Farmers Bros. Protest Vote Recommended
An influential shareholder advisory firm is asking stockholders to vote against reelecting Farmer Bros. Chairman Roy F. Farmer and two other executives to the Torrance-based coffee company’s board of directors.
Institutional Shareholder Services, which advises more than 950 institutional and corporate clients on corporate governance issues, told shareholders to withhold votes for Farmer; his son Roy E. Farmer, who is president of the company; and Guenter Berger, Farmer’s vice president of production.
The Rockville, Md., advisory service objects to their reelection because the executives failed to establish an independent nominating committee for the board.
Patrick McGurn, vice president and special counsel of ISS, said he doesn’t expect to throw the trio off Farmer Bros.’ six-member board; indeed there is no alternative slate and management has voting control over 52% of the stock.
But the company does not have enough independent directors to provide the checks and balances for prudent corporate governance, McGurn said, and the recommendation is the best way to send a message.
Farmer Bros. also is attracting criticism from another shareholder advisory service, Investor Responsibility Research Center. The Washington firm believes that only one Farmer Bros. director -- Glendale accountant John Merrell -- meets its standards of independence, said Carol Bowie, the firm’s director of governance research services.
Farmer Bros. executives did not return calls for comment.
ISS gave its approval to the three remaining members of the six-person board, but criticized two of them -- Merrell and John Anglin -- for not holding stock in the company, which is a roaster and seller of institutional coffee. Anglin, an attorney, is an outside company counsel.
Farmer Bros. is mired in an increasingly bitter battle between its longtime managers and a group of dissident family members and institutional shareholders. The company, which has $200 million in annual sales, plans to hold its annual stockholders meeting the day after Christmas, a move dissidents claim was meant to limit participation and hurt their longer-term efforts to elect independent directors and to force Farmers to disclose more information about its finances.
Part of the fight is over what Farmer Bros. should do with a stockpile of $295 million in cash and investments, an amount equivalent to about half of its total stock market value. The funds represent about 70% of Farmer’s corporate assets.
Franklin Mutual Advisors, which controls 9.6% of Farmer’s stock, has submitted a shareholder proposal that would force the company to comply with the Investment Company Act, which has stricter disclosure rules. Management has recommended a “no” vote on the proposal.
Although ISS urged shareholders to vote against reelection of the Farmers and Berger to the board, it supported management’s views on the shareholder proposal, saying it “appears to have exhibited fiduciary responsibility in managing those reserves.”
ISS also noted that the company is returning an increasing amount of cash to shareholders through dividends in recent years. It calculated that the dividend per share has risen 7.5% annually since 1998 to $3.40 this year.
However, the advisory service did offer a caveat, saying that as an operating company, Farmer Bros. should look to reinvest the cash in the business to improve “shareholder value.”
Management has voting control over 52% of the stock. But that includes 12% of Farmer Bros. stock held in trust for dissident family members, and a fight is likely over how those shares are voted.
Farmer Bros.’ thinly traded shares closed Friday at $312 on Nasdaq.
