Power of the Pen — ClickSoftwarePosted: July 17, 2013
As it is the case for all postings in this blog, my standard disclaimers apply for this posting. However, since this posting discusses investments, I urge you to review the disclaimers laid out in the About section with extra diligence. Moreover, even if you have already reviewed these disclaimers in the past, you need to review them again, as they are subject to change without notice. Do it now, and remember that whatever I say in this blog posting is simply my opinion — it is not science, it is not advice, and it is not an attempt to make you act in any way whatsoever.
In a galaxy far, far away….
Ok, not really, but a long time ago, I wrote a posting about how I — for a very brief period of time — acquired a belief that I had deux ex machina like powers because Unitek Global Services, a company that I follow, had done what I had advocated. I was yanked out of this belief when the company, almost in an act of spite, did three things that was precisely the opposite of what I, in my posting, had suggested that it should do (read the Icarus related posting here.)
Needless to say, that stings…. From omnipotent to impotent — does it get much worse?
My posting (here) was general in nature, dealing with the importance and power of voting, but it related mostly to a specific proxy voting from ClickSoftware Technologies, a company that I follow with some interest (and money!)
ClickSoftware Technologies walks a different path than most publicly traded companies and, therefore, it and its CEO, Dr. BenBassat, stirs up a lot of emotions among its shareholders. The Yahoo Finance message board for ClickSoftware Technologies, which in many ways acts as a microcosm of the overall retail investor community, has reflected these emotions and has over the last year been astonishingly critical of the company and Dr. BenBassat.
As I wrote in my posting, this year’s proxy voting offered an opportunity to radically impact upon the company through no less than four important voting items, addressing three core themes:
[I]t 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.
As I detailed in my posting, Under Israeli company law approval of each of these voting items requires a very high level of votes, and, therefore, the common shareholders could relatively easily impose their will on the company in this proxy voting.
I always vote on matters where I am entitled to a vote and I always consider my vote carefully, because the alternative, to not vote or to vote heteronomously is a form of lunacy. As I wrote in my posting:
The issue at hand, however, is bigger than that of ClickSoftware and Dr. BenBassat. The general problem is one of corporate governance and inducement to fraud.
If the shareholders do not vote — and vote intelligently, that is — insiders will increasingly solidify their control of the operational and non-operational aspects of the company and will increasingly become entitled and detached from their true responsibility: the protection of the shareholders’ interests.
Moreover, by not voting, shareholders are continuously providing the insiders with increasing degrees of two of the three components of the the fraud triangle: Rationalization and Opportunity. And once you have achieved a critical mass of rationalization and opportunity, the laws of human nature dictates that it is only a question of time before sufficient mass of the last component of the fraud triangle, Pressure, kicks in, and a crime is committed.
However, in spite of the very high threshold and in spite of the throwing around of my weight that I was doing, I did not believe that the four controversial voting items would be rejected, since, unfortunately, my experience is that retail investors are defeatists or plain ignorant when it comes to their rights and the importance of voting.
The voting completed on July 8th, 2013, and on July 13th, 2013, ClickSoftware Technologies announced the final vote tally with a detailed breakdown of votes for, against, and abstaining (more about this below) as reflected in a 6-K filing (kudos to ClickSoftware Technologies for releasing this information, something that I will talk more about, below):
To approve the appointment of Brightman Almagor Zohar & Co., a member of Deloitte Touche Tohmatsu, as the Company’s independent registered public accounting firm for the year ending December 31, 2013 and for such additional period until the next Annual General Meeting of Shareholders, and to authorize the Board of Directors, upon recommendation of the Audit Committee, to fix the remuneration of the auditors.
For: 19,387,964 Against: 115,432 Abstain: 111,657
To approve a compensation policy for the Company’s directors and officers, in accordance with the requirements of the Israeli Companies Law.
For: 17,144,751 Against: 1,815,503 Abstain: 625,153
To re-elect Mr. Menahem Shalgi, as an “External Director” of the Company (as such term is defined in the Israeli Companies Law 5759-1999), to hold office as an External Director for a three year term and to approve his compensation as an External Director.
For: 12,987,034 Against: 5,944,973 Abstain: 653,401
To ratify and approve the appointment of Dr. Moshe BenBassat as both Chairman of the Board of Directors and Chief Executive Officer of the Company for a period of three years from the Meeting.
For: 10,815,264 Against: 8,147,150 Abstain: 622,994
To approve the grant of options to Dr. Moshe BenBassat for the purchase of 90,000 Ordinary Shares of the Company.
