Second thoughts at BioMed Realty Trust __»

June 7, 2010

Independence has been a buzzword in corporate governance circles for some time now. That doesn’t mean everyone is on board, of course: Over at BioMed Realty Trust (BMR), directors decided that, in the end, best practices might not be best after all.

The news came on June 2, in a grab-bag of an 8-K that also reported a promotion, an amended indemnification agreement for board members and the results of the company’s annual meeting (highlight: board member and General Counsel Gary A. Kreitzer was trounced at the polls, with 39.8 million votes for his election to the board and 47.7 million withheld.) Then the company began its backtracking in a roundabout way:

“As reported in the Company’s proxy statement — the Company’s board of directors previously approved the establishment of a Lead Independent Director position, which the board intended to fill at the board meeting following the Company’s 2010 annual meeting of stockholders.”

That would have designated an independent director to balance out Chairman and Chief Executive Alan D. Gold, who has worn both of those hats since 2004, and did the same at the company’s closely held predecessor back to 1998. But instead, on May 26, “after extensive discussion among the independent directors in executive session,” the board concluded

“that the current board leadership structure — is operating effectively to foster productive, timely and efficient communications among the independent directors and management, and that it would not appoint a Lead Independent Director at this time.”

The document doesn’t exactly explain why board members prefer the current arrangement, except that, so far, it works well enough, “with a large majority of independent directors” of varying backgrounds, “with active participation by independent directors in chairing and serving on board committees, and with complete and open lines of communication and access to the Chairman and Chief Executive Officer and other members of management.”

Never mind that several corporate-governance groups call for independent lead directors where a company’s chairman is also a top manager. For example, Calpers, the giant California public-employees pension fund, told the NASDAQ last fall:

“The CEO and chair roles should only be combined in very limited circumstances; in these situations, the board should provide a written statement in the proxy materials discussing why the combined role is in the best interest of shareowners, and it should name a lead independent director—”

Over at the National Association of Corporate Directors, which bills itself as “the only national membership organization created by and for directors,” the sentiments are similar. According to the NACD’s “Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies” (which is “intended to describe the current baseline consensus”:

“The board provides oversight of management and holds it accountable for performance. This requires that the board function as a body distinct from management, capable of objective judgment regarding management’s performance. Therefore, some form of independent leadership is required, either in the form of an independent chairman or a designated lead or presiding director.”

Should boards choose a lead director instead of an independent chairman, the NACD document continues, they should explain “why that form of leadership is preferable and also provide the independent lead director with authority for setting the board agenda, determining the board’s information needs, and convening and leading regular executive sessions without the CEO or other members of management present.”

Presumably, choosing to keep a CEO-chairman and abandoning a plan to name a lead director might warrant a detailed explanation as well. Of course, with BioMed handily beating industry competitors and the S&P 500 last year, perhaps the board doesn’t owe shareholders any kind of explanation. Still, we have trouble seeing what harm a little independent leadership would do.

Image source: lumaxart via Flickr

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