When things are not what they appear to be

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.

Henchmen and Satan Followers

Things are not always as they seem; the first appearance deceives many.
— Phaedrus

From movies, I have learned that the problem with joining a bunch of followers of Satan in chalking out a Pentagon and engaging in a complicated chant to summon some kind of demon is that, immediately upon arrival, said demon will tear the chanters apart.

Call it bad temper, jetlag, or a bad hangover… it really doesn’t matter what the cause is, the outcome is assured.

7985821930_24e0a58f88_oHenchmen have a similar problem. For reasons that I have never quite understood, henchmen who deliver bad news are always knocked off by the crime-boss in a psychotic rage. And, if you are a henchman that is successful in your mission and, therefore, your capo does not kill you in a psychopathic rage, he or she will kill you with a sociopath’s detachment after having calculated that you may — or may not — become the subject of a grand jury indictment or some similar arrangement.

Failure or success, you lose. Again, it really doesn’t matter what the cause is, the outcome is assured.

For both Satan followers and henchmen, clearly, once you have done what needs to be done, you have outlived your usefulness and are subject to immediate termination with extreme prejudice.

Moreover, even if you did precisely what was asked of you, provided your boss with a valuable services, and survived the first pass of the scythe, you may have planted the seed to your own destruction because of the laws of lingering embarrassment, whereby your presence serves as a daily reminder to your boss of his or her failings, which necessitated your actions in the first place. In this scenario, in fact, the better you did the job, the more of an embarrassment you are, and, by neccesity, the more painful and swift your eventual execution is likely to be.

So why be a Satan follower or a henchman? What in the world would make you think that you are different than the legions of henchmen and Satan followers that have gone before you?

Hannan Carmeli and Israel Borovich

I was reminded of these questions when ClickSoftware Technologies today announced that Mr. Hannan Carmeli, the company’s co-CEO and a 17 year veteran with the company, had resigned his position and would be leaving the company.

ClickSoftware Technologies, an Israel based enterprise software company that I have written quite a lot about (for a baseline discussion, go here,) is a market leader in the supply of scheduling software for enterprises.

I recently wrote about ClickSoftware in connection with the company’s annual proxy-voting, which provided the common shareholders with several measures enabling a change of the degree of control exercised by Dr. Moshe BenBassat, the company’s founder and, at the time before the proxy voting, the company’s CEO and Chairperson of the Board of Directors.

One of these measures was a split of the CEO and Chairperson of the Board of Directors roles, which perhaps more than anything else could be viewed as a vote of confidence or non-confidence in Dr. BenBassat’s recent leadership of the company as well as a vote about succession planning and control.

In what appeared to me to be a masterful preemptive strike, Dr. BenBassat circumvented the sting of this, potentially humiliating vote, by, immediately prior to the proxy voting, assigning a co-CEO with immediate effect (read more about this here.)

Ultimately, and not surprisingly given an extremely high requirement for affirmative votes (a very unusual requirement in the white-wash world of proxy voting) and a fair number of disgruntled shareholders (read more about this here,) Dr. BenBassat did lose his bid for keeping the joint CEO and Chairperson role, and a new Chairperson of the Board of Directors was named (read more about this here.)

Although it may, therefore, on the surface seem like Dr. BenBassat failed in his effort to steer the proxy voting in his favor this was far from the case. In fact, by establishing the co-CEO role before the proxy vote he, as they say, got out in front of the story, positioning the inevitable loss of control of the dual CEO/Chairperson role as a planned, deliberate, and magnanimous move. And, more importantly, he deflected the defeat of other key voting measures, including compensation measures, which, he, himself, directly and significantly benefitted from, such as option grants solely designed to prevent dilution of his ownership position from an ongoing, yearly process of diluting the common shareholder that he, himself, had presided over for years. Niccolò di Bernardo dei Machiavelli would have been proud of his prince.

The named co-CEO, Mr. Hannan Carmeli, a 17 year veteran with the company, may have been very excited about this promotion and may, I guess, for a very brief moment, have thought that his position as heir apparent was secure, but, in fact, he was not about to enter into the hallowed halls of executive leadership, but, rather, about to learn the age-old lesson of the mortality of henchmen.

