Frank Stronach gave up control of Magna International Inc. , but he has not lost his ability to stir up controversy at Canada’s biggest auto parts company.
Magna’s founder has raised the ire of a leading investor-advisory firm over a series of transactions in which the company sold property to him and a former executive at a loss. The firm, Glass Lewis & Co., is recommending that shareholders withhold their votes from Mr. Stronach as a director – essentially a protest vote – because of the deals and his absence at 30 per cent of board meetings last year.
Magna disclosed in its recent proxy circular that it sold $43 million worth of “non-core” corporate real estate in the first quarter of 2011 to entities affiliated with Mr. Stronach and Siegfried Wolf, Magna’s former co-chief executive officer. Magna took a $9-million loss on the sale.
Mr. Stronach’s compensation at Magna, where he regularly pulled in tens of millions of dollars while also holding a controlling ownership stake, has long been a flashpoint for shareholders and corporate governance advocates. After a contentious deal to buy out his controlling shares in 2010, Magna has been moving into a post-Stronach era, with his compensation arrangements set to expire at the end of 2014.
But the disclosure of the land deals, and Glass Lewis’ opinion, indicate that Magna may still have a “Stronach overhang” in the eyes of the governance community.
The company said it obtained two appraisals for each of the five properties, and the sales prices “reflected the mid-point of the appraised fair value range.” The board’s corporate governance and compensation committee — which included former Ontario premier Mike Harris and two other directors — negotiated the deals. None of those directors is standing for re-election at the annual meeting next month.
The company’s independent board members approved the property sales, Magna says.
“We are somewhat surprised and concerned to see that the board would sell properties to former executives at a loss to shareholders,” Glass Lewis wrote in a report to shareholders. “While these properties may indeed have been ‘non-core,’ the board should disclose why it was deemed necessary to sell them at a loss, particularly since the company does not appear to have an immediate need for cash.”
Glass Lewis says the Magna board’s governance committee has a “recent history of approving transactions that were contrary to shareholders’ best interests.”
Magna spokeswoman Tracy Fuerst, reached late Tuesday via e-mail, pointed back to Magna’s securities filings, including a mention of the deals in the 2011 first-quarter report.
In a phone interview, Mr. Stronach said, “Magna decided they did not need the land,” and the deals went through “so many channels, so many appraisals.”
He said he has not read the Glass Lewis report, but when the real-estate deals were discussed by the board, he did not participate.
Glass Lewis also recommends a “No” vote on Mr. Stronach’s directorship on the basis of his board attendance. Mr. Stronach missed three of 10 board meetings, falling beneath the 75 per cent attendance threshold Glass Lewis expects.
Magna’s proxy circular notes that Mr. Stronach would have been over the 75 per cent threshold, but missed one of the meetings when its date was changed and its location was moved to China. “The time zone difference … made participation by phone impractical,” Magna said.
While Glass Lewis takes aim at Mr. Stronach, its larger, older peer in the proxy-advisory business has given Magna a clean recommendation, suggesting “For” votes for all Magna directors and the company’s executive-pay plan. (Glass Lewis is advising shareholders to vote against the new pay structure.)
ISS Proxy Advisory Services Canada says Mr. Stronach had “a valid reason” for missing the meeting that put him below the attendance threshold, and it does not make mention of the real-estate transactions.