The drumbeat of calls for a shake-up in Massey Energy's leadership grew louder last week as pension funds and other investors sued the nation's fourth-largest coal producer and lobbied other shareholders to press for the ouster of chairman and CEO Don Blankenship and three directors.
Potentially adding fuel to the fire were reports Friday that the FBI is investigating Massey. Massey said it has no knowledge of criminal wrongdoing and is cooperating with all agencies investigating the April 5 explosion that killed 29 at its Upper Big Branch mine in West Virginia.
The Virginia-based coal producer's shares sunk another 11 percent Friday, closing at $36.63. Since the accident, the value of Massey's shares has fallen $1.4 billion.
Massey's board of directors has rebuffed calls for the resignation of Mr. Blankenship, the chairman and CEO since 2000. He has been criticized for his confrontational approach to regulators, shareholders and workers and for emphasizing production over safety, a charge the company categorically denies.
Directors gave their embattled chairman their "full support and confidence" in an April 22 statement. Four days later, the company said its top priorities are "safety, ethics and excellence," that it is "committed to an open, constructive dialogue with our shareholders," and that the company benefits from Mr. Blankenship's "strong financial management and leadership."
"Making changes in the midst of a crisis is exceptionally high risk," said retired Adm. Bobby R. Inman, Massey's lead independent director.
The statements contrast sharply with those of Massey's critics.
"Massey's alarming record of noncompliance ultimately reflects the board's fundamental inability to exercise independent oversight of Donald Blankenship, a domineering chairman and CEO," William Patterson, executive director of CtW Investment Group, told Massey shareholders in a letter Thursday.
Last week, a West Virginia judge agreed to hear contempt proceedings brought by shareholders who charge that Mr. Blankenship and other Massey directors failed to comply with the terms of a settlement of a 2007 shareholder lawsuit. The agreement required the company to comply with safety and environmental regulations. Union pension funds in Pennsylvania and New Jersey and Louisiana's police pension fund also sued the company.
Discontent with Massey's leadership is growing as the coal producer heads toward its May 18 shareholder meeting in Richmond.
Such annual gatherings held by public companies typically are mundane, well-scripted affairs run with the precision of a Swiss watch. A few shareholders show up and pose questions that are deftly handled by well-rehearsed executives. Management nominees for the board are routinely elected, and the meeting is swiftly, quietly adjourned.
The Upper Big Branch mine disaster and proposals before Massey investors most likely will make Massey's shareholder meeting one of this year's rowdiest.
CtW is affiliated with organized labor's Change to Win Coalition. The investment group and New York state comptroller Thomas P. DiNapoli, who oversees a $129.4 billion pension fund that covers New York state and local government employees, are urging Massey stockholders to oppose the re-election of three directors who serve on the coal company's safety, environmental and public policy committee.
Mr. DiNapoli also is asking shareholders to approve a change that would require Massey's entire board to face re-election each year. Shareholders currently elect a third of the board each year, making it harder for stockholders to make sweeping changes in how the company is governed.
Massey's incumbent directors "have failed to protect our investment by exercising proper oversight of risk," Mr. DiNapoli wrote in a letter sent to shareholders Tuesday.
The coal producer is no stranger to shareholder protests.
Third Point LLC, a hedge fund, won two seats on the company's board in a contested 2006 election. Those directors resigned a year later, saying the company's "confrontational handling of environmental and regulatory matters" and the board's "misguided insistence" in keeping Mr. Blankenship as CEO created "a Blankenship discount" that depressed Massey's stock price.
At last year's meeting, 59 percent of shareholders withheld their votes in the uncontested re-election of director Lady Barbara Thomas Judge. Despite the protest, Ms. Judge was put in charge of the board's corporate governance committee, which sets the policies for how the company is managed.
She resigned April 19, citing the demands of other business commitments. Three weeks earlier, Mr. Patterson of CtW had asked for her resignation, saying Massey's decision to keep her on the board after last year's protest vote "is far from the only indicator of an entrenched and unaccountable board."
Labor unions and state pension funds have been among the leaders when it comes to shareholders forcing changes in corporate America. Mutual funds, which are among Massey's largest shareholders, typically "aren't in the business of fighting these corporate governance battles," said Michelle Lowry, who teaches finance at Penn State's Smeal College of Business.
As voters, Fidelity, BlackRock and other mutual funds have backed Massey's critics in the past.
Dr. Lowry said hedge funds are more frequently pressing for change at companies where they believe mismanagement has depressed the stock price. Their strategy is to force the ouster of a CEO and replace that person with someone who will make the stock price recover, allowing the activist investors to cash in their gains.
Another criticism of Mr. Blankenship is that he is both chairman and CEO, meaning that Mr. Blankenship the CEO reports to Mr. Blankenship the chairman.
"That's a big red flag. It's getting more and more attention from corporate governance activists," Dr. Lowry said, adding that Massey's board "is somewhat beholden to management."
Last year, the $46.7 billion Pennsylvania state teachers' pension fund and Ohio's state employee pension fund withheld their votes for Ms. Judge as well as those for another Massey director who was a member of the board committee that sets pay for Mr. Blankenship and other top officers.
Massey's pay practices have come under fire from Glass Lewis & Co., which advises Pennsylvania's Public School Employees' Retirement System and other large investors how to vote their shares at stockholder meetings. PSERS spokeswoman Evelyn Tatkovski said the pension fund owns more than 46,000 Massey shares, less than 0.1 percent of the shares outstanding.
Glass Lewis, which has not yet issued its recommendations for the May 18 meeting, has given Massey's compensation policies an "F" for the past three years, Mr. Patterson wrote to his investors last week.
A proxy statement mailed by Massey to its shareholders in advance of the meeting indicates Mr. Blankenship was given salary, bonus, stock, stock options and other benefits valued at $17.8 million last year, up 62 percent from 2008. The amount included more than $358,000 for the use of Massey's corporate jets, a perquisite Third Point took aim at in its successful 2006 fight for seats on Massey's board.
"We think a good place to put the cost savings from the luxury jet would be a program to reward and retain the company's miners," the hedge fund wrote in a letter to shareholders.
Shareholders are not the only ones applying the heat.
Evan Mann, a high yield debt analyst for Gimme Credit, said the criticism from elected officials also could force changes at Massey. President Barack Obama, who spoke at last Sunday's memorial service for the dead miners, has ordered an investigation of the accident.
"This tragedy was triggered by a failure at the Upper Big Branch mine -- a failure first and foremost of management," Mr. Obama said when he announced the probe April 15.
Potential fines and production delays while the accident is being investigated add to the concerns of investors who own Massey's debt, Mr. Mann said. Replacing Mr. Blankenship with someone who has a better reputation with regulators and politicians or who inspires more confidence among shareholders "might calm things down," he said.
"He may survive, but it wouldn't surprise me to see him gone," Mr. Mann said.
Even when critics lose their battle at stockholder meetings or negotiate a settlement, the company frequently replaces its CEO the following year, Dr. Lowry said.
"That is a very common pattern and much of that is attributed to the increased attention companies face, the increased pressure on companies to make substantial changes," she said.
Len Boselovic: firstname.lastname@example.org or 412-263-1941.