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NYSSA FORUM TO DEFINE VALUE OF
CORPORATE GOVERNANCE ACTIONS
The New York
Society of Security Analysts' Committee for Corporate Governance and
Shareholder Rights has initiated a program to analyze corporate governance
issues of selected companies in terms of stock value impact. Following
NYSSA traditions of open forums and professionalism, work groups of NYSSA
members will conduct the research required to define each company's
governance alternatives and evaluate the resulting investment opportunities.
A pilot project is using
National Presto Industries (NYSE: NPK) to demonstrate the process, as a
guide to future work groups formed for other companies. The company has
been invited to participate in the project and to contribute its views.
The work group's
first step is to estimate the potential value of a change in a company's use
of its assets. This can be done by analyzing specifically identified
actions, such as a proposed spinoff, or by analyzing the company's
performance in relation to suitable benchmarks.
In the case of National
Presto, the opportunity to make better use of assets is fairly likely since
management has been "reserving" over $200 million of the shareholders'
assets - about 90% of book value - in cash and short-term tax-exempt notes
for more than 10 years.
If there appears
to be a significant value enhancement opportunity, the next question would
be whether the company's board of directors can be expected to implement the
changes. Does the existing board have the independence and perspectives
needed to establish reasonable objectives, monitor performance, and, when
justified, change who manages the shareholders' assets? If not, do
shareholders have the practical ability to exercise their rights to replace
directors or take other appropriate actions? Or, in the absence of real
rights, should a shareholder just sell the stock?
National Presto's corporate
governance practices present interesting issues for a demonstration
project. Conditions such as the lack of independent directors, a staggered
board, and supermajority voting requirements clash with guidelines
established by the Business Roundtable, National Association of Corporate
Directors, Council of Institutional Investors, and other authorities. As a
practical matter, these conditions could limit shareholders' ability to
assert their rights, and may thus reduce management's sensitivity to the
interests of public shareholders.
When the work
group has completed its research, within about 90 days, reports or other
material prepared by participants and by the subject company will be
presented in a project file available to all NYSSA members. Subsequent
developments will be monitored for a year or more as required to test the
work group's analyses.
(As a
not-for-profit educational organization, the NYSSA provides a forum for this
and other programs of interest to its members, and does not endorse any
opinions or views.)
March 1, 1999
Peter Brennan, Chairman, NYSSA
Committee for Corporate Governance and Shareholder Rights
(c/o MidCap
Investors LLC, 50 Broad Street, New York, NY 10004; 212/668-3033)
Gary Lutin, project advisor and
co-sponsor
(c/o Lutin &
Company, 575 Madison Avenue, New York, NY 10022; 212/605-0335)
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