Dear Fellow Shareholders:
As we prepared to write the fiscal 2014 shareholder letter, we were confronted by a most interesting occurrence that properly may be utilized as an introduction to a shareholder letter. It seems that Institutional Shareholder Services (ISS), a well-known proxy advisory firm, recommended that an affirmative vote for current management of FRMO be withheld at this year’s election of directors.
Some of the reasons for withholding an affirmative vote are, on their face, actually rather sound and convincing: FRMO has no compensation committee at the board of directors level, so that the management decides upon its own compensation; furthermore, the board does not contain genuinely independent directors who could serve on a compensation committee and amend this practice; in addition, there is no board nominating committee to select independent directors who might, theoretically, alter this situation.
Indeed, we agree that management compensation should be subject to independent director oversight. There really is no excuse for our conduct. We might only say in our own defense that we did not subject our compensation to independent director oversight, because we actually receive no compensation.
The facts are as follows. Technically, we do receive compensation of some $12,000 per year each. The amount was chosen to be roughly equivalent to the minimum wage rate. However, we do not actually take the money. The salaries are contributed back to the corporation. Although the reader may find this procedure to be somewhat bizarre, many years ago it was found by our auditors to be necessary in an accounting sense as well as a tax sense because our labor, inadequate as it may be, still has some value that must be recorded as an expense. Once the sum in question is expensed, it becomes momentarily our property, at which point we are at liberty to, essentially, decline to cash the check.
Viewed from our perspective, the procedure is very much like taking a test and being asked only one question. The question is: "What two days of the week start with the letter T?" Our answer would be today and tomorrow and we would get a passing grade. In other words, like much else in the field of classical administration, it is the victory of form over substance.
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