Quality Systems CEO Tangles With Leading Shareholders
The battle over the independence of Quality Systems Inc.’s board reached a crescendo this week during a quarterly conference call in which the chief executive and several major shareholders engaged in a rancorous debate.
The Tustin health-care software company has been the subject of one investor lawsuit and several shareholder filings with the Securities and Exchange Commission over the past six months. All focus on an alleged lack of board independence and the amount of control wielded by its founder and chief executive, Sheldon Razin.
Of particular concern is a $47-million bid for the company that several investors say Razin summarily rejected without consulting the board.
When asset manager Thomas Kikis, owner of about 3% of Quality Systems, brought up the rejected bid during a quarterly-earnings call Wednesday, Razin responded that the bid was an “alleged conditional offer made by an individual company with $1 million in sales, no knowledge of the business, and he could not indicate where he would get the financing.”
But the rejected bidder, John Kutasi, was listening to the conference call and disputed Razin’s version of events. Kutasi said Razin never asked about the bidder’s ability to finance the proposed deal.
Razin said he didn’t agree with Kutasi’s description of the bid and declined to elaborate due to the shareholder lawsuit, which demands that the board of directors be ordered to carry out their fiduciary duties.
The conference call took a decidedly personal turn after Andrew Shapiro, who runs Lawndale Capital Management, asked Razin why the company was paying a law firm to fight a shareholder resolution that Lawndale has proposed.
Lawndale, which owns nearly 10% of Quality Systems shares, wants to ask shareholders at the firm’s annual meeting this fall to vote on changing the composition of the board to include a substantial majority of independent members. The company is seeking approval from the Securities and Exchange Commission to exclude the proposal from the proxy. The SEC has yet to rule.
Shapiro, who has been one of Razin’s most vociferous critics, received an earful after his question.
“You’ve been harassing this company,” Razin said. “You’ve harassed the directors to such an extent that some independent directors have been forced to put their calls on hold because they don’t want to take your calls, which turn into two-hour monologues that they’ve already heard.”
Shapiro responded that he didn’t consider his actions harassment.
Quality Systems’ stock was unchanged Thursday at $6.25 a share. The share price has doubled in recent months, and it reported fourth-quarter earnings of 12 cents a share Wednesday, down from 15 cents a share a year ago.
