Nobody at Kirby but us chickens…

March 8, 2012

Some days it’s impossible not to answer a question with another question.

In yesterday’s post about perks, Theo asked “whether corporate boards are overseeing major publicly traded companies or a house full of teenagers.” That led to today’s question, which explores the assumption that directors oversee much at all. In fact, after studying the proxy that the Kirby Corporation (KEX) filed yesterday, we found ourselves wondering whether the directors are really human or perhaps are, instead, nattily-attired members of the Vulpes vulpes (red fox) species.

Our query is tied to a number of sizable “Related Person” transactions that Kirby has with its directors and its former Chairman of the Board. Kirby, of course, is a tank barge operator that transports bulk liquid products up and down the Mississippi River and along other U. S. coastlines. It also owns a few barge and tug units, has another segment of the business devoted to diesel engines, and also expanded into oil and gas exploration and development. With 2,975 employees and a current market cap of about $3.8 billion, it’s big, but not huge.

It does, however, own half of a hunting and fishing facility known as “The Hollywood Camp,” and this is where things get interesting. Way back in 1999, Kirby merged with another inland tank barge company, Hollywood Marine, Inc., whose owner, C. Berdon Lawrence, ascended to Chairman of the Board of Kirby after the deal closed.

There’s no mention of Kirby’s related party transactions with Lawrence until the 2002 proxy, when Kirby disclosed that it owned a 25% stake in a “hunting facility used by the Company and two other members primarily for customer entertainment.” Another 25% owner – a company owned by then-Chairman Berdon Lawrence – acted as manager of the camp. At the time, Hollywood Camp leased the right to hunt on land owned by Lawrence and others, and Kirby paid $679,000 for doing so. It paid Lawrence another $323,000 for “air transportation services” that his own company provided.

Fast forward through the next several years, during which Lawrence’s company’s name changed a few times to its current iteration of L3 Partners, LLC (referred to in the 2012 proxy as “L3P”). Lawrence retired as Kirby’s Chairman of the Board in April, 2010 and became its “Chairman Emeritus of the Board”, as well as a member of the Executive Committee. Hollywood Camp is now a hunting and fishing facility, and Kirby and L3P (remember, it’s owned by Lawrence) each own 50% of the place. The camp is managed by L3P. And – during 2011 – Kirby Corporation paid “$2,121,000 to The Hollywood Camp for its share of facility expenses.”

There’s no mention of Kirby paying Lawrence for air transport services these days, but it is also paying “55 Waugh, LP, a partnership owned 60% by Mr. Lawrence and his family, $1,491,000 for the rental of office space in a building owned by 55 Waugh, LP.” That’s on a 10-year lease that expires at the end of 2015; the proxy discloses that the aggregate amount of rent paid will be more than $6.29 million.

And Chairman Emeritus Lawrence isn’t the only insider who is benefitting from Kirby’s related party transactions. Director Richard Alario is the chairman of the board, president, and CEO of a separate company that received $7,978,000 for oilfield service equipment, parts and service last year. Vice President of Legal, Amy Husted, is married to an attorney whose firm received $483,000 in legal fees last year. And a brother-in-law of Kirby’s vice president and controller, Ronald Dragg, owns half of a company that received $1,160,000 for shoreside facilities construction services in 2011. Kirby’s proxy notes that each of these transactions was arranged “in the ordinary course of business.”

Kirby is just one example of a company whose board is approving deals that benefit its own members and company executives. Of course, these are the people who are charged to run publicly-traded companies in a way that benefits all of the company’s owners (a/k/a, the shareholders), especially since they don’t have a voice at the boardroom conference table. But who’s watching the foxes while the foxes watch the chicken coop?

Image source: The artful fox in feathers, via Shutterstock

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