Lubys: The Other Foot

The story so far: The Pappas family runs Lubys,with the brothers occuping the CEO and COO posts. The incumbent board is happy with this, although some investors, notably Ramius Capital, object that given the other interests of the Pappas' this is a situation rife with conflict.

Yesterday, we spoke about how the incumbent board responds to the conflicts charge while playing defense. We saved for today the fact that their chief response has been to take the offensive. The conflict shoe, they say, is on the other foot.

As CEO Chris Pappas said in a letter to the Houston Chronicle, which it printed this Sunday: "Ramius ... doesn't care about Luby's history or our future. Ramius doesn't bring relevant restaurant experience, only a risky notion to strip Luby's of its real estate assets, the sort of short-term financial scheme typical of Wall Street thinking."

The general charge here is a common one, that there is an inherent opposition between Wall Street and Main Street, and that it the opposition between the New Yorkers who care only about the next quarter's bottom line -- or who aren't even thinking that far ahead, because they're hoping the get a quick churn-around on the stock maybe this afternoon or tomorrow -- and those decent heartland-dwelling folk who stick around to build a business over years or decades.

Personally, I think that opposition is nonsensical. If the accounting is done honestly, next quarter's bottom line will be what it is because of long-term considerations, the two are only in opposition if the corporate management is allowing or encouraging its accountants to let them be in opposition. And the big problem in such a case is in the heartland, not on Wall Street.

As to real estate ... this is a more specific example of the broader nonsense of the above quoted rhetoric. Yes, Ramius has said that if its nominees get on the board they'll study the possibility of real estate sales. And why should they not? Is it essential to the success of a restaurant that it own the land its sitting on? Surely not. Indeed, maybe Lubys are sitting on leased land as it is (anbd sometimes the leasor is another Pappas family interest), so the question of whether some land ought to be sold is a question of moving along a continuum, not a matter of yes-or-no.

In general, I think Luby incumbents have presented a plausible defense to the charges of conflict, but their offense Sticks. Maybe neither side has any conflicts of a sort about which non-aligned shareholders ought to worry. In that case, the shareholders may have to study the respective track records of the two sides to make up their minds.

They'll have to do so without any further assistance from me, though, because this blog must move onward, ever onward. Tomorrow, I plan to discuss JANA and CNET.