The family that works together…

April 5, 2006

Here at footnoted.org, we’re all for tight-knit families. We just think investors ought to be told when a publicly traded company seems to function as a make-work program for various relatives. Take the proxy that Werner Enterprises (WERN) filed late yesterday. Though the company, which was started by Clarence Werner 40 years ago and counts Werner’s two sons among its top executives, has long disclosed three additional family members on the company payroll, this year, it disclosed another four relatives on the company payroll. The "new" hires, though it’s certainly not clear from the proxy when these people were hired, are the elder Werner’s brother-in-law and sister-in-law as well as one of his grandsons. There’s also a brother-in-law of vice chairman Gary Werner and a sister of the company’s chief marketing officer. One person missing from the family payroll, however, is Werner’s brother, Jim, who used to be the company’s fleet manager.

Of course, that’s not the only interesting related-party transactions in the proxy. Last year, the company assumed an ownership interest in a 71-room motel in Dallas on land that the company used to own, but which had been sold in 2000 to a company controlled by Clarence Werner. While the company notes that the motel had postiive net income in 2004, Werner the company was required to lease 40 rooms per day each week from the company owned in part by Werner, the individual, paying nearly $950K last year for the rooms, up from nearly $850K in 2004. And there’s another deal with a company owned by Clarence’s brother, Vern, who also draws a salary for the company, that paid him $6.3 million last year.

When you need an Excel spreadsheet to keep track of related-party transactions, that’s never a good thing for investors. 

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