The stock market is made up of thousands of companies, most of which do a good job of creating value for their shareholders. But it wasn't that long ago that we witnessed some of the most egregious abuses of fiduciary responsibility in history. Over the past decade, we watched as numerous companies took big hits from scandals.
Adelphia Communications collapsed under the weight of $2.3 billion in off-balance sheet debt and questionable spending on personal expenses that eventually led to the conviction of its founder and his son for conspiracy and bank fraud. Likewise, Tyco International
The scary part is that there are still bad apples out there that could spoil the bunch for everyone. New regulations have curbed some of the most obscene abuses of power, such as John Thain spending $1.2 million decorating his office while his company spiraled downward in the run-up to the financial crisis. Still, there exists a subset of companies that frankly don't care about you or your money -- and you may want to think twice before investing in these stocks.
Long before Israeli-based Protalix BioTherapeutics
Even worse, in October 2007, with Protalix's stock having closed the previous day at $36.36 a share, the company brought to market a secondary share offering, which was priced at $5. Yes, you are reading that correctly -- five dollars, or more than an 85% discount! The following day, the stock price dove to $6.31 and has never come close to recovering. To top this off, in addition to all the new company stock offerings, insiders have systemically sold off their own shares, while I found only one outright insider purchase. Talk about a company that doesn't care about you or your money!
Pass the caviar
Apathy for shareholders can come in many forms, but nothing is potentially as scary as a CEO gone wild. Shareholders of Abercrombie & Fitch
Abercrombie & Fitch CEO Michael Jeffries is no stranger to the spotlight. He's been pocketing healthy compensation packages for years despite heading a retailer that's had its fair share of ups and downs. What really put shareholders into an uproar was news last year that the company cut Jeffries a check for $4 million just to curtail his usage of the company's private jet. Needless to say, it didn't go over well with shareholders. Not to be outdone, Jeffries also announced in August that he intended to sell as much as 1.79 million shares of his stock.
Since its purchase of Eckerd in 2007, Rite-Aid has been unable to tackle its long-term debt, which now stands at $6.1 billion. But that hasn't stopped newly appointed CEO John Standley's reported total compensation from rising from $2.3 million in its fiscal 2009 year to $4.5 million in fiscal 2010. Rite-Aid remains unprofitable and has struggled just to maintain the minimum listing requirements on the NYSE, yet its CEO appears to be looking in the other direction.
No soup for you
The next company on my list may come as a complete shock to you: Apple
Apple generated a mind-boggling $9.8 billion in operating cash flow last quarter, but shareholders aren't going to see a penny of it. Apple has $27 billion in cash and an additional $32.7 billion in long-term marketable securities, but don't expect the company to begin paying a dividend or buying back shares anytime soon.
The companies mentioned here are far from frauds, but it doesn't appear that they are doing everything, and in some cases anything, to increase shareholder value. I'm left wondering: Do they really care about you?
What's your take on the fiduciary responsibility of management? Feel free to share your thoughts in the comments section and consider adding these stocks and your personal portfolio to My Watchlist.