Like Mr. Cameli, the new Chairperson of the Board, Dr. Israel Borovich, may have felt that his new position was one of importance, but certainly, in the days after the proxy voting, it looked to the outside world that he was in for a bit of a surprise.

The first hint of the potential irrelevance of the new co-CEO role and the new Chairperson of the Board of Directors came to light in the company’s first quarterly earnings call after the proxy voting. As I wrote in an earlier posting:

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, such doubts were eradicated when the company conducted its 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.

For me this conference call on July 24th, 2013, dealing with a spectacularly disappointing quarter, cemented the impotency of Mr. Borovich (although, as we will see below, I may have been too early on that one) and sealed the fate of Mr. Cameli, effectively wounding Mr. Cameli severely, leaving him incapacitated on the battlefield, awaiting the coup de grâce.

An additional hint of the potential irrelevance of the Mr. Carmeli’s role as co-CEO role was, of course, the absence of an announcement that he would join his co-CEO as a Board of Directors member.

By the way, just in case that you are confused by the term “resignation,” here is the full text of today’s announcement:

ClickSoftware Technologies Ltd. (CKSW), the leading provider of automated mobile workforce management and optimization solutions for the service industry, today announced that Co-CEO, Mr. Hannan Carmeli, has resigned from his position and will be leaving the Company. Mr. Carmeli previously held the titles of President and Chief Operating Officer, and was promoted to the Co-CEO position in June 2013. He will continue to serve the Company as long as needed to ensure a smooth transition. Dr. Moshe BenBassat, ClickSoftware’s Founder, will continue as CEO.

“The Board determined that having two leaders at the top of the Company was not practical, and that it was in the Company’s best interest to revert back to a more conventional structure of leadership under one CEO,” said Dr. Israel Borovich, ClickSoftware’s Chairman of the Board. “On behalf of ClickSoftware and the Board of Directors, I would like to thank Hannan for over 17 years of dedicated service to the Company, and wish him all the best for the future,” Dr. Borovich added.

Besides making it clear that Mr. Carmeli’s resignation probably was forced, the quote raises the interesting possibility that it may actually be Dr. Borovich who whacked Mr. Carmeli, not Dr. BenBassat, which could imply that Dr. Borovich is not the easy mark he may have appeared to be and may, in fact, have acted against Mr. Carmeli in order to put Dr. BenBassat on notice.

Much of the above is,of course, conjecture, but,given the Marchavallian nature of corporate powerplay — where, of course, the stakes are enormous — it seems pretty straightforward to me.

So?

And, so, either way, today’s announcement of Mr. Cameli’s resignation was not unexpected. For in the final henchman analysis, either Mr. Cameli was executed for the company’s failure in the prior quarter; or for the company’s failure in the current quarter; or for not understanding that his co-CEO role was, at best, ceremonial; or to eliminate lingering embarrassment; or as colateral damage in an emerging power struggle.

It is easy for us, by the way, to feel sorry for Mr. Carmeli, but I am not sure he would elicit much sympathy from Marchavelli, who would have figured Mr. Carmeli for dead the moment he accepted the co-CEO position in much the same way he would have assigned a zero probability of survival for a toddler being dropped in a well with two King Cobras. In fact, I suspect that Marchavelli’s take on the Mr. Carmeli’s demise would be rather Darwinian, in that, ipso facto, the events as they unfolded were proof that Mr. Carmeli was not worthy to be a prince.

By the way, it is, of course, possible that the onion has another layer, with, for instance, Mr. Carmeli having been in on the entire chain of events, perhaps seeking an early retirement or perhaps choosing to fall on the sword for his boss… If so, we are dealing with corporate abuse of the highest order, and, I am sure, we will never obtain confirmation.

Whichever way this really fell out, however, it is, for sure, not good news for the company, implying as a minimum, that the Board of Directors has little or no control over what goes on in the company (the promotion of Mr. Cameli to co-CEO in June, followed by his canning in August, does not exactly instill confidence in the competence of the Board of Directors,) and possibly indicating that the company’s Board of Directors is engaged in a power struggle, that the company’s CEO is on some sort of bender, or that the company’s third quarter results are going to be problematic.

The market, which has an uncanny ability to sass out issues in real-time, reacted immediately to the announcement, dropping the per share price by more than three percent at the opening of the trading.

