May I just ask what your take is on the board composition? Do you feel there are significant conflicts of interest?
No real issue of conflicted interest, I don't think.
The issue that I have is that the functions of the ED's, and the reporting structures into those EDs, are most unconventional (but probably not surprising, given this is essentially a family-run business, meaning that gold-plated governance practices are never going to be practical).
What we have is an MD/CEO who has specific responsibility for marketing (so, effectively, a GM- Sales and Marketing role), and a Chief Operating Officer who has direct responsibility for the operations of the company, but he also doubles as a CEO and Company Secretary.
And then you have a non-executive chairman who is, emotionally, likely to be very deeply interested in the business (after all, it's his baby; he started it from scratch 40 years ago), so him suddenly adopting a hand-off approach is hard to contemplate. I am sure the executive chairman is still quite immersed in some of the quite granular matters of the business... far more than any typical non-executive chairman, I am convinced.
To me, this somewhat unusual executive arrangement feels kind of fluid and the demarcations of responsibility - and, therefore, accountability - risk becoming a bit blurred.
For sure, such an arrangement would never be countenanced at most publicly-listed companies.
But I'm sure this somewhat "informal" approach works for them (like I said, SDI is a family business, so I recognise its structures of governance will never be even remotely structured like those of a WES, or a CBA), but I just wanted to know more about decision-making processes (especially when it comes to capital allocation), reporting lines, performance measurement, attribution of successes, potential cracks in which accountability might fall... that sort of thing.
Of course, Cheetham Father, Cheetham Daughter and John Slaviro have been working together at senior level for the better part of a decade-and-a-half, so if there were going to be any major personality clashes or other dramas, they would have happened a long time ago.
In terms of board independence, while 4 out of the 7 directors are stated as being independent, there is a bit of related party activity (not too much about which to be critical, but enough to warrant monitoring) and the NEDs have all been on the board for 4 years (which is not yet long enough to be deemed to compromise their independence, but it will do so in another year or two, I feel).
So while the board can be said to be independent today, I feel that it is only just the case and that in 12 months' time, it might not be the case. So, I would like to see some pro-activity in the appointing of fresh blood to the board, to put to bed any doubts about board independence.
In terms of skills mix, there I am perfectly happy. There is a healthy distribution of expertise and experience, ranging from legal, technical and financial/tax. There is one non-executive director whose contribution I suspect might be somewhat redundant. But the NED's earn their keep, I believe (and at the reasonable cost of about $60k per NED, I feel that, as a shareholder, I get fair value for money.)
In terms of remuneration of ED's, the transition of MD role from Father to Daughter was not, in my view, very well articulated to the market (hence, the first strike at last year's AGM, I strongly suspect).
However, notably, the latest remuneration report shows that the total remuneration (but excluding bonuses) for J Cheetham (chairman) and S Cheetham (MD and CEO), collectively, amounted to $956k in FY2017, down from $1.067m in FY2016. The total remuneration (excl. bonuses) for J Slavieri (COO, CFO and Company Secretary) rose to $467k in FY2017, from $434k in FY2016.
So, collectively, NED's total remuneration (excl. bonuses) came to $1.42m in FY2017, down from $1.50m in FY2016, with Mr Slavieri earning 7.6% more (to take on extra duties, is my understanding, following the retirement of the position of Executive Chairman), and the Cheetham family members who are ED's, effectively took a 10% pay cut.
Which, I think, is appropriate in the scheme of things.
In totality, the cost of the entire board came to $1.79m in FY2017, down from $1.96m in FY2016, a reflection in part of the non-availability (at least, not on a full-time basis), since 1 July 2017, of the founder's insights and experience.
For a company of SDI's size, nature of business, degree of complexity and global geographical representation, its 7-member board (of which three are ED's) which is effective, functional and appropriately skilled and experienced, is not excessively remunerated, I don't feel.
Overall, when it comes to scoring SDI on governance, I would give them a 7 out of 10
Recognising that world's best governance practice will never be feasible for a company like SDI.
So really, the highest mark a company like would ever be able to score - if 10 out of 10 represents best practice - would be 8 or 8.5 out of 10. So while they aren't bad by any measure, they are not quite at the point to which they could possibly get.
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