Release Date: May 17, 2004
New York, NY Amalgamated Bank's LongView Investment Funds have filed a proposal at Massey Energy Corporation (NYSE: MEE) to amend the company bylaws to require shareholder approval for certain executive severance agreements that provide benefits in an amount at least three times their annual salary plus bonus. Such generous severance packages are commonly referred to as "golden parachutes."
The LongView Funds, which currently hold 32,886 shares of Massey common stock, filed a non-binding proposal requesting shareholder review of golden parachutes at this company in 2002, receiving 47% of the votes cast. LongView then resubmitted the proposal in 2003 and gained 72.5% of the votes cast-an unprecedented percentage for this type of shareholder resolution. Notwithstanding this strong level of support, Massey's board responded that it would review severance agreements on a "case-by-case basis" and "seek shareholder approval where that can be accomplished in a manner that does not prevent the board from acting in the best interest of the company."
"This response is inadequate because of the 'best interest of the company' loophole, which the board has not defined," said Amalgamated Bank's Chief Economist Melissa Moye. "The ambiguity of the company's policy could prevent shareholders from ever voting on such agreements."
The LongView bylaw is relatively unusual because most shareholder proposals are not binding on the company, even if adopted by a majority shareholder vote. The LongView proposal, by contrast, would be binding on Massey if adopted.
Massey, a Delaware corporation, sought "no-action" relief from the Securities and Exchange Commission (SEC) in an effort to exclude the proposal from its proxy materials. Massey argued that the proposal was invalid under the state's law, because it would interfere with the board's right to manage the affairs of the corporation.
"Massey's refusal to implement last year's proposal meant that a stronger measure was needed. Delaware law clearly gives shareholders the right to adopt bylaws and, furthermore, the power to set executive pay," responded Cornish F. Hitchcock, LongView's legal counsel. "A transparent process of review, by which investor-owners can exercise oversight of our company, discourages arrangements that ultimately cannot withstand public investor scrutiny."
The SEC staff sided with the LongView Funds, holding that Massey had not established that the proposal would violate Delaware law.
Other boards have recently responded to shareholder proposals by agreeing to submit certain executive severance agreements to a shareholder vote. They include: NSTAR, Union Pacific, Bank of America, and Norfolk Southern.
"How can Massey say its hands will be tied, when all of these other companies have already implemented such a policy?" asked Moye.
Under CEO Don Blankenship's current severance agreement with Massey, if his employment terminates following a change of control, he is entitled to receive his base salary and annual target bonuses through April 30, 2005, as well as other benefits including title to a company-owned residence. Had Blankenship been terminated early in his contract, he could have been paid at least four times his annual compensation of $1 million and a bonus of $2.85 million. The shareholder proposal, if adopted, would apply only to future severance agreements.
Massey Energy will hold its annual shareholder meeting tomorrow morning in Charleston, West Virginia.
Founded in 1923, Amalgamated Bank invests workers' retirement savings through its LongView Funds. With $8 billion in assets under management, LongView actively votes its proxies and sponsors shareholder initiatives for corporate reform. Amalgamated Bank is available online at www.amalgamatedonline.com
