Is a 100% independent board good?
NZME
Short and sweet one today.
NZME —
Per the NZX annoucement:
NZME Limited (NZX and ASX: NZM) (NZME or the Company) advises that it will hold its Annual Shareholders’ Meeting on Tuesday 3 June, 2025. The time and other details in relation to attending the meeting will be advised in the Notice of Meeting to be sent in due course. NZME previously announced on 25 February 2025 that its Annual Shareholders’ Meeting was to be held on Tuesday 29 April, 2025
Now, why would a company change its annual meeting date from the end of April to the start of June? It couldn’t be that a certain shareholder has roughly 50% of shareholders backing him to topple the board…could it?
Anyway, my main interest here is the board’s contention that independence of directors is important. The current board owns around ~ $300,000 worth of shares between them. Here’s their contention of the importance of independence in their letter published today:
NZME’s board’s view aligns with that of the Institute of Directors (IoD), who write the following in an NZX consultation paper1:
It is interesting to note that the IoD doesn’t mention “shareholder” value anywhere in there. A number of studies find that high board/family/founder ownership of a company is very aligned with shareholder returns2. This will come as no surprise to long-term investors. This is commonly referred to as “skin in the game”. You don’t really need to think hard to come up with some examples — Walmart and the Waltons, LVMH and the Arnaults, etc. Looking to NZ it’s clear that Mainfreight has created tremendous shareholder value with co-founder Bruce Plested owning ~14.82% of the company and MD Don Braid owning ~2.90%. While I don’t doubt that an independent director adds value, “skin in the game” matters — we all know this, and a bunch of studies back it up.
While I don’t have any contention that there is value in an independent director, I think it is doubtful that a 100% independent board adds value, as the board’s letter asserts. When I see a director who doesn’t own a significant share of the current board they are on, my first question (and perhaps yours) is — why?
Chart — Champagne … harvest dates get earlier and earlier…
Presented without context; we all love some bubbles, so here’s a chart.
Global stock sell-off uh oh!
The stock market doesn’t really give a damn about what you think. It’s unemotional. DIS or META does not care about your feelings about them, believe it or not. You should be excited that stocks are on sale. If they are on sale even more, you should be even more excited.
You should see it as a form of extreme couponing.
And you know how excited extreme couponers get!
Everyone talks about buying when others are fearful but not many people do it. But extreme couponers, you know, they’re excited every day. Let’s try and be more like extreme couponers.
GOOG 16x earnings, NVO 17x fwd earnings3, you know the drill…
https://www.iod.org.nz/assets/Resources-insights/News-and-articles/Director-Independence-Answers-to-NZX-questions-in-May-2023-consultation-document.pdf
https://www.fcltglobal.org/resource/board-stock-ownership-is-correlated-to-company-returns/, https://www.law.gwu.edu/opinion-companies-whose-board-members-are-also-major-shareholders-typically-outperform-heres-how , https://www.bain.com/insights/founder-led-companies-outperform-the-rest-heres-why-hbr/
Per Bloomberg