A lost opportunity

The market misses Frank Hasenfratz, founder of Linamar Corp., since his demise on Saturday, January 8. Linamar share price at the close of day Friday, January 7, was $78.45. Share price at the close yesterday, January 24, was $67.67, down 14 percent in two weeks. The broader market, the S&P/TSX composite index, was down about 2 percent during the same period. There are many causes for ups and downs in share prices, but I think it’s safe to say that Frank’s death is a major reason for the current drop. This too shall pass.
Frank, who founded Linamar in 1966, was executive chairman of Linamar. That title meant that he was not just chairman, running board meetings, he had executive duties, too. They included cost-cutting exercises and mentoring individuals on their way up in the company. Frank’s daughter, Linda, who was chief executive officer, has added that executive chairman title to her duties. Yet the tasks previously included in that role were specific to Frank and drew on his strengths. Moreover, such a move where one person is both chair and CEO runs against all recent improvements in corporate governance. For decades such combined titles were commonplace in Canadian business but during the last twenty years, progressive firms have split the two roles.
But giving power to a Hasenfratz is consistent with Linamar’s unusual philosophy toward corporate governance. The Linamar board is small, only six directors, consisting of three Linamar executives and three independent directors. The better step after Frank’s death would have been to name as chair one of the directors. Instead, Linda expanded her duties and the three-three balance was maintained with the appointment to the board of Jim Jarrell, president and chief operating officer, and a thirty-year employee. The other family director is Mark Stoddart, a Linamar executive and Linda’s brother-in-law.
The three independent directors include two men, Dennis Grimm and Terry Reidel, and a woman, Lisa Forwell. But while their business backgrounds may differ, their world view must be remarkably similar: they all live in southern Ontario. In a company of 26,000 employees, with about one-third working in Canada and the rest in sixteen other countries, wouldn’t it make sense to have at least one director from the U.S, Mexico, or even China where Linamar has recently been growing? The three-three board puts constraints on selection that are not helpful. Nor do the directors get paid handsomely, about $70,000 in annual fees according to the most recent filings. That’s a long way from Linda’s annual compensation that can reach $10 million. She may be worth it, but directors are surely worth more than they currently earn and should also have more power. 
Meanwhile, Linamar remains proudly a family business, with about 30 percent of all shares held in Frank and Linda’s hands. The family has every right to rule, but some modern-day thinking wouldn’t go awry.

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