(WASHINGTON) – ISS, the country’s largest proxy voting advisory firm, recommends that shareholders of Swift Transportation [NYSE: SWFT] vote ‘FOR’ Item #4 on the company’s proxy – a Teamster proposal that seeks to address the company’s dual class stock structure which currently provides CEO Jerry Moyes with majority voting control of the company despite owning a minority of the outstanding shares. The company’s annual meeting of shareholders is scheduled for May 8, 2014.
ISS also recommends, for the second consecutive year, that shareholders withhold votes from incumbent members of the board’s audit committee, (Richard Dozer, David Vander Ploeg, and Glenn Brown), citing concerns about the excessive pledging of stock as collateral for personal loans by the company’s CEO and controlling shareholder, Moyes. ISS recommends withholding support from these independent directors because it is the responsibility of the audit committee to oversee the management of enterprise and financial risks as well as potential conflicts of interest.
“The board’s inability to rein in the excessive pledging of stock by CEO Moyes or the hundreds of millions of dollars in related-party transactions with Moyes-controlled businesses reveals significant deficiencies on our board and raises serious questions about the true independence and effectiveness of our directors,” said Teamsters General Secretary-Treasurer Ken Hall in a letter to Swift Chairman William Post dated Nov. 22, 2013. “We believe that at the core of the problem at Swift is its dual class stock structure, which gives disproportionate voting power and control to a single holder of a minority of the outstanding shares.”
A study completed in 2012 by ISS and the IRRC Institute found that companies with dual-class capital structures underperformed non-controlled companies as well as companies which are controlled through ownership of a majority of a single class of shares, over 3-year, 5-year and 10-year measurement periods. ISS maintains that unequal rights can serve to entrench management if members of the board or executives own a large voting percentage based on ownership of super-voting stock.
Prior to the 2013 annual meeting, Hall urged immediate board action to protect the interests of public shareholders from the risks associated with the excessive pledging of stock by Moyes by prohibiting any future stock pledging.
At the time, Moyes and Moyes Affiliates had pledged a total of 35.8 million shares, or nearly two-thirds of his entire equity stake in the company, which represented approximately 25 percent of the total outstanding shares. The shares pledged included 23.8 million Class B shares pledged in conjunction with the company’s 2010 IPO, which the board excluded from the 20 percent pledging limit established by the company’s trading policy applied to directors and executives.
“Allowing the company’s CEO and controlling shareholder Jerry Moyes to gamble nearly 25 percent of Swift’s total outstanding shares as collateral for his personal loans is indefensible,” Hall said.
According to an 8-K filed by Swift with the Securities and Exchange Commission (SEC) on Oct. 8, 2013, Moyes and certain related parties entered into a new loan arrangement that appears to have increased the number of Class B shares pledged from 23.8 million to 25.9 million and extend Moyes’ voting control another three years. Again, the board chose to exclude these pledged shares from the limits established by its own trading policy.
Investors have become increasingly concerned by pledging of stock in light of recent events at Chesapeake Energy and Green Mountain Coffee in which margin calls forced the founders of each company to sell significant quantities of stock they had pledged—dramatically hurting the companies and investors.
In addition, Swift continues to engage in related party transactions with other Moyes’ controlled businesses. Since the 2013 annual meeting, at which shareholders raised concerns about tens of millions of dollars in reported, related party transactions, Swift has agreed to acquire Central Refrigerated Transportation, another Moyes-controlled company, for $225 million.
In 2004, the U.S. Department of Justice and SEC launched an investigation into suspected insider trading by Moyes at Swift. In 2005, Moyes paid $1.5 million in disgorgement, prejudgment interest and penalties to settle the SEC insider trading investigation at Swift and resigned from all of his leadership positions. He took the company private in 2007 and then public again in 2010—this time with a dual class stock structure, providing himself 54.5 percent of the voting power for his 40.4 percent holdings of common stock.
“Until there can be meaningful board oversight of management and true accountability at Swift Transportation, Jerry Moyes will continue use the corporate coffers as his own personal piggy bank,” Hall said.
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