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http://www.latimes.com/business/la-fi-farmer16dec16,0,3213514.story?coll=la%2Dheadlines%2Dbusiness
CALIFORNIA
Farmers Bros. Protest Vote Recommended
Shareholders advised to oppose reelection of the chairman and two other
executives to the board of directors.
By Jerry Hirsch
Times Staff Writer
December 16 2002
An influential shareholder advisory firm is asking stockholders to vote
against reelecting Farmer Bros. Chairman Roy F. Farmer and two other
executives to the Torrance-based coffee company's board of directors.
Institutional Shareholder Services, which advises more than 950
institutional and corporate clients on corporate governance issues, told
shareholders to withhold votes for Farmer; his son Roy E. Farmer, who is
president of the company; and Guenter Berger, Farmer's vice president of
production.
The Rockville, Md., advisory service objects to their reelection because the
executives failed to establish an independent nominating committee for the
board.
Patrick McGurn, vice president and special counsel of ISS, said he doesn't
expect to throw the trio off Farmer Bros.' six-member board; indeed there is
no alternative slate and management has voting control over 52% of the
stock.
But the company does not have enough independent directors to provide the
checks and balances for prudent corporate governance, McGurn said, and the
recommendation is the best way to send a message.
Farmer Bros. also is attracting criticism from another shareholder advisory
service, Investor Responsibility Research Center. The Washington firm
believes that only one Farmer Bros. director -- Glendale accountant John
Merrell -- meets its standards of independence, said Carol Bowie, the firm's
director of governance research services.
Farmer Bros. executives did not return calls for comment.
ISS gave its approval to the three remaining members of the six-person
board, but criticized two of them -- Merrell and John Anglin -- for not
holding stock in the company, which is a roaster and seller of institutional
coffee. Anglin, an attorney, is an outside company counsel.
Farmer Bros. is mired in an increasingly bitter battle between its longtime
managers and a group of dissident family members and institutional
shareholders. The company, which has $200 million in annual sales, plans to
hold its annual stockholders meeting the day after Christmas, a move
dissidents claim was meant to limit participation and hurt their longer-term
efforts to elect independent directors and to force Farmers to disclose more
information about its finances.
Part of the fight is over what Farmer Bros. should do with a stockpile of
$295 million in cash and investments, an amount equivalent to about half of
its total stock market value. The funds represent about 70% of Farmer's
corporate assets.
Franklin Mutual Advisors, which controls 9.6% of Farmer's stock, has
submitted a shareholder proposal that would force the company to comply with
the Investment Company Act, which has stricter disclosure rules. Management
has recommended a "no" vote on the proposal.
Although ISS urged shareholders to vote against reelection of the Farmers
and Berger to the board, it supported management's views on the shareholder
proposal, saying it "appears to have exhibited fiduciary responsibility in
managing those reserves."
ISS also noted that the company is returning an increasing amount of cash to
shareholders through dividends in recent years. It calculated that the
dividend per share has risen 7.5% annually since 1998 to $3.40 this year.
However, the advisory service did offer a caveat, saying that as an
operating company, Farmer Bros. should look to reinvest the cash in the
business to improve "shareholder value."
Management has voting control over 52% of the stock. But that includes 12%
of Farmer Bros. stock held in trust for dissident family members, and a
fight is likely over how those shares are voted.
Farmer Bros.' thinly traded shares closed Friday at $312 on Nasdaq.
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Copyright 2002 Los Angeles Times
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