Little takes his Toll


While the market was expecting (and duly received!) a weak earnings result from transport and logistics company Toll Holdings (ASX: TOL), the substantial remuneration received by now departed long-term CEO Paul Little rubbed salt into the wounds of shareholders.

The underlying result of a 6% decline in earnings was respectable given the global economic headwinds facing Toll. Transport companies with a domestic focus appear to have been better placed, with trucking company K&S Corporation (ASX: KSC) recently announcing profit growth of 10% and freight provider Asciano (ASX:AIO) achieving a healthy 36% increase in earnings, before material items and tax.

Toll’s result was overshadowed by the $168 million write-down of underperforming Japanese unit Footwork Express. This write-down comes less than 3 years after Little signed off on the purchase.

Toll has grown from a small domestic freight operator into a global business. Most recently, Little ambitiously attempted to turn Toll into a leader in the freight forwarding business via numerous acquisitions. Given the very low returns currently being generated by this division, the jury remains out on whether this acquisition spree will ultimately benefit shareholders.

For his efforts over the years, many would consider Little to have been ‘adequately’ remunerated. Given the significant loss of shareholders’ money in the Footwork acquisition and low returns being generated from the freight forwarding division, many could reasonably question why Little received a short-term incentive bonus and a termination payout.

Boards seem to have a disturbingly common ‘habit’ of terming what may often be either – a mutual decision by board and CEO or simply a retirement by the CEO as a ‘termination’. This ‘habit’ results in potentially unnecessary remuneration expense.

Another recent example occurred at clothing and footwear company Pacific Brands (ASX: PBG). The company announced CEO Sue Morphett was stepping down and from the announcement many would have had the impression of an amicable parting of ways. Indeed Morphett was quoted as saying ‘I am a firm believer that 5 years is just about the right length of tenure for a CEO’. However, the final paragraph informed the market that Morphett was terminated and shareholders would be footing the bill!

The Foolish bottom line

Owning companies with a board and management team that act like owners is an important investment consideration for any Fool.

When change occurs within the executive management team, as is currently the case at Toll, it is a great time to evaluate how the board has performed at representing shareholders. The board is elected to act in the interest of shareholders and their decisions regarding remuneration and candidate choice can provide investors with important insight into a company.

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Motley Fool contributor Tim McArthur owns shares in Toll and Pacific Brands. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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