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HONOR ROLL
Over recent years, investors have lost faith in investing in common stocks, as too many companies have taken advantage of accounting trickery, dormant Boards, and short-sighted business plans to enrich their management at the expense of shareholders. LBA’s goal with the Honor Roll is to help rebuild the confidence of our clients by showing them that there are excellent, ethical companies that they can feel comfortable partnering with.
Developing the Honor Roll rests on deciding what constitutes excellence. We are in agreement that questions of valuation and historical stock performance are not important criteria. What is important are characteristics relating to management’s ethics and passion, and a company’s impact on society, employees, and customers.
While there are many different measures of honorable behavior, most fall under the following five major categories:
Governance
Financial Excellence
Product Quality
Disclosure
Employees
It is important to determine what indicators allow us to measure a company’s relative standing in each category. Some examples are listed below:
Governance/Management
Appropriate Management and/or Board compensation
A meaningful ethics policy
Vision and passion
Auditor independence
Board independence / number of members
Financial Excellence
Limited use of debt
No off-balance sheet financing
Transparent financial statements
Appropriate use of cash
Product Quality
Focus on providing necessities rather than luxuries
Better-than-average level of R&D spending
Product/Services don’t have a negative environmental impact
History of acceptable product safety/consumer satisfaction
No involvement in harmful products such as tobacco or alcohol
Key sales growth opportunity should not be derived from military applications or contracts
Disclosure
Company provides honest annual reporting
Company provides thorough reporting on social impact of operations
Company answers our requests for information
Employees/Community
Competitive compensation
Profit-sharing
Meaningful employee participation
Fair health and retirement benefits
Generous charitable contributions program
Noted diversity efforts
Our efforts are to refine this list of indicators and to identify companies that stand out in these areas. In addition, we will look to identify “best practices” among companies, and to encourage companies to meet our lofty standards.
Copyright © 2006, Lowell, Blake, & Associates, Inc.
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