s aim is to empower the board to make better decisions to drive long-term value for company shareholders. ORG delivers a summary report to company board members and executive management, as well as to survey participants. Subscribers to the ORG research service have additional detailed results available to them, including qualitative commentary and analytical tools.

ORG has published on several companies to date, with hundreds of institutional investors embracing the process. The company is rapidly expanding its coverage universe and plans to focus on several large Troubled Asset Relief Program, or TARP, recipients. In the two reports I reviewed, ORG received feedback from 25 percent to 30 percent of respective company shareholders, which in my mind makes the findings statistically significant.

What I find even more compelling is that each of the respondents answered a wide range of questions - from does the company have the right value creation strategy, to are you satisfied with management’s performance, to whether or not the company effectively communicates with its investors. Other company specific issues are also broached, such as should a company amend its capital structure or has the company made progress in restructuring its business.

As an investor, I find ORG’s reports compelling as they add another layer to my screening process in terms of stock selection. I also view ORG’s reports as a good way to measure whether or not the management team, the board and myself are aligned.

Enlightened boards, management and investors recognize the need to improve communication and alignment. ORG provides an intriguing option to achieve this goal. I for one will be reading more of ORG’s reports in the coming weeks and months.

• Chris Versace is the founder and portfolio manager of SlipStream Capital Management LLC based in Reston. He can be reached at [email protected] At the time of publication, Mr. Versace had no positions in the companies mentioned in his column, although positions may change at any time.

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