Steve Madden (SHOO): A fast-growing company I won’t touch

Steve Madden (SHOO) is a shoe retailer with impressive shareholder returns.  Its share price has compounded at roughly 20% a year since 1993.  Currently the company is trading at a reasonable P/E (19.3) and has cheap call options.  However, one of my rules is to avoid management teams with questionable integrity.  Steve Madden, the founder of the company, is definitely a very sketchy dude.

Steve Madden went to jail in 2002 for making millions in pump and dump schemes.  While in jail, he set himself up as Steve Madden’s creative consultant and continued to make several thousands of dollars a year.  In 2004, shareholders sued the company for overpaying Mr. Madden.  From the an old DEF 14A filing:

On or about November 28, 2001, a purported shareholder derivative complaint was filed in the United States District Court for the Eastern District of New York, captioned Herrera v. Karson, et al., 00 CV 7868. Named as defendants therein are the Company (as nominal defendant) and certain of the Company’s present and/or former directors. The complaint alleges that the individual defendants breached their fiduciary duties to the Company in connection with a decision by the Board of Directors of the Company to enter into an employment agreement with Mr. Steven Madden in or about May 2001 that, among other things, entitles Mr. Madden to receive an annual base salary of $700,000 during periods that Mr. Madden is not actively engaged in the duties of Creative and Design Chief (including during the period of his incarceration).

This nonsense still continues today.  From the DEF 14A filing filed 2013:

Mr. Madden’s annual base salary was fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 and $10,697,917 in 2016 and in each year thereafter through the end of the term of employment. In addition, the amended agreement entitles Mr. Madden to an annual life insurance premium reimbursement of up to $200,000. The amendment also eliminates an annual non-accountable expense allowance of $200,000 that had been previously provided to Mr. Madden under the agreement. Pursuant to the amended agreement, on February 8, 2012, Mr. Madden was granted 975,371 restricted shares of Common Stock, valued at approximately $40 million, under the 2006 Plan. The restricted Common Stock will vest in equal annual installments over seven years commencing on December 31, 2017 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company on each such vesting date.

Steve Madden isn’t even one of the company’s executive officers and he is paid more than the CEO (paid $1.7M in 2012).  The board of directors are clearly not living up to their fiduciary duty.  It shouldn’t be any surprise that one of the board members (John Madden) is Steve’s brother.

If somebody in real life offered me the business opportunity of investing in a great business run by sketchy guys, I would avoid it.  I don’t think that the stock market should be any different.

*Disclosure: No position in SHOO.

Links

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/381

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3 thoughts on “Steve Madden (SHOO): A fast-growing company I won’t touch

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