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Drip-drip-drip — We have to patch that hole before it sinks us

USS_Towers_DDG-9_sinkingMr. Jim Romenesko continues to be spattered with leaks from Patch, the local news arm of AOL, which he promptly, like a dog shaking off the wet, publishes on his blog (here.)

I have followed this leakage with, frankly, an increasing sense of amazement, starting with the leaking of the less than graceful and very public firing of Patch employee Mr. Abel Lenz by Mr. Tim Armstrong, the CEO of AOL (read about this here.)

Recently, the sales objectives of Patch were leaked in the form of two memorandums written by Mr. Jim Lipuma, Patch’s head of sales in the United States, and we promptly dissected this information in a posting (here,) where we arrived at the following conclusion:

    If we assume 260 working days, Patch’s sales people in the United States needs to secure $26 million per year in net new sales.

    If we instead assume that the days that Mr. Lipuma is referring to are calendar days (more likely, I think,) then Patch’s sales people in the United States needs to secure $36.5 million per year.

Today, it would appear that someone linked the actual sales goals and the attainment numbers for the United States market for Patch to Mr. Romenesko, and, of course, Mr. Romensko published them in his blog together with pictures from the meeting where Mr. Lenz was fired (you can see Mr. Romenesko’s blog posting here.)

Here are the sales goals and the attainments in a nice table form:

bookings

So, my $36.5 million sales target was almost spot on. At $9,038,230 as a target for the quarter, and assuming that the is baked-in growth quarter over quarter, the annual sales goal, as reflected in the leaked table, is $36.2 million. Moreover — and this should be enormously alarming to the AOL Board of Directors — the year-to-date achievement of the sales goal is seriously bad.

The firing of Mr. Lenz was clearly a mistake of the highest order and the subsequent mea culpa… eh… mea innocentia by Mr. Armstrong (read about it here) should cause some raised eyebrows in the board room of AOL.

However, it is becoming clear that, Mr. Armstrong’s odd behavior aside, the leaking is a critical problem, which has the potential for throwing Patch and AOL into a state of in extremis, and that must be dealt with immediately.

Sales goals and sales achievement numbers is extremely sensitive information, in particular in publicly traded company, and not withstanding Mr. Armstrong’s bizarre sweeping aside of the fact that AOL and Patch is evidently leaking more than the Titanic on April 15th, 1912, is something that should be dealt with decisively and immediately.

This is a corporate governance issue of the highest order. On-the-spot firing of someone that takes pictures at an internal meeting seems a little excessive and could reasonably be expected to make the Board of Directors question the judgement of the CEO of a multi-billion dollar corporation. Not taking immediate and extensive steps to finding and stopping the leaking of sales goals of and sales achievement numbers in a publicly traded, multi-billion dollar corporation is totally unacceptable and should make the Board of Directors question the judgement of such corporation’s CEO.

Donations, please….

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To leak or not to leak — that is the question at Patch

Courtesy of Bundesarchiv, Bild 183-C0212-0043-012 / CC-BY-SA

Courtesy of Bundesarchiv, Bild 183-C0212-0043-012 / CC-BY-SA

Yesterday (here) I wrote about the firing of Mr. Abel Lenz, who worked for Patch, a part of AOL, by Mr. Tim Armstrong, AOL’s CEO, on a supposedly morale boosting all-hands call — apparently because Mr. Lenz took pictures during the call.

As chronicled by Mr. Jim Romenesko on his blog (here,) Patch Media has been under extreme pressure recently, culminating in the apparent decision to reduced the number of sites from 900 to 600 (Patch, or Patch Media, provides local news through web-sites.)

Naturally, on the heels of this of this pressure there has been much uncertainty among the staff at Patch, and, as can be expected in this day of age, rampant media leakage from within the company.

Pressure in an organization tends to result in a build up of pressure in key persons, and unfortunately for Mr. Lenz, Mr. Armstrong was such a key person and had difficulty holding the pressure, and, as they say, the rest is history.

