If you don’t know Eric Jackson, he’s an activist shareholder through his fund Ironfire Capital and he also writes a terrific blog called Breakout Performance.
When a knowledgeable activist talks governance and the quality of corporate boards, I try to listen and learn something.
Jackson came upon something interesting during the course of his research to determine the best boards in America (Amazon.com comes out on top btw)…and boy, I bet BusinessWeek wishes he hadn’t:
To help spark my thinking, I searched the Web for recent corporate rankings of the best boards in corporate America. I came across a list from BusinessWeek from 2000. The top board on the list was General Electric (GE Quote), which unseated Campbell Soup(CPB Quote). Others near the top were IBM(IBM Quote), Home Depot(HD Quote), Intel (INTC Quote) and Cisco(CSCO Quote).
Since this ranking was issued, the combined stock returns of this group has been down 60% vs. negative 37% for the S&P 500. Three of the worst boards in 2000 in the rankings — Walt Disney(DIS Quote), Rite Aid (RAD Quote) and Waste Management (WMI Quote) — actually have slightly outperformed the best boards in the nine years since, but still returning on average negative 54% .
The companies with the “worst boards” beat those with the “best boards”…and both severely underperformed the S&P 500.
Now are these results an indictment of the concept that “Board Quality” actually matters?
Possibly, or perhaps they just reinforce how absurd it is for magazines to run those “Stocks for the Next Ten Years” cover stories that they rely on so heavily to move copies at the newsstand (I’m lookin’ at you, Kiplinger).
The composition and independence of a company’s board does not give you an excuse to buy, blindfold and hold.
Anyway, Jackson’s rationale behind his rankings are both illuminating and timely as we await the next generation of stock leaders to emerge from the morass.
His full post is here:
Full Disclaimer: I may be long or short any of the above mentioned companies at any time for either client or personal accounts. If you’ve read this far down the page, then I would assume that you are intelligent enough not to trade or invest based on anything you read on a blog, including this one. My commentary above is not an endorsement of Jackson’s fund or any of the companies mentioned. See my Terms & Conditions page for a full disclaimer.