Why I’m voting WITHHOLD on Fission Uranium (FCU)

Fission Uranium

“Using the internet for shareowner proxy voting … will awaken the sleeping giant of corporate governance – individual investors.” My optimism was premature when I wrote that in 1999. But finally the giant has awakened and is starting to stir.

Retail shareowners of Fission Uranium Corp (FCU) have joined forces via internet media, including their Stockhouse.com discussion forum, to challenge the incumbent board’s control of the company. It’s significant that retail investors own a majority of Fission’s shares, in contrast to the institutional investor dominance typical of larger firms.

The opening volleys of this rebellion were fired in a heated debate over a proposal by Fission’s board and management to merge the firm with Denison Mines (DML). On October 6, a “town hall” meeting for the CEO to discuss the plan with shareowners became rather testy, as you can see in this youtube clip, when an investor raised questions about the merger’s payouts to senior management (from minute 57 onward).

Fission shareowners voted down the merger.

Concerned about high executive pay and a declining stock price, some of the retail investors took the merger defeat as a sign of general dissatisfaction with Fission’s current board and management. That could translate into enough voting support to elect a dissident slate in the upcoming board election, so a few of them chipped in funds to organize a proxy fight. Semi-retired entrepreneur Jim Gifford led the charge, creating the “FCU OverSight” organization.

Jim was already active in opposing the merger plan, so had gathered a network of disaffected Fission shareowners. The network reached out to prominent leaders in the mining business, and assembled a slate of five director nominees, including Mr. John Bell, a director of mining powerhouse Goldcorp.

However, in their news release yesterday, FCU OverSight announced that they were withdrawing their nominations, in the face of recently increased change-of-control payouts to Fission executives that would have cost shareowners millions of dollars had the dissidents won. Instead, they have launched a campaign urging Fission shareowners to vote “Withhold” on management’s nominees.

As a Fission shareowner myself, I’m voting “Withhold” because:

  1. My 20 years of working on corporate governance reform have convinced me that it is sorely needed. Existing governance rules are far too biased toward entrenching incumbent CEOs and boards.
  2. The evidence I’ve seen of this Fission battle so far (e.g. at FCUOverSight.ca) indicates that the company would benefit from a less entrenched CEO and board, with greater accountability to its shareowners.
  3. The more shareowners vote “Withhold”, the sooner we will be able to implement reforms, not only at Fission, but in corporations generally. For example, we could help accelerate the trend toward adopting proxy access.

Poor corporate governance is a drag on the economy. It makes our corporations less competitive, because the market for corporate control is uncompetitive. This is the system that brought us the financial crisis, and we have yet to cure its root causes.

Mark Latham

Mark Latham
(Photo by Ruby Mawira)

PS: I’m also voting Against the By-Law Amendment.

[Minor edit 2015-12-08.]

This post originally appeared on the Votermedia Finance Blog.

Bio: Mark Latham is a financial economist and founder of Votermedia.org. He holds a PhD in finance from MIT, and was a derivatives arbitrageur on Wall Street. He left Wall Street in 1995 to work on governance reform by developing online voter information systems. His work can be downloaded from votermedia.org/publications – see in particular “Proxy Voting Brand Competition”. In 2009 the U.S. Securities and Exchange Commission appointed Mark to their post-financial-crisis Investor Advisory Committee, to represent individual investors.

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7 Responses to Why I’m voting WITHHOLD on Fission Uranium (FCU)

  1. James McRitchie December 3, 2015 at 1:27 pm #

    Although Fission Uranium is largely held by retail shareholders, they do have a few institutional holders. According to Morningstar, Global X Uranium ETF owns almost 4.7% of outstanding common shares. Their vote will important. Looking at their voting record for parent Global X Management Co. LLC on Proxy Insight, I am not encouraged. For example, they have voted against proxy access more than 87% of the time. However, it is also clear they are willing to go against management and have done so in 50% of contests (2 out of 4). The fund’s proxy advisor is Glass Lewis.

    Disclosure: I am also a shareholder of Fission Uranium. Although I purchased my shares too late to vote, I would also withhold and would vote against the bylaw amendment if given the opportunity. The bylaws sought simply further entrench the current board and management. They are in the spirit Fission’s recent revelation that replacing a majority of the board would trigger recently increased change-of-control payouts. In a change of control situation, shareholders could be on the hook for millions of dollars.

    For more news coverage, see the Headlines section http://finance.yahoo.com/q?s=fcu.to

  2. Haran,C. R. December 3, 2015 at 9:45 pm #

    Hi,

    I have a question. If most of us, retail FCU shareholders, vote “Withhold” , and it results in all or most of the board members resigning, won’t it thereby evoke ‘change-of -control’ and thus become detrimental to us ? Please explain?

