J Smart – the directors and some concerns

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J Smart (LSE:SMJ) is a family-run firm.  John M. Smart worked 50 years for the company and dominated it for the 29 years to 2017 as Chairman. He presided over an almost unbroken record of profit. John M. Smart has now retired, but his legacy lives on, in terms of extreme conservatism on the balance sheet, dividend levels and strategic direction.

His sons, David W. Smart, Chairman and Joint Managing Director, and John R. Smart, Joint Managing Director, now dominate the board

David, at 47, has been with the company for 21 years and on the board since 2010, and owns 12.8m shares (30.2%), up from 11.9m in July 2017

John R Smart, 50, joined in 2002 and has been a director since 2013.  He too has 12.8m shares, up from 11.9m in July 2017.

Both have experience elsewhere, one in quantity surveying and one in property surveying. They are thought of as slightly more progressive than their father.

There are two other executive directors: Alasdair Ross, 58, joined the company in 1989 and was appointed a director in 2012 (owns 0.15m shares), and Patricia Sweeney, 51, joined 2011, and was appointed director in April 2017 (owns 0.15m shares).

All directors earn the same salary of £116,000, with just a few benefits and pension scheme payments tacked on. No element of their remuneration is based on performance metrics.

£000s 2020   2019   2018   2017   2016   2015   2014   2013
Director’s remuneration 613 591 563 537 516 503 493 644
Employee’s remuneration 9015 9,600 9,090 11,005 11,678 9,908 8,038 11,330
Number of employees 192 207 207 260 298 246 193 283

There has been downward pressure on employee numbers and remuneration in the last five years, assisted by closing the concrete products business and reducing construction activity.

Integrity

The hiring of non-executive directors is seen by these down-to-earth builder types as unnecessarily increasing costs and administrative burdens for no discernible benefit.  Thus, there is no protection for minority shareholders from NEDs should the executives turn on them.

But, in my experience with these family-dominated firms the NEDs are of limited value. Protection comes from the character of those with power.  Are the instinctively decent?  Do they have habits of fair dealing? Are they loyal?

On this front we have some supportive evidence:

Exhibit 1: Waiving dividends.

The family have forgone millions of pounds in dividends over the years, simply ………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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