Beware!!!Just a reminder:
« Previous Message Next Message »
Eh Golfnorth......any regrets??? LOL.....not me!
Financial Post : News
On the Money
MDC: the bank you never had: Company lets top brass borrow freely -- literally
Derek DeCloet
06/26/2002
National Post
National
Page FP3
(c) National Post 2002. All Rights Reserved.
Christos Cotsakos, chief executive of E*Trade Group Inc., made headlines recently when he returned US$21-million of his 2001 pay because of "shareholder concerns." If you're an optimist, you might believe this is the start of something -- that CEOs will suffer along with their shareholders when the company has a bad year.
And if you're a pessimist, you'll look at what happened at MDC Corp. Inc.
Toronto-based MDC is an odd collection of assets; its businesses range from marketing to designing stamps. In total, the company's subsidiaries produce about $1.1-billion in sales. MDC lost $139-million last year, and its performance for investors has, until very recently, been dismal. If you had invested $1,000 in the company at the end of 1996, it would be worth less than $600 today.
In a perfect world, the employees and management would share the shareholders' pain. But this is Canada, where companies are routinely locked up by one or two shareholders by use of multiple voting shares. MDC is one of those; Miles Nadal, its chief executive, controls the company via a special class of shares that carry 20 votes each.
That makes it all but impossible for minority shareholders, with their measly one vote per share, to replace the board. The directors, in essence, are accountable to the CEO, and not the other way around. And here is the result: Last year, Mr. Nadal was paid $4.7-million for running MDC -- more than Tony Comper was paid for running Bank of Montreal, a company 250 times larger and many times more complicated.
Mr. Nadal has been criticized for his generous compensation in the past and MDC is hardly the first company to pay too much to its CEO, nor even the worst example. But there is so much more than that for investors to question.
Why, for example, are the company's employees allowed to use it as a bank? No fewer than 13 directors and senior employees owe the company more than $18-million, as of mid-April -- more than 15% of shareholders' equity.
Some of the individual amounts are substantial. Stephen Marshall, MDC's executive vice-president of corporate development, owes $650,000 (all figures as of April). Walter Campbell, its senior vice-president of finance, owes more than $400,000. In both cases, the loans are secured by company shares (which, as we have seen, hold their value about as well as swampland).
Perhaps describing MDC as a bank for its executives is not quite correct. Banks charge interest and make their customers pay back the loans. Almost all of MDC's employee loans are interest-free -- and some of them may never be repaid. Peter Lewis, its chief financial officer, borrowed $250,000 for a house. As long as he stays with MDC until the beginning of 2003, the loan is forgivable.
If that happens, of course, it will be a benefit to Mr. Lewis, and the government will want its share. No problem -- MDC has generously agreed to pay the extra income taxes.
The biggest debtor, by far, is Mr. Nadal, who owed more than $10-million in "personal loans" as of April. Most of this is interest free, but Mr. Nadal is supposed to pay 7% interest on $3.5-million of it.
But in the fine print of MCD's proxy: "Interest for 2001 was waived."
We could go on, and talk about the $300,000 Mr. Nadal receives as chairman of one of MDC's subsidiaries, or the hundreds of thousands of stock options held by management. You can hardly blame Mr. Nadal, or any of MDC's employees, for taking advantage of what's been given to them. But nor can you blame investors for staying miles away from MDC. When a company shows such disregard for the interests of its shareholders, what choice do they have?