7 Signs of a Shareholder Friendly Management

Good corporate governance is important for its portfolio. When you are in business with people who are interested in ensuring that you, the shareholder, get a fair shake, is likely to have better results. Here are seven things you can find an owner-oriented company.

1. Clearly articulated with the dividend policy rationally justifiable
One of the most important jobs of management has been allocating shareholder capital. How excess profits are handled is extremely important, if reinvested in existing operations, used to acquire a competitor, expand into other industries, repurchase shares or increase dividends in cash to owners, the decision will have an impact substantial wealth of the owners. As Warren Buffett aptly illustrated in one of his letters to shareholders, however, this is not something that comes naturally to most executives. "The lack of ability that many CEOs have in the allocation of capital is not a small matter: After ten years in the job, a CEO whose company's annual revenue reserves equal to 10% of net assets have been responsible for deployment of more than 60% of the entire capital at work in the company. " When management articulates a clear and justified the dividend policy, shareholders are better able to make them responsible and judge performance. It also tempers the need to pursue overpriced acquisitions. An excellent example is the U.S. Bank, the sixth largest financial institution in the world. According to the company's annual report 2005, "The Company has focused on restoring 80 percent of profits to our shareholders through a combination of dividends and share repurchases. Consistent with the goal, the company returned to 90 percent of revenues in 2005. "

2. Management stock ownership guidelines
Everything else being equal, you want your capital managed by someone who has "skin in the game", so to speak. Shareholder friendly companies often require their managers and executives to own shares in the company worth several times their base salary. This ensures that those who are thinking primarily as owners, not employees.

3. Strong managers who are loyal to shareholders, not management
The Governing Council should know their main job - to protect the interests of shareholders, not management. Throughout the financial history, it seems that most of corporate scandals have occurred when a board was too comfortable with the executive team. This phenomenon is understandable, when working with people you like and respect, it is certainly easier to take friendship club atmosphere rather than a fight club antagonistic. How can we know whether the directors are on your side? Look for some key signs:

• Directors hold separate meetings without management present.
• Board compensation is reasonable and not excessive.

4. The equity and voting rights Aligned
In most cases, does not bode well for the management of possessing 2% of the population, but control 80% of the votes. These agreements can lead to unbalanced class of shareholder that the abuse was alleged in Adelphia.

5. Limited related-party transactions
Does the company leases all its facilities of a real estate company owned and controlled by the family of the CEO? Are all the napkins in his chain of pizza bought the granddaughter of the founder? Despite the fact that some transactions with related parties can actually be good for business, be aware of situations that could give rise to conflicts of interest. Taking our last example: shareholders will get the lowest possible price in its infancy, or the CEO is going to feel like helping out the granddaughter of the founder of paying more than they know it could get elsewhere?

6. Reasonable and restricted stock options and executive compensation
If the CEO is paid $ 100 million, may be perfectly justified if the company is among the top performers during his tenure. If companies has been reduced, the talent is jumping ship, shareholders are revolting, and a huge pay package has been announced, there may be very real problems of corporate governance.

7. Open and honest communication
As the owner of the company, you are entitled to know the challenges and opportunities facing your company. If management is reluctant to share information, may indicate a tendency to regard shareholders as a necessary evil rather than the true owners of the company. In most cases, your portfolio will be better if you steer clear.