Today, after a full one million people had listened to the recording of Mr. Armstrong firing Mr. Lenz, Mr. Armstrong released an internal memorandum to the AOL staff, sort of, kind of, but not really, acknowledging that the impromptu and public firing of Mr. Lenz was a mistake. Here, courtesy of Mr. Romenesko’s blog (here) and, I guess, another leak at AOL, is some of what he wrote:

I am writing you to acknowledge the mistake I made last Friday during the Patch all-hands meeting when I publicly fired Abel Lenz. It was an emotional response at the start of a difficult discussion dealing with many people’s careers and livelihoods. I am the CEO and leader of the organization, and I take that responsibility seriously. We talk a lot about accountability and I am accountable for the way I handled the situation, and at a human level it was unfair to Abel. I’ve communicated to him directly and apologized for the way the matter was handled at the meeting.

My action was driven by the desire to openly communicate with over a thousand Patch employees across the US. The meeting on Friday was the second all-hands we had run that week and people came to Friday’s meeting knowing we would be openly discussing some of the potential changes needed at Patch. As you know, I am a firm believer in open meetings, open Q&A, and this level of transparency requires trust across AOL. Internal meetings of a confidential nature should not be filmed or recorded so that our employees can feel free to discuss all topics openly. Abel had been told previously not to record a confidential meeting, and he repeated that behavior on Friday, which drove my actions.

So Mr. Armstrong thinks that he did wrong, but perhaps not so much, since this was a confidential meeting and you should not record or photorgraph a confidential meeting.

Sounds understandable to me. A little schizophrenic perhaps, but somewhat understandable in view of the company’s crisis and what appear to be a culture of leaks. After all, leaks cannot be condoned.

But wait… didn’t Mr. Armstrong just, seconds before firing Mr. Lenz, legitimize or endorse the culture of leaks? According to the transcript (Courtesy of Mr. Romenesko again, here):

I don’t care what the press says, I don’t care if people leak information. I’ve already lived through that at AOL — when I took over AOL — so if you need somebody to blame for why we’re making changes at Patch you can blame me. I take full responsibility. …

I also want to clear up the fact that leaking information or anything around Patch isn’t going to bother me, doesn’t bother me. I’m not changing direction. When you hear about what we’re doing at Patch it’s very serious and it’s very forward-thinking and anything that happens around Patch isn’t going to change that direction.

So, what is it? Are leaks OK? If so, why fire Mr. Lenz for “recording” the event? Or are they not OK, and, if so, why did Mr. Armstrong say that they were?

In the spirit of the open communication that Mr. Armstrong seeks, I think that the Patch crew has the right to know.

And, certainly, at this stage, Mr. Lenz have the right to know as well, so that he can start the process of Vergangenheitsbewältigung that everyone who is fired has to go through. But, of course, no longer being an insider, Mr. Lenz will, as will the rest of us, have to rely on leaks to get that information.

There are clearly problems at Patch, but they may, as it is often the case, originate at the very top of the organization. Certainly, the fact that we now have leaks of the — presumably confidential — discussions of the leak is proof positive that there are deep problems at Patch and AOL. The question is, I think, what the heights of these problems are.

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Morale Booster or Morale Buster

Après moi le Deluge
— Motto of the No. 617 Squadron of the Royal Air Force,
perhaps best known for its dam-busting bombing raids during
Operation Chastise during the Second World War.

Dam(n) the Morale

largeLet me tell you…. It ain’t easy being an employee, particularly in the United States where you live and die by The Boss and his or her temper.

Mr. Abel Lenz, who worked for Patch, a part of AOL, learnt this the hard way when he ran afoul of Mr. Tim Armstrong, AOL’s CEO, on a supposedly morale boosting, all-hands call, where, unfortunately, Mr. Lenz happened to be one of the guys who were actually in the room with Mr. Armstrong rather than on the phone in a secure location, far, far away.

Courtesy of Mr. Jim Romensko (here) this is the transcript of the pertinent part of the call (you can access the audio here):

“Third thing is if you don’t use Patch as a product and you’re not invested in Patch, you owe it to everybody else at Patch to leave. If you think what’s going on right now is a joke, and you want to joke around about it, you should pick your stuff up and leave Patch today, and the reason is, and I’m going to be very specific about this, is Patch from an experience — Abel, put that camera down right now! Abel, you’re fired. Out! [Momentary pause.] If you guys think that AOL has not been committed to Patch, and won’t stay committed to Patch, you’re wrong. The company has spent hundreds of millions of dollars, the board of directors is committed, I’m committed.”

