Section Items
Short Term Holding
Slightly Off Topic
Misc.

Share Dealing - Company Management

In theory the board of a company operates in the best interests of the share holders.

It also ensures that the senior management is operating in accordance with its instructions and not putting their own interests ahead of the company's.

in practice it is sometime hard to see how this is the case.

Reasoning

Investing is about reality not dreams so it is important to look at the senior management's attitudes and accept the fact that many directors and senior management have no long term commitment to the company that they are working for.

Their basic position is that they believe that "I are worth £200k/£2m a year and that is what I am going to take regardless of whether the company can afford it or not or if I am doing a good job or not".

Taken to the extreme you need to decide if the directors are actually working with this order of priorities.
  1. Acting in the best interests of the directors.
  2. Then the best interest of the large organisations that have lent the company money.
  3. Then any other interests.
  4. Then the best interest of the employees.
  5. Then the interest of the large shareholders.
  6. Finally the interest of the small shareholders.
It is easy to understand why the management acts in its own interest, but why would the lenders interest come so high up?

Some companies may have potential conflicts where the directors are part of a closed group circulating around various companies in similar roles. The director knows that in his next job, he will be approaching the same lenders for finance.

However there may also be a conflict between the directors' interest in keeping the lenders sweet along with keeping the large shareholders (pension funds) sweet. After all the same pension funds will probably be the main shareholders in the director's next company.

Where you have large shareholders that are sort of private individuals by that I mean businesses that the directors may not need in again the future they may be treated like small shareholders.

What are the consequences for the management of ignoring small shareholder interests? Yup, your right, none.

As a small share holder you will generally have bought the shares second hand knowing the existing management and state of the company. Provided that you have understood the managements' objectives and they are acceptable to you, regardless of what they are, you can buy shares in that company.

However do not complain if you buy shares today (July 2012) in say Hibu, the old Yellow Pages, a company with about £2 billion pounds of debt, and find that the management did a debt for equity swap leaving your shares worthless, that was always on the cards.

Some Examples

Debenhams was taken over by ts lenders on the 22nd March 2019 leaving shareholders with nothing, in what looks like a management/lender agreed pre-pack administration.

The share holders included Mike Ashley's Sports Direct which owned almost 30%. Despite much public chest beating from someone who you might have expected to have been quite powerful there have been no changes to the administration effected.


Flybe was sold for 1p per share on the 21 Feb 2019 effectively giving the company to the new owners, despite being valued at around £43 million only a few months before.

Again a powerfulish shareholder investment group Hosking Partners, which owned a 19% stake were unable to stop the board doing what it wanted.

March 2019 saw Interserve go into administration and all assets passed on to their lenders, despite shareholders voting against the deal wiping out a big shareholder the US hedge fund Coltrane.