Home again from yet another annual stockholders meeting, a right that stockholders can exercise that cuts through a lot of the communication fog, except when it doesn’t. Words are communication, or at least I hope so with this blog, but human communication is mostly the nuances of inflection and body language. Whenever I can, I attend stockholders meetings to see and hear what isn’t being emphasized in the official documents. I also attend to notice what isn’t shown or said. Today’s meeting was for MicroVision (MVIS), a story stock that I’ve told many stories about. It looks like there will be more to tell.
A first point that could appear to be a subtlety. The opening slide that sat there waiting for the meeting to begin called the event the Annual Shareholders Meeting. As I reflect on the pronouncements and intentional obfuscations, I wondered if they missed an apostrophe. Was it a meeting of, or for, shareholders; or was it supposed to be an Annual Shareholders’ Meeting, a meeting owned by the shareholders? To some extent it felt like an Annual Shareholder’s Meeting as if one shareholder dominated. And so it can be.
MicroVision is typical of any startup company that relies on many years of raising money because they have to spend before they can earn. If suppliers and major customers are involved, much of the news is kept quiet to preserve mutual competitive advantages. In some cases, such silence is even dictated in the contracts and agreements. Enforced silence frustrates investors because speculations are inspired by such speculative stocks. A lot of hope is subject to informal hype, or is it just optimistic analyses? It is hard to tell.
Some managers and board members seem eager to tell more than they can. Obvious winks and shrugs show up that aren’t visible in SEC filings. Verbal back-pedaling around possible brand-name collaborations reveals a passionate response, without revealing the why of it. A side chuckle in the audience caused by a proud statement made from the podium suggests another story needs to be told.
There are also Federal regulatory requirements that don’t allow new news to be revealed, unless it can be revealed to the entire investing community simultaneously. This was meant to level the playing field by distributing information more freely, so no one has a timely advantage.
Unfortunately, all of those factors inhibit communication. Some officials seem frustrated by the rules. Others seem to wield them to practiced advantage. This can mean that the very people who own the company have a difficult time learning what’s going on inside their company. As I understand it, shareholders (the owners of the company), effectively hire the board members (by voting them in), and the board hires the upper managers (the CEO and such), and the Chief Officers then run the company and every other detail. Of the four groups, the only ones with the privileged information that can lead to insider trading are the board members and the upper managers. They are the ones who know the most, and are most constrained from communicating.
In an ideal world, a company could work to one of two extremes: only communicate during the absolutely necessary quarterly and annual reports, or communicate everything to everyone all the time. The first extreme makes it difficult to maintain a stock price, create enthusiasm for a product, attract good employees, and arrange for financing. The other extreme is ultimate vulnerability, opening the company up to frivolous lawsuits and extraordinary competitive pressures. The real world is a dance in the middle.
Consider MicroVision’s position. They’ve rarely had enough money for comfort. They’re usually dealing with attractive and profitable possibilities with major corporations. If they talked about the possibilities, they might get better financing and have a healthier stock price, but the openness might scare away customers. The lack of openness scares away investors, but customers who create revenue, income, and profit are more important to the long term health of the company. So, here the company sits, possibly on the cusp of great and wonderful news, and can’t even name their customer who has already paid them millions of dollars. We investors wait and wonder and guess and speculate instead of invest.
Corporations aren’t ruled by one person one vote. They are ruled by one share one vote. The concentration of power changes the dynamics of the conversation. There can be the supposition that those with more shares know more. There is an interesting consequence of management compensation that those who are given shares as compensation can accumulate more shares, power, and potentially wealth, than those who buy shares on the open market. Compensation committees built from the board members are supposed to guard against abuses, but what may seem inappropriate from the outside may seem normal from the inside. An imbalance can result.
The thought of this imbalance is what stayed with me after what was a presentation of a company with enormous potential.
For the individual investor there are two key parts of an Annual Shareholder Meeting: the Business Presentation, and the Question and Answer session. The presentation is a monologue, which I value for the nuances in communications described above. The Q&A session is always an example of great potential denied. A great word battle is played, where a few of the individual shareholders bravely try to word questions that will actually produce answers. They may not even be challenging questions. One from today was about when a customer received their first shipment from MicroVision. The Chairman of the Board quickly stepped in to say that they couldn’t say. The Chief Executive Officer tried to answer anyway. Another asked if there might be an announcement every quarter or so about upcoming products. Rather than point out that they’d hope to but couldn’t because there are no guarantees, the Chairman made sure the questioner knew that it was an unrealistic expectation to be able to answer such a question. I asked about resource limits that may come into play if they were too successful and was delivered a long discussion of why they don’t like the way annual reports must be written.
There is frequently a condescension, as if those with the titles know more than those in the audience. Most of the questions came from investors with decades of experience, some with professional financial or business backgrounds, yet their due respect seems to be measured by where they sit and what they wear. We speak of a divide between the corporate culture and the mainstream. We already have too many divides in our society. I can’t imagine a solution that would be acceptable to most of those that are comfortable with one share one vote. Yet, until such a solution is revealed, I must admit that there is less incentive for Americans to invest in American stock. That is not healthy for our country.
One part of the meeting usually draws less attention from the individual stockholders. It is the official vote, the only part of the meeting that is truly required. Most of the people in the audience don’t pay any attention to it because it is rare for management’s recommendations to fail. The final vote is usually driven by those with the most shares, and usually results in majorities of over 90%. As we left I mentioned to some of the other shareholders that when we hear of such percentages in national elections in other countries, we assume that the election wasn’t free and fair, yet within the corporate world it is normal.
I hope to go back next year, assuming I don’t have to sell my stock to pay my bills. Six of us hung out in the hall after the meeting and compared our interpretations of winks, shrugs, possible accidental revelations, and whatever we could read between the lines. It sounds as if, if all goes well, and I can hang on, my patience will be rewarded. But as an owner of MVIS for longer than the COB or the CEO, and as investor since 1977 in many companies, for now, I just have to guess about the future of the company I own.
For my notes about the meeting go to The Motley Fool, Investor Village, or Silicon Investor.
Thanks for the wrap-up.
Unfortunately, being in Australia makes it a tad difficult to attend the ASM, so it’s good to have your perspective.
Isn’t it amazing how difficult it is to break the faith. I’ve been investing/speculating in/on MVIS since about 2002, but following the concept since about 1994.
What sparked my interest was a background in multimedia, an interest in virtual reality and a recent (then) foray into the field of aviation.
As part of that foray, I wrote a short paper on Augmented Reality in Civil Aviation and in the process discovered the Washington University HIT labs and retinal scanning laser displays. It was love at first sight.
I spent the next 8 years trying to convince anyone who’d give me the time that this concept was going to be a game changer.
About 2002 I decided I’d better put my money where my mouth was and bought just over a hundred shares at $25. I was convinced the dot com bubble wouldn’t damage MVIS shares any more than the $40/share toll it had already extracted, given MVIS was hardware based and of course, the object of my desire.
When shares bottomed at $3, I took a long hard look and asked myself ‘do I leave or do I buy’. A thousand shares later…..
With the massive drops and the 1:8 dilution, I’m feeling a little like the cuckolded husband who can’t see his wife’s infidelity when everyone else around him can. But I still believe MVIS will come back!
Being a very, very naive investor, I’m in for the long hall for a couple of reasons. I don’t have the knowledge or interest to be trading shares on a regular basis, but more importantly, I really do believe that the MVIS technology will succeed. When, is the question.
Needless to say, I’m not singing the praises of MVIS to many of my friends any more. Maybe sometime in the future.
Thanks again for your commentary.