What did Mr. Lenz do to deserve this execution in front of 1,000 of his colleagues? Well, we don’t know from the audio, but it appears that he was snapping pictures — something that he has apparently done before when he, in what I guess is a morale boosting gesture and for the benefit of the people who were not in the room, has published such snapshots on the company’s internal bulletin boards, which I assume exist precisely to boost morale. But who knows, perhaps that was not the whole story.

Regardless, Mr. Lenz is gone and the morale boosting was transformed to a morale busting.

P.S. If you have not heard about Patch, don’t feel bad. You are not alone. Patch (actually, Patch Media) is an an American local news and information platform, which maintain 900 local news sites. Recently, Patch has hit a bad patch(!) and it is now reducing the number of sites to 600. This bad patch at Patch could have something to do with Mr. Lenz’s firing as the company was founded by Mr. Armstrong and acquired by AOL in one of the first actions he undertook when he joined AOL as CEO in 2009, and, so, Mr. Armstrong was probably wound up pretty tight.

Donations, please….

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ClickSoftware gets it… somewhat

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.

Giving it to us straight

2178342343_6e79a3b998_oYesterday, July 24th, 2013, ClickSoftware Technologies released its quarterly results for second fiscal quarter of fiscal year 2013.

ClickSoftware Technologies, an Israel based enterprise software company that I have written quite a lot about (for a baseline discussion, go here,) is a market leader in the supply of scheduling software for enterprises.

Recently, in an unprecedented move, the company had altered its annual guidance, announcing that it anticipated revenues for 2013 to grow substantially less than indicated in previous guidance and, also, that it anticipated that it would incur losses in its second quarter, primarily as a result of an increased activity in Software as a Service (SaaS) business.

In a posting that I wrote on July 20th, 2013, about this alteration of guidance and the impact of SaaS on the revenue line for enterprise software company (read it here) I noted that the change of guidance was not unexpected (although it, of course, was unfortunate) given the company’s entry into the SaaS licensing market, which has a completely different revenue and cost profile than the on-premise licensing. Moreover, I noted that the issue of cannibalization is significant, potentially causing delays in deal closing and significant increases in operational costs.

Significantly, it appears that the company was unprepared for the uptake in SaaS business, being essentially forced to resetting the guidance. If this is case, it would be very disappointing, indicating that the company has problem maintaining its competence as it grows.

The market’s reaction to the company’s announcement was immediate and extreme, sinking the per share price for CKSW, the company’s equity, from $8.50 to $7. However in a period of 14 days, or so, between the date of the announcement and today’s release of the quarterly earnings results, the per share price recovered much grow, growing to $7.70.

The company’s earnings conference call was what is perhaps best characterized as vintage BenBassat, performed using the Cool Hand Luke approach of the company’s CEO, Dr. Moshe BenBassat, with facts being provided and no apologies offered.

This approach was not generally embraced by the market and the per share price of CKSW dropped 5% on unusually high volume.

Dr. BenBassat gets it… somewhat

What I noted about the call was that Dr. BenBassat, in his capacity of co-CEO, essentially discussed the same challenges that I had outlined in my earlier posting: Selling enterprise class SaaS solutions is essentially equivalent to financing your customers, with the SaaS provider incurring high up-front expenses and substantially less revenues in the hope that the customers’ user counts will grow over time and, eventually, provide a high level of profitability.

Smaller deals

In my posting I wrote:

Selling enterprise class SaaS solutions is essentially equivalent to financing your customers, with the SaaS provider incurring high up-front expenses and minuscule revenues in the hope that the customers’ user counts will grow over time and, eventually, provide a high level of profitability — something that TOA Technologies knows very well, because they are already caught up in the spinning tops mechanics of SaaS.

In the conference call Dr. BenBassat said:

I guess when we look into the statistics of what we have in the pipeline for the second half of the year, it looks like we have a larger number of deals relative to last year but each one of them is relatively smaller amount of licenses. So we probably have what we need to generate similar levels or higher of license revenues, and perhaps it’s even lower risk because if one of them disappears, it’s not as bad as it was when you depended on one large deal.

