"am starting due diligence on company as seem to have good tech....

"am starting due diligence on company as seem to have good tech. am reviewing governance. .... would be helpful to know if any relationship exists between chair and ceo or is there independence. are there any other key company specific issues that you believe I should look at before investing...."

Would that more people include governance as part of their investment process, so kudos to you for doing so.

Unfortunately, SDI doesn't pass the best practice governance test.

But that's hard to avoid when a company is effectively controlled by the family that founded it.

And yes, the MD & CEO is the daughter of the Chair, something which I know raised an eyebrow when the appointment was first made some seven years ago, but I think it is now widely accepted that the MD & CEO is proving to be a capable executive.

But that's not always a bad thing and it needs to be judged on its individual merit; some family controlled businesses wither on the vine and die; others flourish.

That this little company has existed for more than 50 years is, I think, in itself is a bit of statement about the way it has been governed. A lot has happened in the world over that time, and yet SDI has not only survived it all, but has experienced significant growth.

Having basically started in the founder's garage, it today generates over $100m in Revenue and more than $10m in EBIT.

Retained Earnings is $70m and the company has paid out over $30.5m since 2003 (which is as far back as I have financials captured in my financial model for the company).

Contrasted with those numbers, Issued Capital is a mere $12.9m, a figure that has been essentially unchanged for decades.

Therefore, while SDI doesn't meet the classical criteria for best practice governance according to the textbooks, the long demonstrated track record says that doesn't matter; the company is in capable hands and shareholder capital is prudently stewarded.

Make no mistake: if you end up becoming a shareholder in SDI, you need to content yourself with the notion that you would effectively be a minority-owner in a family controlled business, one which may as well be a private company (the only difference is that in a private company you wouldn't have the liquidity to buy and sell shares in the company).

So, it inevitably comes down to a "Trust The Family" exercise, which always carries an element of risk, but in SDI's case my view is that the risks are mitigated by the long history of the Cheethams having proved themselves to be worthy of trust and having demonstrated little aptitude for doing anything really dumb which could damage shareholder capital.

As a case in point, one of the biggest challenges the company was facing was how to continue to grow given the manufacturing facility they operate today is effectively close to full capacity.

What could easily have cost north of $50m to make the next step-function jump in scale (and would certainly have necessitated an equity capital component to fund), they are doing it at basically half the price (funded off the existing balance sheet), and because the relocation to the new site will be a staged process over a few years, the risk of operational disruption has been greatly reduced.

It's an example of the prudent and conservative stewardship of the capital of the business, and it's an outcome of the interests of the major shareholder being aligned with those of the minority owners.

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