The question of shareholder interests is always a lively one, provoking rather heated debates and differing viewpoints. I've come into the same arena two times recently - with both my articles on RSM Tenon and Character Group. The question is fundamentally the same - are minority shareholder interests being looked after, or is the company being run for the profit of one group of individuals? This idea is particularly pertinent for private investors investing in small caps, as they often find themselves doubly vulnerable - with no real voting power, there is little ability to change perceived injustices. Since small caps may also have less vocal institutional ownership, there aren't any big agitators for change should things obviously be coming off the rails.
Hence, the small shareholder is left holding stock in a promising company being run improperly. Owning shares buys you a slice of the company and, as a joint owner, you should expect to reasonably share in the fruits of your investment. Evidently it doesn't always work that way, and so in this post I'll be looking at a few of the factors which I'm more and more taking notice of as I consider not just the business itself, but the structure in place behind the business to ensure I'm properly reimbursed for my risk.
Cash Returned
Dividends are always a point of contention among investors. They're almost a double edged sword, and my opinion on them has shifted somewhat since I started investing. I was first completely unconcerned - after all, small caps are great because of their potential for long-term organic growth - something the giants of industry rarely have so easily available to them. As I'm investing for the long term, I don't mind the company keeping its capital inside the business and investing in productive assets, on the basis that I'll benefit more in the long run from a larger and more effective company. However, something I was perhaps a little lax on considering was the actual productive use of that money. Manufacturers may well have a great reason to keep money inside the business, but the same evidently doesn't ring true for a firm like the aforementioned Character Group, who have almost no fixed assets. In actuality, there's little to 'invest' in.
As such, an interesting statistic to look at…
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