So, Dr. BenBassat, and, by extension, the company, gets the issue with revenues, which is encouraging for an investor. The second part of his comment, implying that there is less risk to the pipeline could be correct, but it is amply offset by the risks added by 1) having to maintain a larger, lower quality sales-force to capture lower quality deals, and 2) the closing, financing, and operational risks inherent with lower quality deals

Revenue cannibalization

Reffering to the reset of the guidance for fiscal year 2013 I wrote:

Essentially, the release of two alternative pricing models by a company for an offering creates a situation where the company in developing its guidance need to discriminate between the two offerings, and, since the company has no historic data providing a basis for such discrimination, it is forced to choose the lowest possible guidance.

In the conference call Dr. BenBassat said:

… [Let’s] take an example that in the past a perpetual license deal of $1 million. If it was relatively simple to implement, then you get an order for $1 million and you recognize right away, and you have additional $1 million licenses in this quarter. On the other hand, if this customer decides to go on a cloud software-as-a-service monthly fee of, let’s say, $50,000 a month, that after 2.5 or 3 years will roughly be about the same $1 million we just spoke about, then in this quarter you only have $50K and of course it’s very minimal.

But let’s now move forward, let’s say, three or four months ago. At any given year, say 2013, let’s say that you finish December 31, 2013 with $1 million in services, software as a service cloud licensees. On January 1 of 2014, this is still there, okay, and now every new account that you add will be added to this $1 million monthly recurring revenues. In the past, whatever you signed, you signed, and now you have to start working hard to sign another $1 million deal and another $1 million deal. That’s why, as I say, in the long term it’s certainly a very, very favorable development and it will slow down the growth rate, not necessarily the growth, the growth rate of the company; but in the future, it will contribute to stability, more predictability, and so forth. So that’s the explanation.

Again, Dr. BenBassat gets it. However, he ignores the important fact that customers may terminate their relationship with the company (voluntarily, in a situation where the customer takes advantages of the fact that there is a lower barrier to replacement by the sold system by a competitor of ClickSoftware Technologies or (somewhat) involuntarily in the event of a change is business structure of business direction.)

Moreover, Dr. BenBassat logic is flawed, because revenues attributable to a customer in an on-premise license deal does not, in fact, terminate when the deployment is complete. Rather, after deployment, support and maintenance, which carries revenues with extremely high margins, kick in. Furthermore, if you have an on-premise license arrangement there is a degree of customer intimacy that is non-existent in the SaaS universe and almost always leads to a continuous stream of upgrade and customization revenues and, importantly, increases the “stickiness” of your deployment, acting as an additional competitive barrier.

Spin

4427422524_24837c33d0_oActually, I am being unfair. At this stage, Dr. BenBassat, who clearly is highly intelligent, probably gets the full picture (although I suspect that the ClickSoftware Technologies team, including Dr. BenBassat was caught with their pants down on these issues and have mostly been in frantic regrouping mode since the beginning of the fiscal year,) but, as the CEO of a publicly traded company, probably feels compelled to spin the facts.

The fact that there is spin became evident when, in the Q&A part of the conference call, direct, pointed questioned were deflected:

Question: Okay, and just a last piece to this – do you have sort of a ballpark estimate of where you expect to settle in terms of percentage of recurring revenue three years out?

Dr. BenBassat: Yeah, let’s not go into this at this point in time.

Picking through the spin, I believe that the real story behind the company’s problematic second quarter and potentially problematic year comes down to a few simple facts:

  1. The company was under-prepared for the increase in interest in the SaaS model, but over-prepared on the infrastructure side, akin to a military force that build up an arsenal of main battle tanks in anticipation of large scale, Kursk-like, tank battles, but encounters disparate attacks by partisans using improvised explosive devices in an ambush pattern.

    As Mr. Shmuel Arvatz, the company’s CFO, let slip on the conference call, the company’s structure is simply not prepared for the way that SaaS business is structured:

    Moshe referred mostly to the revenue side and the fact that you move to subscription rather than to one-time. On the expenses side, the operation is built to support much higher revenues in terms of the operations and investments. So this creates also pressure on the gross margin because we did not achieve any economies of scale in the model right now, but the model is built for much higher revenues.

