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Edmond Jackson: Dream Direct's new chairman

In various ways I am encouraged by this morning's announcement about a new non-executive chairman for the mail order retailer of family PC software and peripherals. But one has to note a reservation too.

The background was that Robert Silver, the new chairman, had been working with the company in a consultative capacity since last November, as Gerald Dennis, the previous chairman, had been planning his succession to 'an individual with a strong background in high growth retail companies'.

Sadly, it was announced on Wednesday that Mr Dennis had passed away after a period of illness - having seen the company through its start-up years to flotation on AIM last summer.

One thing I like about today's statement is that this company is having courage to buck a key modern principle about non-executive directors; that they should not participate in equity incentives. The statement says: 'it has been agreed that Mr Silver will benefit from an incentive package, the details of which have yet to be finalised.' One assumes this will be equity related because share options would probably be the best cash-conserving way to align interests of directors with shareholders.

While I can appreciate modern regulators' view, that non-execs should be independent and not have any motive to 'puff' a share price, frankly the implications of banning non-execs from equity incentives become absurd. These people - especially a more hands-on chairman of a smaller company - are (or ought to be) part of a team whose key purpose is to drive the business forward.

I find it odd that non-execs, who may devote a substantial amount of time to a company and deliver genuine value, are not incentivised with equity, while executives may get sizeable slices of the pie. This anomaly is not the way to get quality people serving as non-execs.

The announcement says that in due course the details of Mr Silver's and the executive director's incentive packages, also for other employees, will be put to shareholders for approval. They ought not to be as ambitious as the directors at Dana Petroleum (DNX) where outrage has broken out over substantial share options granted annually.

I do not know Robert Silver, aged 64, so cannot pass a thorough judgement. He is a chartered accountant with nearly 30 years of advising and holding directorships of 'high growth' businesses. The announcement cites his current directorships: chairman of branded leisurewear retailer USC Group PLC, also fashion retailer Ronit Zilkha (Rosestore Ltd) and a non-executive director of Information Sciences Ltd, a business research and information publisher, also Wellspring Ltd which is not clarified.

But three companies of which he has been a director - Michael Peters Group PLC, Aero (Wholesale) Ltd and Passion for Food Ltd - went into administrative receivership.

In the dynamic field of smaller companies, if directors don't experience the occasional receivership, they probably are not engaging sufficient risks. Yet investors still need to be aware of these fallen three companies.

Given Dream Direct's direct marketing approach, Silver initially appears a decent choice - so long as he does not keep adding to his portfolio of directorships.

In any case I am awaiting more evidence of progress from Dream Direct. The company states today that November and December sales 'met growth expectations' and the group 'remains on track to move into profitability during the next financial year commencing in April 2003'.

It is still early days, and impossible to assess earning power. Thus the shares (DDG) are unchanged at 58/63p, at their low after sliding from 90p after flotation last summer. At this level the company is capitalised at just £5 million.

Await more evidence of progress.

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