When something smells off
About 25 years ago I bought a Suzuki GSX-R 1100 motorcycle. For most of the 1980s the big GSX-R was the king of the hill.
Positioned as a ‘‘race bike with lights,’’ the GSX-R was a breakthrough model with 100 horsepower stock, easily boostable to 130-plus with a bit of fettling. This particular bike was going cheap and I figured I couldn’t go wrong so I snapped it up on the spot, being assured by a mate that it was impressive buying.
The engine was certainly impressive. Less impressive was its tendency to shake its head as the power came on, something that resulted me in nicknaming the bike ‘‘Godzilla,’’ after another fearsome Japanese monster.
I rode Godzilla for about a year before its rear suspension arm cracked, something that got my full attention as I was doing 120kmh at the time.
Turns out it had been cracked before and some idiot had welded it up rather than replace it. I still have that cracked piece of alloy, as a reminder of the stupidity of buying on the spur of the moment.
Clearly I’m a slow learner as 20 years later I got burnt by another spur of the moment acquisition, buying shares in technology company Rakon.
Again a mate told me that at the price (79 cents) it had never traded cheaper and I couldn’t go wrong. Rather than look into the underlying company I just bought in, I watched the shares bleed value, day by day and year by year.
Today they are valued at just 22c.
While I’ve suffered a 70 per cent loss of shareholder value, others have suffered worse.
Overseeing this destruction of shareholder value has been the family who established Rakon, the Robinsons.
Rakon was founded by Warren Robinson in 1967 as a quartz crystal company.
In later years his sons Brent and Darren became directors and they had several decades of real success.
In 2006 the company staged a public offering which saw the family walk away with a reported $68 million – along with a windfall of about $70m from unrealised initial public offering share holdings.
Today the Robinson family own just 23 per cent of the company but hold three of the six board seats.
Brent is managing director, Darren is head of sales and marketing, and both sit on the board with their dad – holding governance and executive roles at the same time.
It’s hard to see such a concentration and persistence of family control sitting easily with a board’s responsibility to represent all shareholders and create value rather than destroy it.
The resignation of two independent directors after shortish tenures doesn’t make things look any better.
Little wonder then that the Shareholders Association decided to take action.
Along with the 5000 other Rakon shareholders I received a letter from them in early August, pushing for the removal of Darren from the board and delivering a blistering review of the company’s management.
The association points to the fact that the company hasn’t paid a dividend to shareholders since it was listed. None.
The other thing the association flushed to the surface was the way that the two brothers’ salaries have gone seriously north while the share price went south.
Last week the board responded, with chairman Bryan Mogridge sending a letter to shareholders defending the Robinsons and asking for ‘‘orderly’’ change.
He also suggested that director Warren Robertson should be able to choose to retire with ‘‘dignity and the applause due to him’’.
It’s a nice sentiment and I’m sure he’s a good bloke. It’s also categorically wrong.
Directorships are not gold watches for jobs well done, or daybeds for ageing soldiers.
They are a keystone of governance and a tool to ensure current shareholders’ wealth is maximised.
When I first bought the big Suzuki, I couldn’t help but think it ‘‘smelled’’ wrong. Not the actual smell but the mental odour when riding and the way it shook its head.
To me, a listed company with over-rewarded senior executives without enough arm’s-length governance and a history of destroying shareholder value, can have the same sort of mental odour.
Meanwhile, I reckon there could be a fair amount of headshaking at the Rakon annual meeting in a few weeks’ time. ❚ Mike ‘‘MOD’’ O’Donnell owns Rakon shares – he wishes he didn’t.