Let them eat cake…

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Enfin je me rappelai le pis-aller d’une grande princesse à qui l’on disaitque les paysans n’avaient pas de pain, et qui répondit:
Qu’ils mangent de la brioche.
— Jean-Jacques Rousseau

Theb1604_-_Flickr_-_NOAA_Photo_LibraryIn a recent posting (here) I wrote about upcoming proxy votes for ClickSoftware Techologies, and I noted that the company was subject to some criticism voiced by its shareholders.

As I have written about in a lengthy posting (here), the company is a gem for value investors, having grown from being an obscure Israeli company with less than $10 million in annual revenues to being a truly global company, dominating its industry and exceeding $100 million in annual revenues. The company’s equity, CKSW, is a value-trap, which is positively humming with pent-up potential for releasing its stored up value.

Much of the criticism has been directed at Dr. Moshe BenBassat, the current CEO and Chairperson of the Board of Directors, and the entrenched nature of the company’s management team, and in the posting, I noted that:

In light of this discontent — whether or not one agrees with it — it is interesting to note that this year’s proxy offers the discontenting shareholders a strong opportunity to impact upon their company and address at least some of their issues, being provided with (1) the opportunity to terminate a member of the Board of Directors, thereby sending a clear signal to the company’s remaining members of the Board of Directors; (2) the opportunity to deny Dr. BenBassat the options and to reject the company’s compensation plan, thereby sending a clear signal that pay for performance is the name of the game; and (3) the opportunity to split the CEO and Chairperson of the Board of Directors role, thereby reducing Dr. BenBassat’s influence and reducing the company’s dependency on him.

I also noted that with this year’s proxy voting, culminating in an annual shareholder meeting conducted in Israel on July 8th, 2013, the shareholders of ClickSoftware will have an opportunity to impact directly upon the issues of Dr. BenBassat’s influence and leadership through the voting on the issue of the joint CEO and Chairperson of the Board of Directors role:

So, in this case, not only can Dr. BenBassat and his wife’s shares supposedly not be counted as votes since Dr. BenBassat has a personal interest, but Dr. BenBassat is also faced with the prospect of having to achieve two thirds majority. This is a very high bar and even very shareholder friendly and popular CEOs can have difficulties achieving the required majority (for instance, Monica Iancu, the CEO of MIND CTI — a CEO quite popular among the company’s shareholders — recently failed to secure the required two thirds majority, and, accordingly, had to relinquish the role as Chairperson of the Board of Directors.)

… [If] all shareholders vote, it will be non-trivial for Dr. BenBassat to secure the needed majority to retain the combined role of CEO and Chairperson of the Board of Directors. With 32 million shares outstanding, of which four million shares controlled by Dr. BenBassat do not count, leaving 28 million shares, the resolution would require 21 million affirmative votes — a tall order by any measure.

This morning, ClickSoftware Technologies and Dr. BenBassat, who is clearly a very intelligent, clever, and politically astute individual, deflected this process and any possibly humiliation of Dr. BenBassat by assigning a co-CEO with immediate effect. In a press release the company wrote:

ClickSoftware Technologies Ltd. (CKSW), the leading provider of automated mobile workforce management and optimization solutions for the service industry, today announced that the Board of Directors has promoted Mr. Hannan Carmeli to the position of Co-CEO. Mr. Carmeli previously held the title of President and Chief Operating Officer, and will join Dr. Moshe BenBassat, who will continue to act as ClickSoftware’s Chairman and CEO.

Under the new organization, Dr. BenBassat and Mr. Carmeli will work hand-in-hand in building the Company’s strategy, caring for its customers and running its operations. Dr. BenBassat will focus his leadership, visionary spirit and deep industry knowledge on product innovation and strategic marketing, while Mr. Carmeli will use his broad experience, execution skills and leadership to manage all field operations. Together they will take ClickSoftware to the next level.

