Says Elliott Challenge and Contested Election Demand Explanation from Chairman
WASHINGTON, April 18, 2011 /PRNewswire/ -- Today, the CtW Investment Group called on National Express Group, plc ("National Express") (LSE:NEX) Chairman John Devaney to step forward at the company's Annual General Meeting May 10th and address investor concerns regarding governance failures on the Board's Nomination Committee. Citing the election contest mounted by Elliott Fund Advisors (UK) Ltd. as evidence of these failures, CtW noted in its letter to Devaney that National Express' Nomination Committee is not in compliance with the Combined Code on Corporate Governance regarding Director independence and is internally divided, with one Committee member reportedly backing the dissident directors proposed by the hedge fund Elliott Advisors (UK) Ltd.
The CtW Investment Group's April 18, 2011 letter to the National Express board is available at: http://ctwinvestmentgroup.com/. The full text of the letter is below:
April 18, 2011
Chairman, National Express Group PLC
National Express House
Birmingham B5 6DD
Dear Mr. Devaney:
In light of the highly publicised investor challenge from Elliott Advisors (UK) Ltd. ("Elliott") concerning the make-up of National Express Group's ("National Express") Board of Directors, we are deeply concerned about the ability of the Board's Nominating Committee to independently and thoughtfully execute its responsibilities in the best interest of the Company and its shareholders. We believe that the failure to adhere to best practice regarding appointments to the Board has invited a contentious engagement with Elliott, which now imperils long-term shareholder interests and heightens investor concerns about management distractions during a boardroom struggle. Therefore, we call on you, as Chairman, to report to shareholders at the 10 May 2011 Annual General Meeting ("AGM") about all steps the Nominating Committee ("the Committee") has taken in its review of the Board and in developing a "short list" of potential non-executive director ("NED") nominees. We further call on you to describe at the AGM how the Board intends bring the Committee from this year onwards into full compliance with the 2010 UK Corporate Governance Code ("the Code").
The Committee, in our view, is failing to follow a coherent process for identifying and nominating new NEDs. Until the resolutions were proposed by Elliott, the Committee appeared to be engaged in a multi-year review process and in no particular hurry to appoint new non-executive directors to the Board. Now the Committee appears to be discarding its full scale Board evaluation in favor of a "rush" to draw up a shortlist of candidates and present them in private discussions with dissident shareholders.(1) To compound this confusion, one of the three Committee members now reportedly supports the dissident Board candidates put forth by Elliott. We fail to see how a divided Committee and an expedited process for appointments will yield the best qualified independent directors who will serve the interests of all shareholders.
As you note in your 4 April 2011 letter in opposition to Elliott's nominees, the Code makes clear that "there should be a formal, rigorous and transparent procedure for the appointment of new directors to the Board." Unfortunately the Committee's own selection process appears anything but formal, rigorous, and transparent. We note in particular that the recent actions taken by the Committee as announced in your shareholder letter on 4 April 2011 do not correspond with your annual report, which was released 28 March 2011. You stated in the annual report that, "we delayed undertaking a full scale Board evaluation during 2010," opting instead for an "interim review in late 2010 which…will be followed, in late 2011 or early 2012, by a further full evaluation which will be externally facilitated." Suddenly, on 4 April 2011 shareholders learned that the Committee has appointed executive search firms and that "shortlists of candidates are currently being assembled." Indeed, you seem to be criticizing the very practice the Committee itself is now undertaking in writing on 4 April 2011: "To seek to appoint new non executive directors outside of a formal process, particularly when such a process is already underway, is, in the view of the Board, an attempt to circumvent best corporate governance procedures and I strongly encourage shareholders to resist this."
The apparent lack of procedural coherence in selecting potential candidates for the Board is compelling evidence that the Committee can not effectively fulfill its primary function and therefore requires reform. As you know, the Committee is comprised of a majority of non-independent directors, contrary to provision B.2.1 of the Code, which states that "a majority of members of the nomination committee should be independent non-executive directors."(2) Curiously, there appears to be no public plan to bring the Committee into compliance with the Code, even though the lack of compliance seems linked to difficulties with investors (and Committee members) who long for "fresh impetus and thinking" at National Express.
To be clear, we do not support the actions or proposed plans of Elliott, as put forward in their 15 April investor presentation, which mainly appear to promote short-term gains rather than a long-term strategic vision for National Express. However, we believe that successful businesses make best practice in corporate governance their foundation for long-term success. To date, National Express has been wanting in this respect in our view.
We urge you to engage with all your shareholders regarding the composition and activity of the Nominating Committee and to step forward at the 10 May 2011 AGM with a full report on the steps that will be undertaken to correct the Board's governance deficiencies. We ask that you make transparent the Committee's Board review process, including the process followed to develop a "short list" of NED nominees and that you detail a plan to bring the Nominating Committee into compliance with the UK Corporate Governance Code of June 2010.
We look forward to your response to this letter as soon as practicable and to your report on the Board's handling of these issues at the company's AGM.
cc: Tim Score, Dean Finch, Jorge Cosmen, Roger Devlin, Jez Maiden, Miranda Curtis, Sir Andrew Foster, Tony McDonald
** Note: For additional information or comment please contact Ed Keyser at [email protected] or at 202-255-6433. **
(1)The Telegraph, "National Express rushes to appoint directors to head off showdown," 4/12/2011.
(2) Financial Reporting Council, The UK Corporate Governance Code, June 2010, p. 14.
SOURCE CtW Investment Group