EDITORIAL: Of GW, CEOs, and Shares

Hello Denizens of the internet, Duke here.

It has been a while since I last put pen to paper (finger to keyboard?) for BoLS.  However, I still follow Games Workshop (GW) like a hound and when I saw the news of ex-Chief Executive Officer (CEO) Mark Wells “stepping down,” I knew it was time to make a few minutes available to write my thoughts to you.

First off I would like to make it very clear that I have a deep respect for Mr. Wells and I personally feel that him leaving the company is not good for it.  This doesn’t mean that GW will be heading south, but it does mean I felt the company was better off with him.

Important links:
1- GW Investor Relations page
2- Half Year Results
3- Holdings in company (Polar Capital)
4- Holdings in company (The Nomad Investment Partnership)
5- Holdings in company (Phoenix Asset Management)
6- Director/ PDMR shareholding

There are a few interesting things that surrounded his depatrure that make me personally ask a few questions.

– Prior to his leaving Mark oversaw one of the most substantial increases of share price in the company’s history.
– Mark was the CEO that took on such paradigm shifting projects as E-printing codices and changing from expensive metals to more cost-efficient fine cast.
– His last half-year as CEO saw an increase in Earnings Per Share (EPS) of 3.5p which is 15.8%.  Not too shabby!

These are not the signs of a CEO on the way out.  Would you like to know more?

– Polar Capital Sells 50,000 shares (5.14%) See item 3
– The Nomad Investment Partnership sells 200,000 shares (3.4%) see item 4
– Phoenix Group sells 326,000 shares (11.18%) see item 5
– Mark Wells acquires 1450 shares of GW stock 4 days after leaving “to re-invest the Company’s recent dividend”. see item 6

Now, don’t get me wrong, these actions in and of themselves do not indicate corporate power plays or really anything negative but when taken as a group it starts to raise a few eyebrows.  Perhaps the investors thought that the earnings should have been higher than what they were and so they sold, perhaps the raise in value misbalanced their portfolios and they sold to balance.  Or, perhaps they really didn’t like the news of Mr. Wells leaving.

Let’s talk about corporate governance and succession.

In Corporations the CEO isn’t the boss… The Board of Directors (BOD) hires and fires the CEO and the head of the BOD is the Chairman.  Typically, the Chairman of the Board is also the CEO in most American companies.  In England they typically use a “non-executive chairman,” such as Tom Kirby who isn’t CEO or Chief Operating Officer (COO) it is their opinion that it improves corporate governance, and to be honest they might be right.  Usually the main role of the non-executive chairman is to Evaluate the performance of the CEO and his team.

GW takes an unusual approach to this in that it’s “non-executive,” is the former CEO. It isn’t uncommon for a former CEO to remain on the board, but being the Chairman is a bit, odd.

When a CEO leaves a company the successor is usually the COO (or sometimes the CFO) More rarely the person will be hired from the outside.  Well, at GW the COO and the Chief Financial Officer (CFO) are the same person – Kevin Roundtree.  So you tell me, when the two typical positions for promotion to CEO are in the same person why isn’t he promoted to CEO (or even acting CEO)? And even more importantly, if your company believes in having a non-executive chairman, why would you promote that chairman to be CEO??? It an odd decision to figure out.

Currently the defense is that “I am holding the job for the right guy,”which may be completely true.  But if the obvious internal successor isn’t the right guy then why isn’t he gone too?

Did Wells just leave on “good terms,” as was stated, or was Wells pushed out for reasons unknown??

There are a lot of good questions to answer and the sad thing is we can’t get them unless we’re in the board room or the heads of the men involved. One thing is for sure, the next 6-12 months will be very telling. Keep an eye out for more rolling heads of Senior Leadership if Wells was pushed out.  If, on the other hand, a new CEO is hired quickly without a shakedown of senior leadership then it just could have been Mark’s time to move on.  Mr. Wells was at Games Workshop for over six years and in the grand scheme of a rising CEO’s career, you don’t want to stay too long at a middle-sized company like Games Workshop if you have higher ambitions. There are many larger fish in the sea for a successful UK CEO to steer.

Ill leave you with this from the Half-year report:

For Games Workshop to continue to be successful, we need motivated, hard-working managers in all parts of the business who understand Games Workshop’s niche business model, who are aligned with its values and behaviours and are committed to getting things done. The biggest risk for Games Workshop is not having enough of these managers to continue to grow the business globally. This risk is being mitigated by recruiting people who fit with our culture, developing them to fulfil their potential and training them with the skills we need.”
– Tom Kirby 

Well, as an outsider looking in, it sure looks like the senior-most “motivated, hard-working manager” Elvis (Mark Wells) has left the building…

What are your thoughts? Are you getting your resume ready for the top job? Please notice that I’m not saying anything is “Rotten in Denmark”, I’m just pointing out some odd behaviors. 

***as a note: As far as my qualifications: for the last 10 years I have analyzed companies, and talked to CEOs and investor relations people about their business decisions for a large investment bank. My undergrad was in Business Admin (finance), and I have an MBA in finance and accounting; as well as a series 7, 66, and a CFA. I recently decided to continue and get my CPA, which should be done this July.  That said, I am sure I’m not always right, but I just wanted you all to know I’m not talking without background.  Even so, please correct me if you find I missed something.***

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