CtW Investment Group Responds to Massey Lead Director

WASHINGTON, May 11 /PRNewswire/ -- The CtW Investment Group's response to letters from Massey Energy Company (NYSE: MEE) follows.

CtW's earlier correspondence with the Massey board of directors and with Massey shareholders can be found at www.ctwinvestmentgroup.com.

** Note: For additional information or comment please contact Michael Garland at [email protected] or visit www.ctwinvestmentgroup.com. **

May 11, 2010

Bobby R. Inman

Lead Director

c/o Corporate Secretary

Massey Energy Company

P.O. Box 26765

Richmond, Virginia 23261

Dear Admiral Inman:

We write in response to your April 28 letter, in which you make misleading statements with respect to both Massey Energy's corporate governance and regulatory compliance.  Specifically, you characterize as "aggressive" governance reforms by the board of directors that are largely required by law or regulation.  You also obscure Massey's systematic and serious failure to comply with worker safety laws and regulations, a failure that likely led to the worst mining tragedy in 40 years and to the nearly 40% collapse in shareholder value that has ensued.  

Massey's board is ultimately responsible for this alarming record of regulatory non-compliance.  Rather than move aggressively to restore investor confidence through transparency and accountability, the board has instead opted to mislead and obfuscate.  Rather than provide substantive responses to serious and widely-shared investor concerns, you allow M. Shane Harvey, Massey's General Counsel, to issue an ad hominem attack on the CtW Investment Group and the pension funds we represent in a May 6 letter to me.  Mr. Harvey sent me another such letter today.

These actions reinforce shareholders' concerns with management's confrontational and counterproductive approach to both regulators and shareholders.  Even more troubling, they further demonstrate the board's inability or unwillingness to exercise strong, independent oversight of management.  

Corporate governance

In your April 28 letter, you tout "the aggressive steps we have taken over the last decade to keep pace with the evolving governance landscape" and list nine actions "in the last six years alone."  Of these, five are either required in whole or part by federal securities laws, the NYSE or legal agreements settling shareholder litigation.  These include the board's mandatory retirement age, its annual Corporate Social Responsibility Report, its clawback policy, its "invitation" for shareholders to comment on board declassification and its review of "related transactions."  

A sixth board action, the adoption of a director resignation policy, is a reactive and largely meaningless step taken two days before Massey filed its 2010 proxy statement, which includes a shareholder proposal calling for a genuine majority vote policy in director elections.  The remaining three actions involve common compensation practices only a board desperately seeking to deflect attention from its poor governance would characterize as "aggressive."  

Regulatory compliance

As you well know, Massey's board is under acute investor, regulatory and public scrutiny for the company's abysmal record of regulatory non-compliance.  It is not reassuring, therefore, that you dedicate all of two sentences of your four-page letter to addressing Massey's compliance with worker safety laws and regulations, and then only with respect to the Upper Big Branch (UBB) mine that was the site of a tragic explosion on April 5 that killed 29 miners.  More troubling still is the misleading nature of this limited response.  Specifically, you state:  

UBB had less than one violation per inspection day cited by MSHA, a rate consistent with national averages. In fact, most of the citations issued by the agency at UBB were corrected on the same day they were issued...

In fact, UBB received more violations from the U.S. Mine Safety and Health Administration (MSHA) than the industry average in every year from 2006 to 2009 inclusive.  In 2009, UBB received 515 violations, nearly double the national per mine average of 292.  By citing UBB's violation rate "per inspection day," you are merely casting as favorable an especially unfavorable fact: UBB attracted increased regulatory scrutiny as a result of its abysmal violation rate.  As you presumably know, MSHA inspectors were on site a total of 1,854 hours in 2009, up from 934 hours in 2007.

Even on the basis of "citations issued per 1000 inspection hours," a metric similar to the one you use that takes into account increased inspection hours, UBB's rate of serious violations was well above the industry average.  In 2009, MSHA issued citations and orders to UBB that MSHA classifies as "elevated enforcement" at a rate that was nine times the national average.  Moreover, while UBB may have corrected most citations the same day they were issued, Joseph Main, Assistant Secretary of Labor for Mine Safety and Health, refutes this claim with respect to UBB's more serious violations.  In his April 27, 2010 testimony before the U.S. Senate Committee on Health, Education, Labor and Pensions, Assistant Secretary Main stated:  

In what is perhaps the most troubling statistic, in 2009, MSHA issued 48 withdrawal orders at the Upper Big Branch Mine for repeated actions that could significantly and substantially contribute to a hazard that the operator knew or should have known violated safety and health rules. Massey failed to address these violations over and over again until a federal mine inspector ordered it done. The mine's rate for these kinds of violations is nearly 19 times the national rate.

Rather than acknowledge Massey's alarming record of non-compliance, you cite the company's non-fatal days lost ("NFDL") injury rate.  An NFDL rate is not a measure of regulatory compliance.  Nor does it reflect the deaths of 52 miners in the last 10 years at Massey mines.  

Management's May 6 letter

In his May 6 letter, Mr. Harvey attacks the CtW Investment Group's "standing to disrupt important corporate governance proceedings" because of our affiliation with Change to Win and the pension funds sponsored by its affiliated unions.  The letter is nothing more than a transparent and offensive attempt to deflect attention from the substantive issues that have already led leading proxy advisors and a growing list of institutional shareholders to oppose the election of the board's 2010 director nominees.  That the board condoned such a letter says more about the board than the letter says about management's antagonistic approach to shareholders.

As we disclose in our March 31 letter, pension and benefit funds sponsored by unions affiliated with Change to Win have more than $200 billion in assets and are substantial long-term Massey shareholders.  These funds, both independently and in conjunction with the CtW Investment Group, have engaged hundreds of companies on governance matters and are responsible for many of the most significant company-specific and regulatory reforms dealing with corporate governance over the past two decades.  

We are proud of our public record of working with investors, boards of directors, and regulatory authorities to enhance the independence of corporate boards and outside auditors, to better link executive pay with long-term performance and to require mutual funds to disclose their proxy votes.  We are also proud of our efforts to make director elections meaningful and to use these elections to hold directors accountable if they fail to represent shareholders.

Mr. Harvey's letter makes much of the Investment Group's affiliation with Change to Win, which he brands as a "politically motivated lobbying organization."  This is an effort to obscure the facts.  The CtW Investment Group is a part of Change to Win, a federation of five unions that represent 5.5 million union members.  The Investment Group's mission is to protect and promote the long-term economic interests of retirement and benefit plans sponsored by CtW affiliates.  And contrary to Mr. Harvey's suggestion that information about Change to Win is sketchy and unavailable, we'd note that Change to Win is a 501(c)(5) labor organization regulated by both the Internal Revenue Service and the Department of Labor and its finances are a matter of public record.

The CtW Investment Group is itself a voting shareholder of Massey Energy and will be casting its votes – and continuing to urge other shareholders to cast their votes – against directors Richard Gabrys, Dan Moore and Baxter Phillips, Jr. at the company's May 18 annual meeting.

Sincerely,

William Patterson

Executive Director

Cc: Massey Energy Company Board of Directors

SOURCE CtW Investment Group