I have read quite a few comments along the lines “Why don’t the nonexecutive directors purchase shares in FBR to show the faith company”. Given the premise is about demonstrating to shareholders that the directors "collectively" believe in the company, I believe its a good issue to discuss as I hold an opposing view.
My personal view (which is shared amongst many people I know) is that I prefer independent non executive directors to not hold shares in the company they are appointed to.
To be clear, I’m not talking about those persons that invest a significant amount of money (in the company) and command a right to keep close eye on their investment. Rather I’m talking specifically about those people who typically provide their professional services as a non executive director to one or more companies. In the case of FBR, I therefore refer to Grellman, Milne and Bloore.
The main reason I hold this view is that I believe appointed non executive directors should not only be independent but also be seen to be independent.
Shareholders have an expectation that directors will always act in the best interest of the company rather than act for their personal interest. As a result, to avoid any possible conflict of interest (whether perceived or actual), I believe it is important to resist any relationships (eg. shareholdings, consulting fees, etc) between the non executive director and the company other than the directorship role (for which they should paid appropriate director fees).
Given there are 3 independent directors of FBR in a board of 5, I believe shareholders receive that extra level of comfort that these 3 directors are not influenced by personal gain compared to a situation where they have financial/transactional interest in the company.
Let me be absolutely clear, I am not saying that if the 3 non execs did hold shares that they would act for self interest. Rather I'm saying that not holding shares removes the possible perception of not always acting in the best interest of the company.
As a further basis to justify my opinion, I refer readers to some of the posts of contributors over the last couple of months having a go at Mark and Mike Pivac (most of which I believe were unjustified). Loss of faith in the Board is detrimental to all stakeholders.
Its for that reason why I would prefer the non execs not to hold shares in FBR so that they can be assessed on their performance rather than being accused of acting for self interest. If the company does not perform, shareholders have the option to vote them out.
(20min delay)