  2. The actual number of SaaS deals secured in the quarter was very low, and, therefore, the company is still not clear on what the mechanics will be of a SaaS deployment. Moreover, therefore, the revenue shortfall in the quarter was not attributable to a change in order composition, but, rather, to self-inflicted delays in the prospect’s selection process, i.e. to cannibalization.

    As Dr. BenBassat acknowledged during the call:

    Yeah, we don’t report this number, but quite frankly, as I said, the revenues – not necessarily the number of customers, the revenues – from cloud revenues is still relatively marginal compared to the 24.7 million that we had in the quarter.

    It’s just, as I say, some slippage, some argumentation whether it’s going to be internally within the customers on the prospect side whether this deal is going to be a perpetual license deal or a cloud deal, and this sometimes delays deals….

The real issue here for is, therefore, not the fact that the market shifted, but, rather, the fundamental question of whether or not the company has lots its competency edge as it has grown. As I wrote in an earlier posting:

I, for one, would be severely disappointed to learn that, by engaging in the pursuit of SaaS opportunities, ClickSoftware Technologies has entered into uncharted waters where it no longer can control its destiny with the same degree of certainty that it could just a year ago.

If these events are in any way related to a lack of competency, then the ClickSoftware technologies leadership team need to take a hard look at its culture

Unfortunately, yes, in spite of some impressive tap-dancing by Dr. BenBassat on the conference call, it does appear that the company has, indeed, lost some competency and has entered into uncharted waters. Moreover, it has entered into these waters on its own volition and now is paying the price.

Spin aside

So, there we have it…. The no apologies conference call has substantially revealed that the company, undoubtedly somewhat aided by a shift in the overall software market, has put itself in a situation where it has less control over its future than it had last year and may be incurring a substantial expense increase and revenue slowdown in the short to medium time-frame.

The hope, of course, is that this expense increase and revenue slowdown will be offset by increased and more sustainable and predictable revenues with higher margin in the future, but, for now, this hope is unsubstantiated and all the investors see is margin and revenue erosion. Naturally, in the quick-buck, short-term outlook market of today such margin and revenue erosion is a punishable offense, and, therefore, CKSW is currently being punished.

The irony, of course, is that it does not matter, since, at the most fundamental level of investment, nothing has really changed. In fact, with the no apologies approach applied in the conference call, Dr. BenBassat and the company has simply confirmed what long term followers of ClickSoftware Technologies have known for years: An investment in ClickSoftware Technologies is a long term play and the company will punish anyone who engages in short-term speculation around the company’s equity. As I wrote in February of 2013:

I would have thought that traders would have sought other pastures, simply viewing CKSW as too volatile and too unpredictable, particularly since it has a management team that may or may not meet traders’ and the market’s expectations — and probably won’t lose any sleep over these expectations, but, contrary to my expectations, the traders appear to still be around shorting, longing, and optioning CKSW as much as ever. Go figure.

In a nutshell, from the perspective of an individual or institution that has a long-term outlook on ClickSoftware there is almost nothing wrong with the company and its equity. The company’s operation management success is nearly unparalleled, and historically the company has managed to strike a good balance between investment in future opportunities and consistent delivery of strong results. However, once you commit, you better strap in and hang on tight, for there is no knowing where the company’s management team and Board of Directors are going to take you.

I would be remiss if I did not touch upon the big elephant in the room. On top of the potential for long term growth, the company offers the promise of the Big Kahuna in the form of an acquisition by Oracle or SAP. However, from an short- to medium-term investment standpoint, chasing such event is folly, since, although it has been the subject of intense discussion in investor circles since the time of the company’s IPO in 2000, there has, so far, been absolutely no indications from the company’s management team or Board of Directors that it was even being considered.

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Power of the Pen — ClickSoftware

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.

The Prelude

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?

2404826387_bf9610e6ed_oWell, regardless, I soldier on, and recently I wrote about the importance of voting in shareholder matters… something that is often not appreciated by shareholders because they feel… well … impotent.

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.

Fugue

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.)

Update
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:

Shares ClickSoftware  2013

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.

Stretto

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.

Donations, please….

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Let them eat cake…

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.

…. And, if you find yourself enjoying — or otherwise benefiting from — this posting, consider supporting the blog through a donation. For your convenience, PayPal links are provided to the right and at the end of the posting.

Triangulation

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.

Update
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…

Participate, please….

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