This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Telit: Warning Signs in the Remuneration Report

Today the CEO, Cats, has left Telit.

Trust between shareholders and the company is fundamental. Cats lied to the company and the company failed to disclose relevant information to its shareholders.

Cats was paid $3.37 million in 2016 made up of $1.63m salary and bonus of $1.74m. ShareSoc remuneration guidelines suggest £300k to £500k as a guideline for a company of this size c £250 million turnover. Cats owned 16 million shares and also has share options. So, such a large pay package was unnecessary. It is a sign of weak corporate governance that he was able to demand to be paid so much. Remuneration is often a window on the soul of the company. It certainly was in this company, but most investors and analysts had not spotted this.

Manifest, the corporate governance experts, in its Annual Governance Review of Telit spotted numerous concerns. Of particular note:

Shareholders may wish to note the lack of gender diversity. Greater diversity creates boards which are better suited to face the business challenges whilst also having the impact of improving corporate governance. A diverse board will harness a range of skills and different perspectives which will assist a company in responding to an uncertain business environment.

Chicco Testa serves as the Board’s Executive Chairman. The QCA Code recommends that the chairman must have adequate separation from the day-to-day business to make independent decisions. Save in exceptional (and well documented) circumstances, the Chairman should not also fulfil the role of Chief Executive.

The maximum percentage dilution allowed under any of the company’s share schemes in any rolling ten year period exceeds the 10% figure recommended by institutional investor guidelines, standing at 15%. The potential level of dilution should all outstanding share awards/options vest is considered to be high at 12.9%.

Due diligence of AIM has yet again failed the market and shareholders. So either the London Stock Exchange has failed to adequately monitor NOMADs or the remit needs changing so NOMADs are better monitored.

My thoughts are also reported in today’s Evening Standard: https://www.standard.co.uk/business/stock-market-under-fire-over-scandal-at-israeli-firm-telit-a3611101.html

Cliff Weight

2 Comments
  1. cliffw8 says:

    I was also quoted in the Telegraph – Cliff Weight of investors’ group ShareSoc said the situation highlighted the importance of proper scrutiny of firms on London’s junior market. He said: “Due diligence of AIM has yet again failed the market and shareholders.” see http://www.telegraph.co.uk/business/2017/08/14/telit-communications-boss-resigns-alleged-links-25-year-old/

    The FT have a good story today which highlights some good things, but also the problems with cash flow https://www.ft.com/content/782592a2-80e6-11e7-a4ce-15b2513cb3ff

  2. Cliff Weight says:

    We should be asking LSE to investigate if they have asked the Telit NOMAD if they followed the LSE rulebook, in respect of checks on the CEO.

    If you go to the detailed rules http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aimrulesnomadsmay14.pdf , it says on page 16

    1. DIRECTORS AND BOARD
    AR2 – In assessing the appropriateness of an applicant and its securities for AIM, a nominated adviser should (i) investigate and consider the suitability of each director and proposed director of the applicant; and (ii) consider the efficacy of the board as a whole for the company’s needs, in each case having in mind that the company will be admitted to trading on a UK public market
    In meeting this, the nominated adviser should usually:
    o  issue and review directors’ questionnaires and review directors’ CVs
    o  test the information revealed by the above questionnaires and CVs, for example by conducting press searches, Companies House checks, taking-up references and, where appropriate, obtaining third party checks. For directors who are not UK-based, appropriate investigations should be undertaken

    o  analyse any issues arising from these investigations, in particular as to how they could affect the applicant’s appropriateness to be admitted to AIM and be publicly traded

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