In the public equity markets, where a public company has no controlling shareholders, we rely on independent, competent boards of directors to protect the private investor and to assure there are sufficient controls. This fiduciary duty enables the public equity markets to function based on trust. But when the board is not doing its job and value is being depleted, there are few mechanisms to protect the shareholder. While is always easy to point to the high profile cases when fraud is alleged, there is precious little attention paid to those cases that fall in the "grey area" of good fiduciary practices.
Take Ballard for example. Over the last five years, Ballard Power (NASDAQ:BLDP) has undergone some significant changes; some would say they have directed Ballard towards success. However this analysis looks at the evolution of value creation under the current CEO John Sheridan. Mr. Sheridan follows on a legacy of lost value at Ballard. At the time of Mr. Sheridan's installation as CEO, Ballard had a market cap of $650 million. At the time Ballard had a strong position in automotive and deep strengths in most of the core markets Ballard participates in today.
Now, just five years later, Ballard lost 80% of its market cap, depleted its assets to provide cash for operations, and sent over $9 million of its cash to its CEO John Sheridan for his efforts. While there are surely plenty of reasons on which to blame the loss of value, it is difficult to rationalize the magnitude of value loss and CEO pay. By comparison, Daryl Wilson, the CEO of Hydrogenics Corporation (NASDAQ:HYGS), the other long-standing Canadian fuel cell company, received $635,900 total compensation in 2010, one-third of that provided to Mr. Sheridan at Ballard. Even start-up companies, some of which are lacking revenue and income for five or more years, would not compensate a CEO for the loss of value the way Ballard's board has allowed.
Since Mr. Sheridan took the helm at Ballard in 2005, Ballard's market cap has dropped an average of $104 million a year, Net asset value has dropped $35 million a year. All the while he received an average of $1.8 million a year. Is anyone paying attention?
Disclosure: I am long BLDP.