CEOs must dread encountering their shareholders at the Annual Meeting much like high school guys fear meeting their prom date's Dad. You never know what questions you'll be asked and your answers will probably come out all wrong anyway.
Scott Fainor, CEO of National Penn Bank (second-largest in the Lehigh Valley) probably wished for a "do-over" response after yesterday's Annual Shareholders Meeting. The troops were up in arms. Management cut dividends from $0.17 per share last year to $0.01 this year in order "to weather a once-in-a-generation storm" while simultaneously giving Mr Fainor a 21% salary boost to $540K. "You cut dividends and gave yourselves pay raises! What gives?" was Question #1 at the Meeting.
Scott could have responded, "Look, we only made $0.02 per share last quarter. Back when we were making $1.50 per share, we could hand out $0.17 of it as dividends and be OK. We can't stay in business with half of our profits going out the door as dividends. About my pay, I'm making the same as the CEO you had last year. That "raise" is because I got promoted. Even if I accepted no salary this year, it wouldn't mean one-tenth of a cent of additional profit per share for the bank and would have no effect on dividends."
That's the answer he should have given, The one he actually gave was, "I know it's painful. I am also a shareholder. I am aligned with the shareholders." To which the shareholders might logically respond, "Yeah, but we don't make $540K per year and we need that dividend money to live on."
Poor Scott! Faced with the traditional "Where are you going after the prom?', High School Scott probably would have answered, "I understand your concern. I'm practically a father to my dog Rover. Just because the back of my car is loaded down with booze and beach gear doesn't mean we're heading to the Shore. I'm with you, Dad!"
Identifying with your audience isn't always the best response. Do it over, Scott.
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