Annual reports: getting to know your CEO and your Board

Annual reports and proxy statements are pouring in these days. It’s hard for us to keep up. Two things we look for are board compensation and the CEOs letter. It is amazing the gap between earnings and dividend behavior and board compensation.

As far as we can tell, it’s all over the map. Declining earnings and stock market share prices don’t usually result in declines in board compensation.

The big deal to vote on now is the “Say on Pay” for CEOs. Like stockholders care. You know who cares? Institutions, mainly unions’ pension funds, who hold large chunks of the bigger companies care. Shareholder proposals are, in our opinion, a joke.

Many are politically motivated – asking companies to reveal their political contributions and lobbying activities. We love the ones from the nuns. Really! Some religious order back East often has a shareholder proposal of some kind in the proxy statement.

The companies have explanations that sound bland and, sometimes, disingenuous, explaining why they oppose the proposals .

The real revelations come from the CEO letters. Where do they put company priorities? Yes, you have to read between the lines – past the bland and disingenuous and feel-good rhetoric to what he or she really thinks.  And, surprisingly, after you read a dozen or so CEO letters you can detect genuine thinking and pick out the meat that’s hidden inside the bun.

If you have accounting or auditing experience, you can analyse the financials. IFO finds that too difficult, given that she has a day job that takes most of her mental energy. She leaves that analysis to the market, which is amazingly good at reflecting the company’s financial health OVER TIME. Day to day fluctuations are pretty meaningless.

That is why we recommend doing those comparisons on Yahoo!Finance of companies your are interested in. You can compare to other stocks you own, or to other companies in the same industry. You can compare to the market averages. This gives you an idea of where your focus company fits into the picture.

Well, happy annual report reading!


About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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