Bank sues Tyson board

Cattle Market & Farm Reports, Editorials
Mar 7, 2005
by WLJ
Amalgamated Bank, trustee of a mutual fund owning nearly 89,000 shares of Tyson Foods, filed suit on Feb. 16 against the Springdale-based company charging directors benefitted fiscally at the expense of shareholders.
The lawsuit—which was filed in Delaware and seeks class action status—lists the world's largest meat processor and most current and some former members of its board of directors as defendants, including Chairman and CEO John Tyson.
One of the charges of the complaint is that the company tied giving stock options to executives and board members to events that the company believed would increase the value of shares, such as an improved earnings outlook.
Tyson spokesman Gary Mickelson said as of Wednesday afternoon the company had not been formally served the complaint and "was unable to respond."
Jay Eisenhofer, attorney with Grant & Eisenhofer, the firm representing union-owned Amalgamated Bank, said in a release he predicts greater scrutiny regarding certain stock options.
"There is no doubt in my mind that timed options represent the next big wave in corporate governance reform," he said.
Other allegations listed in the suit by Amalgamated Bank, trustee of LongView MidCap 400 Index Fund, include:
• Certain present and former members of Tyson's board favored personal interest of the Tyson family, who held a controlling stock interest in Tyson;
• The defendants entered into wasteful and excessive consulting contracts with Tyson family members, some of which can continue posthumously; and
• The defendants allowed family members to "run roughshod" over the company's finances by causing the company to enter into unjustified related-party transactions with interests of family members.
The firm is calling for Tyson to compensate financial injuries suffered by the company as a direct result of the breaches of management duties by the individual defendants.
Amalgamated Bank also criticized Tyson's dual-stock corporate structure, which gives former Senior Chairman Don Tyson more than 80 percent of voting power on items such as shareholder proposals, executive compensation and board members.
In proxy statements filed with the federal Securities and Exchange Commission, the company's board has defended the dual-class system, saying it is in the best interest of the company.
Many analysts and Martha Carter, senior vice president and director of U.S. research for Institutional Investor Services, a provider of corporate governance services, are critical of the structure.
"Dual-class systems—where one class has super-majority voting rights—disenfranchises the class with lower voting rights and is not consistent with good corporate governance practices," Carter said. "If the allegations are true, the management of the company is putting their own interest ahead of their shareholders."
The company said in its most recent proxy statement it has chosen not to comply with certain New York Stock Exchange corporate governance rules, taking advantage of a provision allowing family-controlled companies to do so. Last year, it did increase its number of board members independent of the company to five out of 10 total seats, a move analysts called for.
Standard & Poor's in July upped the company's short-term credit rating after a review of its management practices, and S&P analyst Jayne Ross said in a report, "Tyson is making strides in improving some issues" concerning corporate governance.
In December, Tyson said it would pay $1.5 million to end an investigation by the SEC regarding perks given to top officers, including Don Tyson. The company said it will pay the civil penalty without admitting or denying wrongdoing. Don Tyson agreed to pay $200,000 to the SEC under the same conditions.
Amalgamated Bank filed suit Wednesday against technology firm Cisco Systems under charges similar to those levied against Tyson. — WLJ