A few months ago, I wrote a piece about a company that I own shares of called Adams Golf (OTC BB: ADGO). While I was, and still am, very optimistic about the company's potential for providing outstanding returns to shareholders, corporate governance is a significant problem at the company. I strongly believe that there are changes that need to be made to provide shareholders with the best return possible, and I outlined some of the steps I believe should be taken in that post.One issue that makes abundantly clear the corporate governance problems at Adams Golf is the compensation of its founder and chairman, Barney Adams.
According to the most recent proxy statement, Adams was paid $421,698 in 2006, a pay package that is hardly immaterial in light of Adams' market cap of around $50 million. The footnote explains it this way:
Although Mr. Adams is not an executive officer of Adams Golf, he is compensated for services he provides both as Chairman of the Board and as an employee of Adams Golf pursuant to an employment agreement entered into on February 16, 2006. Mr. Adams is the founder of Adams Golf and its former Chief Executive Officer, and continues to participate in certain aspects of Adams Golf's business and operations in addition to his service as Chairman of the Board. Mr. Adams has been Chairman of the Board of Adams Golf since its inception. Accordingly, the Compensation Committee and the Board of Directors, excluding Mr. Adams, agreed that Mr. Adams should be compensated in a different manner from that of the other non-executive directors of the company.
Earlier this year, I emailed Adams Golf looking to get in touch with Mr. Adams to discuss the future of the company. My email was forwarded on to him, and this is what he wrote back:
"Got a request to contact Zac if it's about a subscription , I'll pass; if it's about Adams Golf I'm pretty much retired and can hook you up with the right name, if it's about a new place to fish I'm all ears."
Hmm... So what we have is a company that paid more than 10% of its pretax income to someone who's pretty much retired, looking for new places to fish. Sweet! And you thought excessive executive compensation was a problem? These guys are blowing it on someone who doesn't even work! In addition, Mr. Adams has been selling shares regularly, and sold million of dollars of stock at the IPO for several times the current share price (The company currently has a shareholder class-action lawsuit pending against it related to that, but it's not something I see as a big risk factor.).
For the other concerns I have about corporate governance at the company, see my last BloggingActivist post. In the meantime, the fundamental reasons that I am bullish on Adams have not changed. The company continues to show impressive sales and income growth as a result of the success of its hybrid iron sets, and continues to be the dominant hybrid on the major tours. All this comes at just a tiny premium to the company's book value, and a price/sales ratio that is much, much lower than its peers. I would be hesitant to sell Adams at anything less than $3 per share.
Maybe blogging about Adams will put some pressure on the company to do the things it needs to do to increase shareholder value. Maybe it will take an activist investor like Dan Loeb or Robert Chapman to shake things up.
But as a shareholder myself, I think it's important for us to complain when we see self-dealing and bad governance at companies we own.
Disclosure: Zac Bissonnette is long shares of Adams Golf.
Earlier this year, I emailed Adams Golf looking to get in touch with Mr. Adams to discuss the future of the company. My email was forwarded on to him, and this is what he wrote back:
"Got a request to contact Zac if it's about a subscription , I'll pass; if it's about Adams Golf I'm pretty much retired and can hook you up with the right name, if it's about a new place to fish I'm all ears."
Hmm... So what we have is a company that paid more than 10% of its pretax income to someone who's pretty much retired, looking for new places to fish. Sweet! And you thought excessive executive compensation was a problem? These guys are blowing it on someone who doesn't even work! In addition, Mr. Adams has been selling shares regularly, and sold million of dollars of stock at the IPO for several times the current share price (The company currently has a shareholder class-action lawsuit pending against it related to that, but it's not something I see as a big risk factor.).
For the other concerns I have about corporate governance at the company, see my last BloggingActivist post. In the meantime, the fundamental reasons that I am bullish on Adams have not changed. The company continues to show impressive sales and income growth as a result of the success of its hybrid iron sets, and continues to be the dominant hybrid on the major tours. All this comes at just a tiny premium to the company's book value, and a price/sales ratio that is much, much lower than its peers. I would be hesitant to sell Adams at anything less than $3 per share.
Maybe blogging about Adams will put some pressure on the company to do the things it needs to do to increase shareholder value. Maybe it will take an activist investor like Dan Loeb or Robert Chapman to shake things up.
But as a shareholder myself, I think it's important for us to complain when we see self-dealing and bad governance at companies we own.
Disclosure: Zac Bissonnette is long shares of Adams Golf.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
