Matson’s Corporate Governance Dangerous to Hawaii’s Consumers
On May 6th, Matson held their quarterly earnings conference call. To give a little bit of background information about these calls, the companies primarily report their financial results and business outlook- but may report on other issues relevant to the business.
While Matson had a lot of information to report, I want to highlight the following points:
- Total revenue declined 0.6%- from $394.7M in the first quarter of 2013 (1Q13) to $392.5M in the first quarter of 2014 (1Q14).
- Total operating costs and expenses increased 1.5%- from $376M in 1Q13 to $382.6M in 1Q14.
- Net income was $3.4M in 1Q14, down from $9.1M in 1Q13.
- Cash and cash equivalents on their balance sheet increased from $114.5M at the end of 2013 to $229.7M as of March 31, 2014.
- Total assets increased from $1.24B at the end of 2013 to $1.34B as of March 31, 2014.
- Total current liabilities decreased from $200.6M at the end of 2013 to $199.3M as of March 31, 2014.
- Total long term liabilities increased from $709.5M at the end of 2013 to $809.1M as of March 31, 2014.
- The company incurred $1M in legal expenses related to the molasses spill into Honolulu Harbor.
Matson has developed a reputation of being a company that never stops raising its rates. On September 16, 2013, Matson issues a press release stating that “Matson, Inc. will cover the costs associated with the Honolulu Harbor molasses spill response, not Hawaii taxpayers. That was the commitment reaffirmed today by Matson President and CEO, Matt Cox…”
So my question is why Matson is raising its fuel surcharge by 3 percentage points for Hawaii service effective June 8? Here’s my opinion: poor management. Not counting Matt Cox, looking at who makes up the Matson Board of Directors, you see some of Hawaiian Electric’s insiders- specifically Connie Lau, Thomas Fargo, and Jeffrey Watanabe.
The fact is that Hawaiian Electric isn’t the best run company around, either. As a shareholder of Hawaiian Electric, I am embarrassed by the way the company has chosen to arbitrarily halt the installation of solar systems for many of Hawaii’s residents, citing that HECO’s grids won’t be able to accommodate it all. I share the sentiment of many people when I say that I believe that this is a result of HECO’s profit margins shrinking if additional solar systems are installed.
While it’s understandable that a business needs to raise prices in order to account for inflation or costs of doing business, Matson has other options that it can exercise without having to raise rates. For one, Matson can choose to reduce or temporarily halt their 2.7% (or 64 cent) annual dividend rate. They can also use some of the cash on their balance sheet to reduce their debt or mitigate against oncoming expenses. This leads me to question why they feel the need to continuously raise their rates, when their last rate increase of an average of 5.5% was effective January 5, 2014, and another rate increase of 5.6% was effective January 1, 2013. The only answer I can come up with: because they can.
Forbes reports that Cox’s total compensation was $3,571,987: $616,977 as salary; $2,415,049 in restricted stock awards; $69,637 in all other compensation; and $470,324 in non-equity incentive plan compensation. Connie Lau’s director compensation for 2013 at $171,688: $76,000 in fees earned; $90,005 in stock awards; and $5,683 in all other compensation. Thomas Fargo’s total director compensation reported at $156,672: $65,000 in fees earned; $90,005 in stock awards; and $1,667 in all other compensation. Jeffrey Watanabe’s total director compensation was reported at $161,604: $71,000 in fees earned; $90,005 in stock awards; and $559 in all other compensation.
But look at Matson’s performance. They spill molasses in Honolulu Harbor and wipe out fish and coral, they lose money for their shareholders, and they can’t run a company year on year without having to raise rates. I don’t mind the management and the Board making big money if the shareholders are making the money and more importantly if the consumers aren’t getting fleeced. But if the consumers are getting fleeced, the shareholders aren’t making the money, and yet the management and the Board is making the money, then why do we allow this to happen?
The fact is, Matson is poorly managed, and the CEO is being protected by an incompetent Board that gets a nice paycheck on top of their paycheck from HECO. And worse off, they’re getting paid all this money for doing a terrible job.
This is a classic example of how corporate governance in Hawaii is extremely dangerous to the consumers here and the Legislature- all aware of what is going on- isn’t willing to do anything about it. The question that I often hear people asking is when the incessant price gouging will end? I believe that it won’t end until something is done about it.
There are two ways to fight Matson- through the Legislature and through the shareholders. While the Legislature is turning a blind eye to this all, reach out to them and ask them to step in. And second, the shareholders who are here in Hawaii can unite to get the Board out at Matson’s next annual meeting.
Matson’s management and Board needs to go.
Christopher Lum Lee, Candidate for Oahu OHA Seat