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Pressure Is On for Company Boards

This year has been tough across the board: Shareholders have taken a beating; executives are experiencing a backlash from a public that’s become hostile to high executive pay; directors are worried about their company’s future; and the president and Congress are poised to impose more regulation on areas that corporate directors oversee. “2009 is a year of unprecedented challenge for the boards,” says business attorney David Bates of Gunster in West Palm Beach.

Practices debated at the nation’s largest companies take awhile to trickle down to Florida, where most of Florida Trend’s Top 150 Public Companies are small to midsized. Once here in force, they will add to an already busy agenda for directors:

At the height of proxy season in mid-April, proxy adviser RiskMetrics Group reported shareholders had filed 107 so-called “say-on-pay” proposals, seeking input on executive compensation. Last year, Clearwater-based Tech Data was one of 10 companies nationally where say-on-pay won majority support, giving shareholders a non-binding vote on executive pay. Tech Data held its first advisory vote this year. Orlando-based Tupperware has a similar shareholder proposal on its ballot. An import from Britain supported by President Obama, say-on-pay is now required of the 400 companies that took loans from the federal government. TIB Financial in Naples, Seacoast Banking Corp. of Florida in Stuart and CenterState Banks of Florida, as TARP banks, put say-on-pay on their ballots this year. “Compensation issues are going to continue to escalate to the very top of boards’ concerns,” says Gerald Czarnecki, chairman of the National Association of Corporate Directors’ Florida chapter.

Directors’ maxim on oversight of company operations, says Czarnecki, is “noses in, fingers out.” Directors will be on the scent of, among others, risk management and CEO competency. Says Czarnecki, “The question is, when does the board say, ‘We’re not convinced you’re doing the right things; we need to know more.’ ”

Darden (No. 11)

If you don’t know The Green Frog eatery in Waycross, Ga., you definitely know the subsequent restaurant Bill Darden launched with a different color in its name. Red Lobster grew under its founder and then under longtime leader and Bill Darden-hire Joe Lee into Orlando’s Darden Restaurants and its Red Lobster, Olive Garden, Bahama Breeze, Longhorn Steakhouse, Seasons 52 and Capital Grille chains.
Access to capital is a prime concern for Florida directors because so many Florida companies are service businesses that depend on lines of credit to finance operations and expansion. Should a banker cancel that credit line, such a business is “one phone call away from shutting its doors,” attorney Bates says.

Majority Rule
Directors running unopposed — they almost always run unopposed ? — need only a plurality of votes to win. Some advocates want to require directors to gain a majority of votes. RiskMetrics reported 86 such shareholder proposals nationally as of mid-April. Jabil Circuit, Tupperware, CSX and Office Depot all have such a policy. Meanwhile, the SEC was poised in April to prohibit brokers from casting votes for shares held in “street name” in uncontested director elections — stopping brokerages from voting in place of shareholders who neglect to cast ballots. The brokerages tend to vote pro-management, to the frustration of activists mounting “Just Say No” campaigns against incumbent directors. Stopping the practice would complicate things for companies, make individual shareholders relatively more important and give insurgents more leverage. At the least, ending the practice will require companies to do more to get out the shareholder vote, says attorney Thomas McGuigan of Squire Sanders & Dempsey in West Palm Beach.

The Tab
Backers of insurgent director candidates face enough challenges convincing stockholders to buck the board’s wishes. There’s also the expense of waging a campaign to get on the board. “Even for significant shareholders, the cost is daunting,” says corporate governance and securities attorney Tom McAleavey of Holland & Knight in Orlando. Office Depot had a reimbursement proposal on its ballot this year from the AFL-CIO’s American Federation of State, County and Municipal Employees. New SEC Chairman Mary Schapiro says the commission will consider a rule allowing insurgents to get their candidates on the company’s ballot, saving significant expense. The upshot for boards: The balance will shift and companies will have to communicate better and negotiate behind the scenes to avoid insurgencies, McAleavey says.

In Florida this year, Miami-based Lennar faced a proposal calling for reduced greenhouse gases in its products and operations, one of 36 green proposals nationally. Boca Raton-based GEO Group had a shareholder proposal requiring disclosure of political contributions, one of 60 filed nationally. At Tampa-based TECO and West Palm Beach-based Florida Public Utilities, shareholders proposed making the entire board stand for re-election each year, a declassified board that some Florida companies already have. AutoNation and Office Depot had proposals to split the CEO and chairman jobs and have the chairman be an outside director. Shareholders of both companies, and 44 others nationally, voted on proposals that would have allowed stockholders to call special meetings.

With company valuations extraordinarily low, private equity players and acquisition-minded companies can be expected to jump at the first sign of an economic rebound. Florida companies, because they tend to be small and mid-cap, are more likely targets than most, McAleavey says. They need to have their anti-takeover measures in order.

CEO Pay — 10 Biggest Public Companies
CEO Company (Rank) Total
from ‘07
Michael Ward CSX (9) $12,373,346 -25.4%
Lewis Hay FPL Group (4) 11,540,544 9.9
Steve Odland Office Depot (6) 9,361,424 -27.2
Micky Arison Carnival (5) 8,497,576 -12.8
Paul H. Stebbins World Fuel (2) 6,089,643 151.4
Peter Lynch Winn-Dixie (10) 5,599,699 -14.4
Robert Dutkowsky Tech Data (1) 3,743,753 -8.8
Timothy Main Jabil Circuit (8) 3,491,117 -6.2
Mike Jackson AutoNation (7) 3,392,797 -30.2
Sean M. O’Connor International Assets Holding Corp. (3) 1,109,844 31.7
Notes: Total compensation includes salary, stock options and awards and other compensation valued according to the cost to the company based on accounting rules, not necessarily to the actual value the executives’ received. In the case of stock valuations, many cases applied to awards in prior years.


FPL Group

Tech Data

Office Depot

Jabil Circuit

Board Compensation - 10 Biggest Public Companies
? Pay Range (2008)
Company (Rank) Low High
Jabil Circuit (8) $275,856 $303,356
Office Depot (6) 269,451 372,829
Winn-Dixie (10) 176,995 197,995
World Fuel (2) 173,264 208,264
FPL (4) 173,219 193,719
AutoNation (7) 144,611 198,250
Tech Data (1) 139,281 202,220
Carnival (5) 112,390 257,845
CSX (9) 77,960 152,590
International Assets Holding Corp. (3) 35,977 63,977
Notes: Director pay includes cash and stock awards and options valued according to financial reporting rules and includes directors who served a full year. Pay varies within companies based on additional committees and committee chair duties that directors have.