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Say-on-pay exposes bad directors

Thursday, 22-May-2014

When Congress passed the ‘say-on-pay’ concept as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2009, many observers asked what good it would do since those votes are advisory only.  In case you are unfamiliar with the concept, shareholders now have the opportunity to vote on whether they agree with executive pay packages for publicly traded companies on a regular basis at annual meetings.  Those votes are done on an advisory basis (meaning companies can technically ignore the result of the vote), but at least they do provide a poll of what people think. Companies who achieve less than 50% approval from shareholders are considered to have failed the vote.


While the question of ‘what good will it do’ is still largely open, one thing it has undoubtedly done is expose incompetent directors.  Directors have historically worked in the shadows.  Very few people knew who they were or held them accountable for a company’s performance, but that is now starting to change with things like 'say-on-pay'.  Take the case of Douglas Watson.  I believe he has been exposed as statistically the worst director in the country.  Mr. Watson leads two boards.  He is Chairman of OraSure (Nasdaq: OSUR) and Lead Independent Director of Dendreon (Nasdaq: DNDN).  


According to statistics compiled by Semler Brossy, only 1.4% of companies failed their 'say-on-pay' vote in 2011, 2.6% in 2012, and 2.5% in 2013.  As you can see, losing a vote is extremely rare.  


Believe it or not, both of Mr. Watson’s companies have now lost the say-on-pay vote two years in a row.  I have looked hard and cannot find any other director with that type of record.  It would be one thing for a company of his to fail one year, but for both to do it two years in a row is no coincidence.  It is truly appalling.  You would think most reasonable people in his position would do everything possible to correct the problem after receiving that kind of public rebuke once, but apparently not Doug.  Congratulations to him on being exposed as the worst director in the entire country. 


The verdict is still out on what the ultimate legacy of ‘say-on-pay’ will be, but one thing it has already done is shine a light on outliers and expose the truly bad directors out there.


Who Am I?
Brad Loncar

I'm an individual investor from Kansas City.  My focus is on biotech stocks, but I enjoy investing in all industries. I'm an old-school, buy and hold investor who believes the best way to outperform and grow capital is to own innovative companies with good management teams over the long-term. more>>

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