For: 11,672,760 Against: 7,873,657 Abstain: 38,991
In accordance with Israeli company law, this voting outcome means that all voting items were approved except for the item that would allow Dr. BenBassat to maintain the dual role of Chairperson of the Board of Directors and CEO.
With respect to the vote related to the dual role, it is not yet clear what the voting outcome actual means (go here to read more about this and the last minute wily maneuvers by the company and Dr. BenBassat.)
On July 23rd, 2013, ClickSoftware Technologies announced the appointment of Dr. Israel Borovich as non-executive Chairperson of the company’s Board of Directors, ending speculation, I guess, about whether or not Dr. BenBassat would resign his co-CEO position and assume the role of Chairperson.
That Dr. BenBassat has chosen to — in principle — be under the oversight of the Board of Directors, tells us a lot about Dr. BenBassat’s view of the Board of Directors and his future plans for the company and himself.
And if there were any doubts about who is in change after the splitting of the CEO position into two co-CEO positions and the splitting of the CEO and Chairperson of the Board of Directors position, the such doubts were eradicated when the company conducted it second quarter earnings conference call on July 24th, 2013, where only Dr. BenBassat and the company’s CFO attended, while the new co-CEO, who should certainly have been on the call, and the new Chairperson of the Board of Directors who ought to have been on the call, were absent.
There are many interesting things to learn from these voting results, in particular if we bear in mind that the company has 32 million, or so, outstanding shares (I approximate… if you want to know the exact number, you can consult the SEC filings for ClickSoftware Technnologies) with the following blocks being known as of December 31st, 2012:
First, although only 20 million, or so (again, I approximate,) votes were cast, constituting less than two third of the common shares, this percentage of votes cast is actually very high, reflecting, I believe, a genuine interest by the common shareholders and, I am guessing, some aggressive canvassing for votes by the company and its Board of Directors members (such canvassing for supporting votes by the company and its Board of Directors members, at the company’s (and, therefore shareholders’) expense, is entirely legal, although it is probably morally and ethically questionable.)
Second, assuming that, exclusive of Dr. BenBassat and his wife’s shares, 11 million votes, or so, were locked up, then eight million, or so, retail votes were cast against Dr. BenBassat’s dual-role leadership and receipt of 90,000 options. Clearly, Dr. BenBassat’s leadership and the Board of Directors issuance of options are a lightening pole for the common shareholders.
Third, an astonishing six million, or so, votes were cast as what I believe to be a no-confidence vote for the Board of Directors members (I am assuming that Mr. Menahem Shalgi was simply singled out as the only Board of Directors member up for re-election and that he was not specifically, as an individual, perceived as being bad or good by the common shareholders.)
Fourth, it is, in fact, possible for shareholders to impact upon their investment, but far too many shareholders do not vote. If, for instance, the “missing” votes had been cast, I am guessing that each of the three surviving key voting items would have been defeated (I am assuming that of the “missing” 12 million votes approximately 10 million shares are being held by retail investors in either direct holdings, investment funds, or brokerage accounts.)
Fifth, a great number of retail investors care about what goes on at ClickSoftware Technologies and are willing to act through voting. Although 12 million, or so, of the available votes were not cast, the percentage of votes that were cast was significant (as a comparison consider that Veramark Technologies, a company with significant historical performance issues, registered only 45%, or so, votes cast in a recent proxy voting with insiders holding 25%, or so of the shares actually voted.)
On a more personal side there is one more lesson in that I clearly don’t understand the voting mechanics and voting dynamics as well as I would like to — and probably should:
- I don’t understand how as many as half a million votes can abstain on key issues. I mean, abstaining is an active act, I would assume, so what does it mean when a voter say that he or she chooses to not vote on on critical issues (I understand, of course, that an employee may be uncomfortable voting on issues related to the CEO, but, still, I can’t be sure that this explains the high number of abstaining votes.)
- I don’t understand how erroneous votes are accounted for. I, for one, appear to not be capable of filing out the simplest forms without making mistakes, so I assume that there must be a number of votes that are erroneous, and I wonder where these votes go.
- I don’t understand how the personal issue votes are accounted for (as you may recall from my earlier posting (here,) votes by individuals with a “personal interest” in the voting items are not considered in the voting outcome.) So, where do these votes go and how are they accounted for? Considering, for instance, the voting items that clearly and directly relates to Dr. BenBassat (option grant and dual CEO/Chairperson of the Board of Directors,) I would expect to see shifts of at least 2.4 million votes relative to other voting issues (and, in fact, more likely shifts of four million shares, considering that Idit BenBassat, whom I assume is Dr. BenBassat’s wife and, therefore, would certainly have a personal interest,) and, yet, I can’t see these vote shifts.
