By Bob Rust, Oslo
 

published: 28 May 2004

Crowley Maritime risking legal tussle

Oakland-based Crowley Maritime has approved a controversial executive-compensation package but could be facing a legal challenge over alleged unfair treatment of minority interests.

Dissident shareholders have attracted high-profile outside backing in the form of investment banker Gary Lutin, whose stockholder forums were credited with causing e-retailer Amazon.com to change its financial reporting standards three years ago.

TradeWinds understands that a controversial insurance policy could provide ammunition for discontented investors.

TradeWinds reported last month that Thomas Crowley Jr, who is president, chief executive officer and board chairman of Crowley, had taken out a loan to pay back millions of dollars in life-insurance premiums the company had paid on his behalf over several years. The company is paying the interest on his loan. The insurance policy was meant to keep family stock from "falling into the hands of speculative investors who may later attempt to disrupt company affairs," in the words of a company filing with the US Securities and Exchange Commission (SEC).

By a timely pay-back, Crowley Maritime is thought to have avoided a possible violation of the Sarbanes-Oxley corporate-governance law. However, Lutin says there are still outstanding grievances to be resolved over the matter. The company's admissions to the SEC give dissidents a basis for saying board members and the controlling shareholder violated their fiduciary duty towards them, he says.

"They admit they knowingly used corporate funds to help controlling shareholders entrench their control in a way that was not going to benefit minority shareholders," Lutin said.

Lutin says US law prevents him as organiser of a shareholder forum from owning or shorting Crowley stock.

Crowley's financial filings maintain that stability in the company's ownership structure through the insurance policy was an action in the interest of all stockholders, not just Thomas Crowley Jr.

Others see legal action as a plausible outcome.

"I can see Crowley [Maritime] running afoul of this, falling into the hands of their worst nightmare," said another investment banker who knows the company well. "This is exactly why they have never wanted to be a public company. Loans from the company treasury to buy back shares would have been a normal way of doing business in the old days."

Shareholders urged to withold votes

Crowley Maritime's annual meeting has approved an executive bonus scheme over the objections of restive minority interests and elected a slate of management-nominated board members.

Principal Crowley heir Thomas Crowley Jr and a first cousin, Philip Bowles, control some 76% of voting power and the outcome was as predicted.

Crowley family shareholders were among those who took the floor to object to high levels of compensation and the lack of a dividend. Institutional investors are understood to be playing a larger role, however.

Independent proxy advisor Glass Lewis had recommended that its clients withhold their votes from four of the eight board members for the sake of better corporate governance. The San Francisco-based company, which advises institutional investors on how to vote the shares in their portfolios, expressed "serious concerns about the objectivity and independence of the board and its ability to perform its proper oversight role". It added: "We prefer boards with a significantly lower percentage of affiliates and insiders."

Lewis cites Thomas Crowley's leadership of the compensation committee as a conflict of interest.

Besides Crowley, who is president, chief executive officer and board chairman of the company his grandfather founded, the Glass Lewis report mentions Bowles and the company's outside counsel, Cameron Wolfe of San Francisco's Orrick, Herrington&Sutcliffe, as candidates from whom their clients should withhold votes.

The advisor also turns a thumbs down to the bonus scheme for not setting a maximum annual total for payouts.

"The plan does not provide sufficient information for shareholders to make a reasonable judgment as to its potential total cost," the analyst wrote. Under US tax law, corporations cannot deduct executive compensation of over $1m unless it is awarded as part of a performance-based bonus programme such as the one adopted.

Crowley's largest institutional investor is Franklin Templeton, with a stake of some 7% of common stock.