    Thank you.
    Sincerely,
    Haran

    • James McRitchie December 4, 2015 at 7:14 am #

      Good question, C.R. Haran. For significant corporate actions such as mergers, substantial stock issuances and liquidations, a “Just Vote No” campaign can be particularly effective. One high-profile example is the 2004 merger between The MONY Group Inc. and AXA Financial, Inc. There, shareholders alleged inadequate payout and excessive change-in-control payments for management. Two large stockholders launched separate withhold campaigns. The merger ultimately was consummated, but only after MONY declared an additional special dividend that effectively increased the merger consideration.

      To your direct question, at companies that have plurality voting, a withhold campaign won’t defeat the election of incumbent directors because they can be elected by a single vote. However, most boards are sensitive to negative publicity and a display of dissatisfaction will generally push management to improve performance. Studies have shown that such campaigns can motivate individual directors, concerned about their own reputations, to act in stockholders’ best interests.

      Even where companies have a majority vote standard, replacement directors are appointed by the current board — so there is no “change in control.”

      You might recall the 2004 case of Walt Disney. Roy Disney and Stanley Gold waged a vigorous campaign opposing the re-election of certain directors, most notably Michael Eisner. Eisner was re-elected with only 55% of the vote. The board stripped him of his role as Chairman and, ultimately, he resigned as CEO.

      Even though Withhold campaigns don’t result in a change of control, they can be quite effective.

      Sorry it took so long to get to your comment. I review each before allowing them to post. Otherwise the site would be flooded with ads and spam. I welcome all thoughtful comments from all sides of any issue related to corporate governance.

    • Mark Latham December 4, 2015 at 10:05 am #

      Thanks Haran for your thoughtful question. With the late start of this withhold campaign, there seems little chance of a majority withhold vote. Many have already voted, and even though they can change their votes until December 11, most may not, because unfortunately many simply do not follow their stocks or receive news about them on a daily basis. So even a 20% withhold vote would be a sign of substantial shareholder discontent. I’m voting withhold to express my dissatisfaction, which helps to affect the subsequent behavior of incumbents and encourage potential dissidents’ future action.

      The last sentence from FCU OverSight’s Letter to Shareholders is: “OverSight proposes that positive changes are needed, and would gladly take further action if shareholders support it.”

      And even in the unlikely outcome of a majority withhold vote, the director must sign a resignation letter, but the board is not required to accept it. The main point is for shareowners to send a strong message to the board that change is needed.

  3. Haran,C. R. December 4, 2015 at 9:43 pm #

    Thank you James and Mark for your detailed responses. Let’s hope a good number of shareowners vote ‘Withhold’.

  4. James McRitchie December 5, 2015 at 11:24 am #

    OK folks, I forgot that TSE mandated majority vote requirements, so the following provisions would apply (see TSX adopts previously proposed amendments to director elections and majority voting):

    (i) a director immediately tender resignation to the board if he or she is not elected by at least a majority (50% + 1 vote) of the votes cast with regard to his or her election;

    (ii) the board determine whether to accept the resignation within 90 days of the shareholders’ meeting, which resignation should be accepted absent exceptional circumstances;

    (iii) the resignation become effective when accepted by the board;

    (iv) a director who tenders a resignation will not participate in board or committee meetings at which the resignation is considered; and

    (v) the issuer promptly issue a news release with the board’s decision including, in the case of a board not accepting the resignation, the reasoning behind such decision. If an issuer adopts a majority voting policy, the policy must be fully described on an annual basis in the issuer’s proxy materials in connection with a meeting at which directors are elected.

    Note the “absent exceptional circumstances provision” in (ii). In any event, I still don’t see a change of control happening, since remaining directors would appoint the new directors. A high vote against current directors would certainly send a strong message and would likely lead to positive change.

  5. Mark Latham December 5, 2015 at 12:41 pm #

    There’s an insightful reply to Haran’s question on the FCU OverSight blog:

    According to Fission’s management information circular, the relevant definition of ‘change of control’ is that “a majority of the then-incumbent Board’s nominees for election to the Board of the Company are not elected at any annual or special meeting of shareholders of the Company”.

    In the context of the TSX rule that James McRitchie quoted above, they surmise that even if a majority of Fission shareowners vote ‘withhold’ on all nominees, they would still be considered elected by plurality (guaranteed since there are only 7 nominees for 7 seats). So the change of control condition would not be fulfilled. But since they were not elected by a majority, the TSX rule would then require them all to tender their resignations, and it would be up to the board to decide whether to accept those resignations.

    [Minor edit 2015-12-08.]

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