For rent…

March 15, 2006

There was an interesting little disclosure in the amended K that Take-Two Interactive (TTWO) filed recently. Gary Lewis, who joined the company in September 2004 as its global chief operating officer, left the company this past January. As I noted in this post back when he joined the company (and the stock was trading at around $23, the company was shelling out $12K a month to provide Lewis with a roof over his head. Given the problems that Take-Two has been facing lately, including a rash of shareholder lawsuits and the resignation of the audit committee chair as discussed in this article, you have to conclude that having a nice apartment that’s paid for by someone else just wasn’t enough of an incentive. Though Lewis will presumably be giving up the apartment, he will walk away with $500K in exchange for agreeing to not compete.

But here’s what investors can learn from this incident: many of these excesses that I write about may seem paltry to some, particularly large investors, particularly in the greater scheme of things. But I’ve found that they are often early warning signs of much bigger problems at the company. Just think about why cops pull over so many people for seemingly minor infractions, like a broken tail light or failing to wear a seat belt. It’s not because they have nothing better to do with their time. It’s that seemingly minor things are often indicative of much larger problems.

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