Attention SEC Commissioners: Read Compliance Week Before Deciding on Access

I hope Commissioners read How to Improve Governance at Small Companies by Stephen Davis and Jon Lukomnik, Compliance Week, August 10, 2010. They’ll soon be making a decision with regard to proxy access. As I’ve mentioned on this blog several times, small companies shouldn’t be exempted… that’s where much of the abuse in corporate governance occurs. I’ve lost money at several companies where the founder got a sweetheart deal with the board on retiring that essentially drained the companies of future revenues for years.

Davis and Lukomnik point to P&F Industries, a maker and importer of pneumatic tools and builders’ hardware. The founder passed the job of CEO onto his son, Richard Horowitz, and the board has awarded $13.5 million in cash compensation during the last 10 years, more than twice the $6.3 million in cumulative profits.

They go on to describe efforts by two shareowners, Andrew Shapiro of Lawndale Capital Management and Timothy Stabosz, to make a difference. While they’ve apparently made some headway, they might have been able to do much more with proxy access. Shapiro is quoted in the article:

It’s a great example of why small companies ought not be exempted. Proxy access could have helped me in the case of P&F because there is such a substantive retail base.

They also quote Stabosz:

The story of P&F industries is a story of no one attending shareholder meetings in past years.

Shareholders need to act like shareowners. They are much more likely to do so if they have the tools needed to hold board members accountable. Proxy access could be the best tool in the box.

Disclosure: The publisher of CorpGov.net, James McRitchie, has investments with Diamond A Investors L.P. headed by Andrew Shapiro.