CHICAGO, Nov. 16, 2021 /PRNewswire/ -- Gabi Gliksberg, a long time stockholder of Texas Pacific Land Corporation and, before the conversion, Texas Pacific Land Trust, through ATG Capital Management, LLC, has issued an open letter to Texas Pacific's Board of Directors asking that the Board take the necessary steps to amend the company's charter to de-stagger the Board and include the proposed amendment in the proxy materials for shareholder approval at the company's 2021 annual meeting.
The letter explains the reasons for this action, including the widespread consensus among investors and public companies that declassified boards – which require all incumbent directors (rather than merely a portion of the board's membership) to stand for election each year – provide superior shareholder accountability and value creation.
The text of the letter reads as follows:
Dear Members of the Board:
As a longstanding stockholder of Texas Pacific Land Corporation ("TPL" or the "Company"), I write to you today to discuss a matter of concern to all stockholders: the staggered nature of TPL's Board of Directors (the "Board"). As you are aware, I previously submitted to the Company a straightforward shareholder proposal expressing the view that "TPL's Board should be declassified, allowing for each Board member to stand for election on an annual basis." The Company has refused to put this proposal before its shareholders, going so far as to formally ask the Securities and Exchange Commission ("SEC") to refrain from enforcement action if the Company excludes my proposal from the proxy materials for the upcoming December 29, 2021 Annual Meeting. I have opposed that request through counsel.
Regardless of how the SEC rules, it is my firm view that if the Board of TPL truly cares about what is in the best interests of the Company and its stockholders, then it should immediately pass a resolution recommending an amendment to the Company's Charter that would declassify the Board, allowing for all directors to be elected on an annual basis, and then put that proposed amendment before the stockholders for a vote.
As stated on TPL's website, the Board's raison d'etre following the Company's conversion to a corporation is to "ensure TPL's business is conducted with the highest levels of integrity, ethics, and responsibility to build strong corporate governance." (Emphasis added). That purported commitment to "strong corporate governance" cannot be squared with the Board's stubborn resistance to declassifying itself. There is a strong consensus in the investment and academic communities that annually elected boards without classes of directors are demonstrably superior to classified ones from a corporate governance and shareholder value perspective. Staggered boards have less accountability to shareholders, less reason to be responsive to shareholder interests, and greater ability to entrench themselves. Declassified boards, by contrast, are widely, if not universally, regarded as more responsive and accountable to corporate shareholders. For that reason, it is not surprising that public companies have been moving away from classified boards for years, and that over 90% of large cap companies now have declassified boards.
The investment stewardship and proxy voting guidelines for many of TPL's largest shareholders, ISS, and Glass Lewis, all available on their websites, echo this overwhelming consensus preference for electing all directors on an annual basis. I have included a few highlights below:
- ISS: "Vote against proposals to classify (stagger) the board. Vote for proposals to repeal classified boards and to elect all directors annually." https://www.issgovernance.com/file/policy/active/americas/US-Voting-Guidelines.pdf
- Glass Lewis: "Glass Lewis favors the repeal of staggered boards and the annual election of directors. We believe staggered boards are less accountable to shareholders than boards that are elected annually. Furthermore, we feel the annual election of directors encourages board members to focus on shareholder interests." https://www.glasslewis.com/wp-content/uploads/2016/11/Guidelines_US.pdf
- Blackrock: "We believe that directors should be re-elected annually; classification of the board generally limits shareholders' rights to regularly evaluate a board's performance and select directors." https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf
- Vanguard: "A fund will generally vote for proposals to declassify a current board and vote against management or shareholder proposals to create a classified board." https://about.vanguard.com/investment-stewardship/portfolio-company-resources/2021_proxy_voting_summary.pdf
- Geode Capital Management: "Geode will vote FOR proposals to de-classify boards." https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/Proxy-Voting-Policies-and-Procedures-Geode-Capital-Management-LLC.pdf
In fact, in performing my research, I did not find a single large shareholder of TPL with a publicly available voting policy that prefers staggered boards.
Also revealing is the fact that none of the other public company boards on which TPL directors sit – MRC Global Inc. (MRC), Saia Inc. (SAIA), Texas Roadhouse Inc. (TXRH), Crane Co. (CR), and FRMO Corporation (FRMO) – are classified. Indeed, as TPL's current Chair of the Nominating and Governance Committee, General Cook, stated during TPL's 2019 proxy contest:
"At Crane, a few years ago, we had a classified board. One-third of the board members was elected every year for a three-year term, and it's now pretty much out of favor if you talk to ISS and Glass Lewis, if you talk to other proxy companies. And so what we did was, we got together and I was head of, I was the chair of Nominating and Governance when we did this, and so we convinced the chairman and also the other board of directors that we should probably go to annual elections, which we implemented."
If the Board really believes in achieving improved corporate governance, rather than touting ESG as just a cynical marketing slogan, then it would be well-pressed to heed General Cook's advice and follow the example of the other companies at which its members serve as directors. The most recent such company to vote to declassify was Saia, which, consistent with the consensus described above, explained in its proxy statement:
"The Board recognizes the common sentiment among stockholders and institutional investor groups that the annual election of directors would enhance the Company's corporate governance policies. The Board also believes that removing the classified board structure further enhances practices previously adopted to promote director accountability and independent oversight…In light of this sentiment and corporate governance trends, the Board has determined that it is in the best interests of the Company and its stockholders to declassify the Board and provide for the annual election of all directors."
It was not hyperbole when I stated in my shareholder proposal that there seems to be virtually unanimous consensus in the institutional investment world that declassified boards are now the preferred governance structure: the vote at Saia approved declassification with a final tally of 25,059,845 "for" versus just 10,262 "against", or 99.96% to 0.04%. https://www.sec.gov/ix?doc=/Archives/edgar/data/0001177702/000156459021022835/saia-8k_20210427.htm
In light of the above, TPL's current Board structure is clearly out-of-step with corporate governance best practices and the consensus policies of the public company community. What is more, the Board's resistance to modernizing its structure by declassifying is both unexplained and, frankly, inexplicable. If the Board honestly believes as faithful corporate fiduciaries that there are good reasons for retaining its antiquated classification scheme, then one would have expected it to invite a vigorous debate with its shareholders on the question at the upcoming Annual Meeting. Instead, judging by its reaction to my shareholder proposal and determination to bury it before the Company's proxy materials are even disseminated, the Board considers such a debate – and any attempt to change the status quo – as a nuisance to be stifled quickly and decisively. Such indifference – if not outright hostility – to shareholder democracy is further reflected in the Board's choice of December 29th for the new Annual Meeting date – right smack in the middle of the holidays and during a time of year that many Americans travel, take time off, and spend time with their children and grandchildren that are on vacation from school. That is simply not a date that you select if you are hoping to maximize the number of shareholders in attendance.
The impression that the Board may be primarily interested in entrenching themselves in their current positions is hard to miss. This impression is only strengthened by the fact that the Board, having been effectively appointed by the Trustees of the predecessor Trust, was never even elected by the shareholder body to begin with.
Fortunately, there is a clear pathway to remedy this situation and right the ship. The Board should immediately take steps to:
- rescind the Company's no action letter to the SEC regarding my shareholder proposal and include that proposal in the proxy materials;
- hold a vote of the current directors on amending the Company's Charter to de-stagger the board; and
- present the proposed Charter amendment to the shareholders for a vote.
I appreciate the opportunity to present this issue to the Board, and would be happy to meet with the Board to further discuss it and other needed corporate governance improvements at the Board's convenience.
ATG Capital Management, LLC
SOURCE ATG Capital Management