My personal education aside, in summary, on the plus side for those who were discontent with the company’s performance, Dr. BenBassat and the Board of Directors received a quite audible vote or non confidence, the issuance of options to Dr. BenBassat was shown to be something that ought to stop, and the common shareholders demonstrated that they are, indeed, listening and keeping an eye on their investment. On the minus side, however, except for preventing Dr. BenBassat from having both executive and oversight control, the voting really did not achieve much and did not notably affect the Board of Directors or the company’s composition and actions.
So, given that a lot of the retail investors did vote, perhaps I should begin to believe in the power of the pen again. Perhaps my posting did — in some imperceptible way — alter the voting record for ClickSoftware Technologies. Or perhaps it did not… I will never know unless some shareholder in ClickSoftware Technologies, upon reading this posting, actually writes to me and tells me that my posting made him or her vote in some particular way.
Also, I would be remiss if I didn’t note that the company’s posting of a precise breakdown of votes cast surprised me greatly. As I had written earlier when I discussed corporate governance:
If, for instance, we look at the proxy voting conducted in 2012, we note that there were several important measures on the ballot, including the re-election of Dr. BenBassat to the Board of Directors and the approval of a grant of 150,000 options to Dr. BenBassat — two measures that would allow the shareholders to directly deny Dr. BenBassat the disputed options and to dramatically reduce Dr. BenBassat’s influence over the Board of Directors of the company and to significantly reduce the company’s dependency on him. However, in a case of unacceptable corporate governance, all we know about the outcome of this voting voting is what the company said in its filing on July 25, 2012, where the following two lines were “crammed” into a quarterly earnings announcement:
ClickSoftware also reported that at its Annual Shareholders Meeting held on June 28, 2012, all items on the agenda as set forth in the proxy statement furnished on Form 6-K with the U.S. Securities and Exchange Commission on May 16, 2012, were approved.
This is as oblique as it is probably possible to be and leaves us with no real understanding of the shareholders sentiment. Was the option grant, for instance, approved by an overwhelming majority or by the thinnest of margins? Did the institutional holders vote?
Personally, I am mystified by something like this. Why, pray tell, would the common shareholders not automatically receive, on each and every voting item, a detailed breakdown of the number of shares cast, abstained, in favor, and against? Is there something to hide?
And, so, you may understand why I was almost knocked over when the company released a detailed accounting of the voting on the vote tally. Did Dr. BenBassat read my posting (if, so, Dr. BenBassat, please accept my greetings and my gratitude for your operational performance over the last years!) or was this just good-old-fashioned coincidence rearing its ugly head? Again, I will probably never know unless, of course, Dr. BenBassat calls me tomorrow and tells me that he was inspired by my posting.
Perhaps, after all, I do have some divine powers…
Oh, by the way, Dr. BenBassat, in case you are reading this…. It would be great if the next set of voting results were recorded and reported in a way that was more transparent. For instance, I think a per voting item accounting for the total number of votes cast, the number of erroneous votes recorded, and the number of votes not counted because of, respectively, personal interest or control issues. As you can see from the above, common shareholders like myself tend to become confused when these tabulations are omitted from the reporting.
Finally, I probably should mention that on July 8th, 2013, the day immediately after the day on which the voting finished, in an act of astonishing coincidence and timing, worthy of mention next to the remarkable timing of the publication by Colonel Joseph Schmid, Luftwaffe’s chief intelligence officer, of a comprehensive assessment of the capabilities of the Royal Air Force, on precisely the day that Adolf Hitler issued his Directive 16, the directive for invasion of England (read about this here,) ClickSoftware Technologies revised its annual guidance downwards, causing an immediate drop in the market capitalization of the company.
The details of the revision are not important for the purposes of this post (although, for the record, I hasten to say that I think it reflects an appropriate prudence by the company in assessing how potential Software as a Service (SaaS) related revenues are accounted for in guidance,) but this timing does beg the question, I think, whether the 12 million, or so, missing votes would have re-appeared if this piece of news had been released a week earlier and would have shifted the voting on the three items.
Regardless, clearly things can change, but change requires activity. As I said in my earlier posting:
Simply put, the common shareholders do have the power to enforce good corporate governance and to secure that their interests are protect, but only if they exercise their right to vote.
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