Corporate Governance Highlights
Vol. 13, No. 48
December 6, 2002
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Coffee Maker Accused of
Filtering Out Shareholders’ Best
Interests
SHAREHOLDER DISSENT IS PERCOLATING.
Franklin Mutual Advisers is sponsoring a shareholder proposal at
Farmer Brothers’ upcoming annual meeting that would designate the
company as an “investment company” under the Investment Company Act of 1940
(ICA). Investment companies must comply with requirements related to board
independence and investment management disclosure that are more stringent
than those placed upon other public companies. Based on IRRC’s criteria for
independence, Farmer Brothers’ board is 17 percent independent, and its
audit and compensation committees are each 33 percent independent.
Companies generally register under the ICA
when cash and investments reach 40 percent of assets. Farmer Brothers’ most
recent fiscal year-end financial filings indicate that the company’s cash
and short-term investments comprise approximately 70 percent of assets. The
firm currently is not designated as an investment company because the ICA
excludes government securities when calculating the percentage. As of the
most recent fiscal year end, U.S. treasury bills made up 40 percent of
Farmer Brothers’ assets. Some shareholders have said that management’s
decision to maintain such a sizable stake in low-yielding government bonds
proves the company’s lack of commitment to maximizing shareholder value, and
that the reason for this unorthodox allocation is a desire to dodge ICA
standards.
After the SEC denied the company’s request
to keep the proposal out of the proxy statement, the company scheduled the
meeting to be held the day after Christmas. Adoption of the proposal would
require a majority of outstanding common shares, which is not likely to
occur given that directors and officers beneficially own 52 percent of
common stock. CEO Roy F. Farmer’s sister, who supports the proposal, is a
former director holding 11 percent of the company’s stock. The sponsor of
the proposal holds 10 percent.
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Investor Responsibility Research Center
1350 Connecticut Avenue, NW, Suite
700
Washington, DC 20036
Tel: (202) 833-0700
Fax: (202) 833-3555
cgs@irrc.org
Editor: Rosemary
Lally
Contributors:
Glenn Davis and
Rosanna Landis Weaver
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