These Companies Don't Care About You

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 (NYSE: TYC  ) shareholders suffered mightily after then-CEO Dennis Kozlowski misappropriated company funds. Nine years later, Tyco shares still haven't recovered from their plunge in 2002 as the scandal came to light.

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.

Clinical triage
Long before Israeli-based Protalix BioTherapeutics (AMEX: PLX  ) and Pfizer (NYSE: PFE  ) partnered in an attempt to bring a treatment for Gaucher disease to market, Protalix was busy raising the heart rates of its shareholders with secondary offerings. In the course of five years, Protalix shareholders watched as the number of outstanding shares soared from just under 19 million all the way to 81 million.

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 (NYSE: ANF  ) and Rite-Aid (NYSE: RAD  ) may know what I'm talking about here as their CEOs seem to have a major disconnect between their fiduciary responsibility to shareholders and their own wallets.

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 (Nasdaq: AAPL  ) . Now relax, pick up the other half of your jaw and read on. It's not that Apple hasn't done a good job of creating shareholder value throughout the years. In fact, only a handful of companies have outperformed Apple's stock over the past decade. Apple could practically snap its fingers when it's ready to introduce a new product, like it did yesterday when it unveiled the iPad 2, and command consumers to buy. But in the end, Apple doesn't care about its investors enough to pay a dividend.

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.

Microsoft (Nasdaq: MSFT  ) , on the other hand, has generated more than $25 billion in operating cash flow over the past 12 months and now pays out a $0.16 per share quarterly dividend to shareholders, as well as buying back significant amounts of its own stock. This isn't to say Apple isn't looking to grow as a company, but I do question whether it cares about its shareholders as much as it should.

Foolish thoughts
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.

Add Tyco International, Protalix BioTherapeutics, Pfizer, Abercrombie & Fitch, Rite-Aid, Apple, and Microsoft to My Watchlist.

Fool contributor Sean Williams does not own shares in any companies mentioned in this article. He prefers to invest in companies that refrain from buying $6,000 toilets. You can follow him on CAPS under the screen name TMFUltraLong. Pfizer and Microsoft are Motley Fool Inside Value selections. Motley Fool Options has recommended a diagonal call position on Microsoft. Apple is a Motley Fool Stock Advisor pick. The Fool has written puts on Apple and owns shares of Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy which always puts investors first.


Read/Post Comments (10) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 03, 2011, at 4:09 PM, ctyank99 wrote:

    Here you go again... bashing Rite Aid for no good reason. By the way, Rite Aid same store sales are UP for three months in a row now! Sales up dec, jan, and feb...

  • Report this Comment On March 03, 2011, at 4:33 PM, TMFUltraLong wrote:

    ctyank99,

    Actually it was more of a stab at the management of Rite Aid than at the underlying financials themselves. But now that you mention it, Rite Aid still isn't profitable. What do you see in Rite Aid that I'm missing?

    TMFUltraLong

  • Report this Comment On March 03, 2011, at 9:39 PM, 1putt2pin wrote:

    I would like to introduce a new tax law where any compensation of a CEO (or any employee) above the US Presidents salary is taxed at 100%.

    That should show exactly how important I think they are and that would be their top salary, which only a few would get.

    I don’t have a lot of respect for GREED.

  • Report this Comment On March 04, 2011, at 1:59 PM, WakeUpPeople wrote:

    1putt2pin - You need to get a clue. You think the President of the United States doesn't make enough!?

    Quit looking at just the $400k per year salary and start including all the fringe benefits such as personal use of AF1, personal chef, & pension and benefits (just to name a few).

    Read this article

    http://dealbreaker.com/2009/01/no-more-than-the-president-of...

    which estimates the total cost to tax payers to be $60m. Even if this is a high estimate, there are very few CEO's that even come close to touching that.

    Also, CEO's can be gotten rid of for poor performance, we're stuck with crappy Presidents until an election year.

  • Report this Comment On March 04, 2011, at 2:56 PM, FMHilton wrote:

    I'm employed by Rite Aid, and have seen them slashing the hours of all their full and part-time employees, including pharmacists. Corporate claims that they "have no money", but the fact that John Standley is not taking the same cuts as we are is unethical and immoral. That he gets 4.5 million a year in total compensation is outrageous and he should be fired for his greed.

    We're the ones who make his pay possible, and he gets all the benefits of our hard work!

    Thanks a lot! We really appreciate being appreciated!

  • Report this Comment On March 04, 2011, at 6:38 PM, bottomfisherman wrote:

    When I was in the Navy on a Destroyer the Captain got his own private Stateroom complete with private shower, head and CC TV , I like the other enlisted sailors slept on bunks stacked three high in a crowded berth for 60 with 2 showers and 3 heads and one TV. He had his own personal ship's serviceman to make his meals and do his laundry and dry cleaning, we stood in a line and waited in turns to eat whatever the Mess Cheif put on the menu and threw our dirty clothes into a bin each day that were washed together and returned wrinkled for us to iron... Point is CEO like the Captain of the ship is there to steer it in the right direction and perks come with the job. They have worked hard and put in many years doing what they do and deserve the perks. Like a Captain of a ship a CEO can be replaced. Complaining about their compensation when they are performing and meeting expectations i.e. posting positive same store sales three months in a row is completely off base.

  • Report this Comment On March 05, 2011, at 9:30 AM, FMHilton wrote:

    I'm sorry, but I respectfully disagree with the above comment.

    As a CEO of a company, Mr. Standley has the obligation to not only provide the shareholders with value, but also the employees with a viable situation in their employment.

    To claim that he is entitled to enhanced compensation in a situation where a company is struggling for shares is insulting to those who work in the company for far less, and who have suffered from the economics of the situation.

    That he should feel that he is entitled to such enhanced compensation in the midst of a situation where a company trying to regain it's foothold in the market is absurd and insulting to all employees who work for the company.

    This is not the military, which is financed by the taxpayer, but a private/public company which is dependent on the sales of their products to the public.

  • Report this Comment On March 05, 2011, at 10:48 AM, bottomfisherman wrote:

    You are correct it is not the military it was an analogy and as I stated and can be looked up, the company improved same store sales three months in a row. That is perfroming and the author of this drivel is doing nothing but whinning.

  • Report this Comment On March 05, 2011, at 2:04 PM, TMFUltraLong wrote:

    bottomfisherman,

    Three months of same-store sales growth doesn't put a profit in the far column on the right. Rite-Aid is still losing money and its CEO is doing a poor job of handling his own compensation package in response.

    TMFUltraLong

  • Report this Comment On March 08, 2011, at 1:08 AM, ctyank99 wrote:

    TMF,

    Rite Aid's negitave is debt... we all know that. Beyond that sales are picking up, cash flow is good, they've been able to obtain loans, they've closed loser stores, releocted some stores, and built some beautiful new stores. I believe this is going to do well in the future. Excerpt from Zacks "Leading drugstore chain operator Rite Aid Corp. (NYSE: RAD - News) reported a growth of 1% in same-store sales for the five weeks ended February 26, 2011.

    For the month of February, front-end same-store sales increased 1.1%. Results moderated from an increase of 2.2% in January 2011.

    Pharmacy same-store sales in February improved 0.9% despite a 243 basis point headwind from new generic introductions. Results improved from a 0.6% increase in January 2011. Prescriptions filled at comparable stores increased 1.3%."

    The stoes are going to do well and, as a result, the stock will do well. It may take a little more time. For $1.20 a share, I believe RAD is a bargain.

    CTYANK99

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