An Ironic Object Lesson -- At Mattersight...

In an ironic way, the board of directors of Mattersight has re-taught the investing world an unintended lesson here. A lesson learned over at least one full year, and perhaps almost two and a half years, now.

It is often said that -- at public companies -- "you will get the behaviors you measure, reward and/or punish. . ."

I know that much is true. What is puzzling to me -- looking at all of this through the lens of an unaffiliated investor in Mattersight's equity securities -- is why no one was being rewarded (or even measured!) on whether Mattersight ever reported a quarter's worth of continuing operations fully-diluted GAAP earnings per share.

Why does the board allow Conway & Co. to be bonused for things like "not breaking the securities laws" and finding "new logos" (on loss-producing "test-pilot" engagements, no less!) -- to the implicit exclusion of GAAP EPS acheivement? Why?

Well, I suspect that it is because a goodly portion of the board represents only its own narrow institutional-investor-driven interest, rather than the common stockholders at large, as the applicable law of fiduciary duties plainly requires them to. That is, when the MATR NASDAQ-OTC common stock price can be effectively (allegedly) pushed up by "accounting errors" -- and then the institutions are able to unload partions of their investment -- by management's not correcting these same "errors" for either one full year, or about two and a half years, then the game as they say, is well-afoot. The duration of the game, in turn, depends on whether the "Series B dividend error" was first made in the 2010 (for the year ended 2009) SEC Form 10-K's diluted loss per share figures attributable to continuing operations (see page 56), as well as the later SEC filings -- or whether the "error" first began when Mattersight filed the first Form 10-Q (see page 2 -- it certainly was in error, by Q1 2011), after announcing the sale of the ICS businesses to TeleTech Holdings.

In either case, the larger point is that if all the board members are effectively insiders -- and know when, or whether to lighten their respective institutional holdings -- it is only the unaffiliated common shareholder who gets the shaft. Conway & Co. reap unearned bonuses (which ought now be subject to a complete clawback), the big holders move in and out of their positions, for quarterly window dressing purposes -- but the small unaffiliated holder takes it up the tail-pipe.

Thankfully, the applicable US federal securities laws provide these small investors a remedy.

More on that, shortly.