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Last November I wrote about Ephraim Fields of Echo Lake Capital, who had written to the Board of Directors of Edgewater Technology, Inc. (EDGW) complaining about the stock's poor performance and senior management's excessive compensation.

Last week Fields issued a letter to Ms. Shirley Singleton, the Chairman and CEO of EDGW. In his letter, Fields revisits some of the issues he had raised in his previous letter. Importantly, in his latest letter, Fields analyzes these issues over a much longer time frame. Sadly for EDGW investors, his conclusions are similar.

Fields' first letter indicated that from 2007 to 2011, EDGW's stock price performance was disappointing, with the stock declining by 55% and significantly underperforming its peers. In his latest letter, Fields went back even further and analyzed the company's stock price performance from the day before Ms. Singleton was named CEO (in 2002) to the end of 2011 (the last year for which Singleton's compensation has been disclosed). As the table below illustrates, according to Fields, during this period EDGW's stock price again performed poorly on both an absolute and relative basis.

Total Return:

1/8/2002 - 12/31/2011

EDGW

-27%

S&P 500

32%

EDGW Over/(Under)Performance:

-59%

Fields also noted that during this time period, Singleton was granted total compensation of approximately $5.5 million by the Board.

I'm amazed that given her disappointing long-term track record Ms. Singleton is so generously compensated. Furthermore, I wonder why she still has her job. Typically, CEOs who continually destroy significant shareholder value and whose stock price underperforms for an extended period of time get replaced by the company's Board. It is unclear what Singleton has done to justify retaining her position after all these years of disappointing results. Would it really be that difficult for the Board to find someone else to run this business?

Fields' analysis is thorough, and raises the question of what the Board sees that he doesn't. EDGW's senior management and Board have done a poor job of creating shareholder value. It is difficult to understand how the Board justifies retaining Singleton and continuing to pay her so generously. Shareholders have a right to ask if the Board is fulfilling its fiduciary responsibility and acting in shareholders' best interest. The Board might well be making different decisions if they personally owned more EDGW shares and thus had more of an incentive to create shareholder value.

While researching this article I noticed something interesting that was not in Fields' letter. According to an 8K EDGW filed on January 31, 2013, the Board has authorized a pay increase for senior management. Singleton received a 6% increase in her base salary and the CFO received a 20% increase. I'm not sure what senior management has done to justify such pay increases. However, I suspect if shareholders are already frustrated, they will be even more upset when they see the full 2012 compensation packages (which will likely include as yet undisclosed bonuses).

Fields ends his letter by asking Singleton "How much longer of a track record do you need before you are convinced of your misguided ways?" I assume it is only a matter of time before investors begin to ask the Board the exact same question.

Source: Edgewater Technology: The Board Has Been Sleeping For Longer Than I Thought