Risk & Governance Weekly

In Brief

N.Y. Times Settles Proxy Contest

Two director nominees proposed by dissident funds Harbinger Capital and Firebrand Partners will receive seats on the New York Times Co. board, a Times Co. press release states.

Scott Galloway, founder of Firebrand, and James Kohlberg, chairman of Kohlberg & Company, will be added to the slate of directors elected by the company’s common Class A stock.

In exchange for the board seats, Harbinger has agreed to drop its campaign to replace all of the Class A directors, according to the press release. The board’s size will increase from 13 to 15, with Galloway and Kohlberg joining three of the four existing publicly elected directors. Ten of the 15 directors will be voted on at the Times Co.’s April 22 annual meeting by owners of the company’s supervoting Class B stock--most of which is controlled by Chairman and Publisher Arthur O. Sulzberger Jr. and his family.

“We are pleased to have reached an agreement with Harbinger and Firebrand,” Sulzberger said in a March 17 statement. “Both the board and management welcome the perspectives and insights of our proposed new directors.” Harbinger and Firebrand collectively own about 4.9 percent of Times Co.’s publicly traded stock.

Throughout the proxy challenge, which Birmingham, Ala.-based Harbinger and New York-based Firebrand launched in January, the funds have said that they sought a productive relationship with management that would boost investor returns. In a Jan. 27 letter to the board, Galloway called the destruction of shareholder value “the greatest threat to The New York Times.” The media company’s stock has dropped from about $40 in January 2005 to around $18 at the beginning of March. In addition to its namesake newspaper, the company owns the International Herald Tribune, The Boston Globe, and 15 other daily newspapers.

“Our nominees look forward to working with the other directors and management to build and deliver value for all shareholders,” Harbinger Senior Managing Director Philip Falcone said in the press release.

Harbinger has not called for changing the Times Co.’s dual-class share structure. Last year, Morgan Stanley Investment Management and other investors withheld more than 42 percent support from the four Class A directors to protest the company’s equity structure. The Morgan Stanley fund sold its 10.4 million-share stake in October. --L. Reed Walton

Sunrise CEO Steps Down as Board Chair

Paul Klaassen, CEO of Sunrise Senior Living, has agreed to step down as chairman of the board, regulatory documents indicate. The nursing home company also pledged to declassify its board by 2010 and appoint two new independent directors at its next annual meeting.

According to a March 18 filing, the McLean, Va.-based company amended its bylaws to require the board to have an independent chairman who is not an officer of the firm. Klaassen, who will continue to serve as CEO, also agreed to surrender over 61,000 restricted stock units--representing bonus payments from 2003 to 2005.

Sunrise also adopted a new policy to bar directors from serving on more than three outside boards; after 2012, that limit will be cut to two outside boards. The firm also plans to institute a limit on the number of years that a director can sit on a specific committee; after five years, the board member must leave the committee for an unspecified “cooling-off period” before he or she can rejoin the panel. Sunrise also established a new “governance and compliance committee” and directed the non-management directors to develop a CEO succession plan within 30 days.

Sunrise announced the governance changes a day after the firm said it had missed the deadline to file its annual report for 2006 with the New York Stock Exchange, according to a company press release, which puts the firm at risk of being delisted. Though the NYSE granted an extension for the report, the missed deadline is the latest in a line of company setbacks that have angered shareholders.

In May 2006, the firm announced an estimated $130 million restatement. In June 2007, the Service Employees’ International Union (SEIU) asked Sunrise to replace five directors whom the union argued were not sufficiently independent. In addition, an internal review concluded in September 2007 that stock option grants had been misdated. Three officers--former President Thomas Newell, ex-CEO of the insurance division Larry Hulse, and former Chief Accounting Officer Carl Adams--left the company in December. Sunrise’s stock price has dropped from over $40 per share in April 2007 to under $20 this month.

The newest governance changes are “designed to rigorously protect the interests of our stockholders, team members, and residents,” director Lynn Krominga told The Washington Post.

Krominga, who was appointed board chair, was elected to the board at an October special meeting as part of a court-brokered agreement with investment manager Millenco. At that special meeting, an SEIU resolution on board declassification received 84.3 support, according to regulatory filings. Investors also gave a 62 percent negative vote to director Craig Callen, and withheld 22.7 percent support from Klaassen.

SEIU Executive Director Stephen Abrecht told the Post that the union supports the spirit of Sunrise’s new governance initiatives. However, Abrecht said, “the changes come too late to protect shareholders’ interests.” –L. Reed Walton