Two major proxy advisory firms have recommended against the re-election of Magna International Inc. MG-T directors – including former Ontario premier Mike Harris – for failing shareholders in their work last year on a controversial deal to buy out the shares of founder Frank Stronach.
ISS Proxy Advisory Services, North America’s largest firm advising institutional investors on proxy voting, has recommended shareholders withhold their votes to oppose the appointment of three directors who sat on the board’s special committee that reviewed the buyout offer last year. They include Mr. Harris, former Boston University business dean Louis Lataif and Toronto accountant Donald Resnick.
Rival proxy advisory firm Glass Lewis and Co. has recommended withholding votes for all directors on Magna’s board except for two new nominees who did not serve last year. The vote will be held at Magna’s annual meeting on May 4.
In a report this week, ISS said the special committee of Magna’s board should not have left management in control of negotiating a $860-million (U.S.) deal with Mr. Stronach, which saw him sell his shares of Magna at a huge 1,800-per-cent premium to their market value. The agreement sparked a campaign of shareholder opposition and an unsuccessful court challenge of the deal by a group of investors.
ISS said it was “unacceptable” that the special committee did not offer any recommendation to shareholders on whether to approve the offer and did not provide an independent fairness opinion on the deal.
“We recommend withholding votes from all directors who comprised the special committee … to send a strong message to the board that these directors failed in their responsibility to shareholders,” ISS said in a report issued Tuesday
Under Canada’s proxy voting system, it is extremely difficult for shareholders to oust directors. Shareholders can only vote “for” a director or “withhold” their votes, but cannot vote “against” a director, which means directors can be elected with even a small amount of support.
Magna has said it plans to adopt a majority voting policy in 2012, which would require directors to voluntarily offer their resignations if they don’t get a majority of support in a board election. The policy will not be in place for this year’s vote, however.
Mr. Harris is the lead director on Magna’s board and headed the special committee that reviewed the buyout deal last year. He is also believed to be in line to become the company’s next chairman, replacing Mr. Stronach, who has announced he will resign after the May meeting.
Mr. Harris said the criticisms levelled by ISS in its report were not shared by the large majority of Magna shareholders who approved the deal last year.
“My only comment would be that the ISS view was not shared by 75 per cent of the class A shareholders, nor was it shared by the judge who approved the transaction,” he said in an e-mailed message Wednesday.
Although the deal was approved last August by Ontario Superior Court Justice Herman Wilton-Siegel, the judge later publicly chided the independent directors for declining to make a recommendation to shareholders on the rich buyout offer. In a speech in February, the judge warned experts not to read too much into his approval of the deal because “this was a case where the board did rather spectacularly vacate the field.”
The Ontario Securities Commission ruled last year that the board’s approval process was “defective from the start,” and ordered Magna to release more information about the offer to investors.
The deal was strongly opposed by some of Canada’s largest institutional investors, led by the Canada Pension Plan Investment Board. The CPPIB said Wednesday it would not comment on the voting recommendations.
In its voting report to shareholders, Glass Lewis also criticizes Mr. Harris and Mr. Resnick for their work on Magna’s compensation committee last year, saying members of the committee “continue to bend over backwards to overpay executives, and have completely failed to serve shareholders in this regard.”
Mr. Stronach earned more than $60-million last year as chairman.
Directors on Magna’s board are among the best paid in Canada. Mr. Harris earned $749,710 last year as the company’s lead director, while Mr. Lataif earned $407,470 and Mr. Resnick was paid $494,420. The payments include the value of share units and stock options granted to directors last year.
With files from reporter Jacquie McNish.
Magna Int’l (MG)
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