This maneuver, a triangulation worthy of Mr. William Jefferson Clinton, the former President of the United States, is simply brilliant:

  • It immediately defuses any criticism related to Dr. BenBassat’s being an — arguably benevolent — dictatorial ruler of ClickSoftware
  • It undermines the argument of Dr. BenBassat’s age is an issue for his role as CEO of ClickSoftware
  • It establishes succession — something of critical importance to institutional investors
  • It dramatically improves Dr. BenBassat’s chances of securing enough votes to obtain the joint Chairperson of the Board of Directors and CEO role, and, if he should fail in obtaining this role — or even, through tallying reaches the conclusion that he cannot secure this role, it allows him to exit the CEO role without loss of face and with the appearance of having performed a calculated move, rather than being ousted
  • The appointment of Mr. Carmelli, who is a long time partner of Dr. BenBassat, as a co-CEO probably does not, at all, change anything related to Dr. BenBassat’s influence in the company, leaving the power nexus squarely with Dr. BenBassat and effectively leaving Mr. Carmelli beholden to Dr. BenBassat

Bravo!, I say. A beautiful piece of political engineering, which ought to work like a charm and, certainly, addresses the issues raised by the shareholders.

Backfire — Cake in your face

So, on the tail-end of a year, or so, of expressed discontent by the masses (the vocal subset of the common shareholder community that is,) you would probably would expect that this little marvel of triangulation would cause elation, manifested as a sky-rocketing of the the per share price of CKSW.

It didn’t.

In early morning trading, as S&P 500 climbed steadily after a rocky couple of days with over-reaction to the the Fed’s mid-week statement, CKSW, which had closed at a per share price of $8.03, dropped like an out-of-control elevator to $7.82, a drop of 2.5%, and as of 11:30 a.m., Eastern Standard Time, was still attempting to recover.

So, what happened? After all Dr. BenBassat and ClickSoftware appear to have found a perfect way to neutralize the discontent, so why did the market react negatively?

Well, I don’t know, of course, but I am guessing that the drop was related to one of more of three factors:

  • First, I think that much of the expressed discontent was really related to a concern that the company would not achieve a super-aggressive guidance that it has issued for the year, and the co-CEO appointment was an early warning sign that the guidance would not be met, and therefore, effectively had precisely the opposite effect of what it was designed to do.
  • Second, the market always gets nervous when the topology of the top management team changes, regardless of how justified this change is.
  • Third, although the change is a beautiful piece of political engineering, it is relatively transparent and there probably is a clear understanding in the market that the change is not a change at all.

Quite possibly what the masses were asking for was nutritious bread, and what they got was carbohydrate-loaded cake, which they promptly threw back at the company and Dr. BenBassat.

Anyway, since the fundamentals of ClickSoftware are as good as they are, one can be hopeful that the setback in the per share price of CKSW from this morning will quickly be reversed. However, I am wondering if a different announcement about Dr. BenBassat’s role with company this morning would have had an immediate positive effect on the per share price.

The voting on July 7th, 2013, failed to provide Dr. BenBassat with sufficient votes for him to maintain his position as Chairperson of the Board of Directors and CEO.

The company has issued a press release that is rather oblique about what this means, but it appears to imply that Dr. BenBassat — in a surprise move (for me at least,) to have opted for maintaining the CEO position and surrender the Chairperson role, saying that:

The Company’s Board of Directors will appoint a new Chairman at its upcoming meeting.

Although this reads to me as Dr. BenBassat choosing to resign from the Chairperson role, this could, of course, simply be a bureaucratic way of preparing for Dr. BenBassat to resign his position as co-CEO at the next Board of Directors meeting, so as to assume the role as Chairperson of the Board of Directors. Mechanically, that may simply be the way that this has to go down.

The alternative, that Dr. BenBassat chooses to retain his co-CEO position while — in principle — agreeing to be under the oversight of the Board of Directors, will tell us a lot about Dr. BenBassat’s view of the Board of Directors and his future plans for the company and himself.

We stay tuned…

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