Stockholdings in companies: How much stake do senior managers have?
published: Sunday | January 30, 2005

Ashford W. Meikle, Staff Reporter

A SURVEY of 12 companies listed on the Jamaica Stock Exchange (JSE) by Sunday Business reveals that most of their senior managers have negligible interests in their companies vis-a-vis stockholdings.

But, how does one determine what is negligible? When a company, like the conglomerate Lascelles deMercado, has 96 million ordinary units (of 20 cents each), just how much would be considered a substantial holding by a director? What if a director has 10,000 ordinary units (with a value of $3.2 million)? Would this be substantial, compared to a director of First Life who might hold 20,000 units (with a value of $1.1 million)? And, bear in mind that First Life has 300 million ordinary shares.

CRUDE METHODOLOGY

It is not an easy question to resolve, but to answer the million-dollar question, Sunday Business settled on a million dollars - pun intended. That is, those chief operating officers whose stockholdings exceed a million dollars qualified as having 'substantive' stakes in their companies. Of course, one ought to bear in mind that this methodology is crude and, perhaps unfair since the share capital of some companies are in the millions while others are in the billions.

To some analysts, the issue speaks to a much wider topic ­ that of corporate governance. It is felt that that when a director has substantial holdings in his or her company, it is a vote of confidence in the future of the company. The chief executive officer of Grace, Douglas Orane, and his chief financial officer, Don Wehby, admitted as much when they recently increased their stockholdings in the company by exercising the directors' option.

Leading shareholder activist and noted author Robert A.G. Monks says that a company in which its directors own little or no stocks displays poor corporate governance. Mr. Monks, who founded Lens Incorporated in 1992, an investment management fund (which, until its closing in 2002, outperformed the Standard and Poor's 500 every year) noted that "only shareholders are sufficiently motivated, independent and long-term oriented to have the necessary qualifications for effective monitoring."

It is important, as noted by the website boardbriefs.com, for directors and senior managers to have substantial holdings in their companies, since it signals that directors are taking seriously the need to align themselves with their interests with those of stockholders.