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The Stench of Sleaze is Wafting from Fremont

April 16, 2010 | About:
Harry Long

Harry Long

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Readers of my articles know that I am not a fan of Fremont CEO Dick Dunning. To review, I have found his behavior to be the worst example of CEO conduct that I have ever encountered.

As I have recounted on BuildFremont.com, BuildFremont.com/Blog (still cached on Google), and SeekingAlpha.com the most egregious examples were:

I. Refusing to recognize my nomination to Fremont's Board. For instance, in its 2008 proxy statement, Fremont stated the wrong deadline for the nomination of directors. The deadline in the proxy, disturbingly, contradicted the date stated in its Articles of Incorporation. While I am sure the company did not do this on purpose, the company did refuse to recognize my nomination, even though it was made before the deadline listed in the company's own proxy statement.

II. Having me travel across the country to meet him and his executives and not bringing people to the meeting that he committed to bring (Skip Massucci and Kent Shantz). The next day, Dick Dunning refused to rectify his mistake. He insisted on a conference call with the absent executives, rather than the face-to-face meeting he had agreed to before I flew up to Michigan (why did I fly from Florida to Michigan for a conference call?).

More recently, something almost unimaginable has occurred. Earlier this week, a bill was winding its way through a Michigan State Senate committee which could block the takeover of small Michigan insurers. However, there is more to the story.

The Detroit News article "Bill seen as roadblock to takeover of Fremont insurer" (http://www.detnews.com/article/20100414/BIZ/4140427/1361/Bill-seen-as-roadblock-to-takeover-of-Fremont-insurer#ixzz0lHqENFxX), details how Jeff Cobb, chief of staff to Sen. Gerald Van Woerkom, R-Muskegon, who sponsored the bill, has made it very clear the bill is is aimed at protecting some specific companies.

To quote the article, "Cobb said the bill is narrowly tailored to block the takeover of Fremont and would affect only a couple other companies in the state."

This is the biggest smoking gun I have ever read. You have the Chief of Staff to a State Senator who is basically admitting, according to the Detroit News, that he has sponsored legislation that would block the takeover of a public company.

According to the article, “The legislation would require approval of two-thirds of outstanding shares of a company to elect director candidates who are not backed by a majority of that company's board of directors.”

Did executives, employees, or board members of Fremont have any hand in introducing this legislation, suggesting it, or asking it to be written? Have any executives, employees, board members, or contractors of the company been lobbying for this bill? If they have not, they should put out a press release saying that they do not support the state legislature meddling in free enterprise, shareholder rights, and shareholder democracy.

According to Fremont's latest proxy statement, Donald VanSingel, Chairman of the Board, “served 20 years as a Representative in the Michigan House of Representatives, and was a lobbyist from 1993 until his retirement in 2007 with Government Consultant Services in Lansing, Michigan; Mr. VanSingel has experience in government relations, legislative matters and as a director of a public company.” If Donald VanSingel does not support such shameless legislation, I hope he comes out with a public statement condemning it. Clearly, with his years of experience as a State Representative and lobbyist, he could quash this bill.

There is a larger issue at work. What rights do common people, who are the vast majority of shareholders, have to put checks on company management in this country? Are wealthy CEOs, in a larger sense, so powerful as to enlist the help of legislatures in protecting their jobs? (I would never imply that Fremont or Dick Dunning is doing this, I am simply posing a larger question about public policy). Shouldn't shareholders have the right to elect directors, who are entrusted to oversee management, by simple majorities?

Shareholder democracy works. Efforts to undermine shareholder democracy not only hurt shareholders, but also workers. When companies are mismanaged, if shareholders cannot oust management, workers bear the brunt of it as they are laid off, or have their health benefits and pensions cut. If companies are managed well, management has nothing to fear from shareholders. In any case, shareholders, who have their money at stake, should decide who runs a company--not legislators who as we have seen too often in this country, are often beholden to lobbyists.

Has the opposite approach worked in Michigan? Currently, Michigan has the highest unemployment rate in the country. Mismanagement destroyed GM. Who bore the cost of that? GM workers.

There is a word for what Sen. Gerald Van Woerkom is doing. It's called cronyism. Don't let a politician fool you when he discusses protecting local companies or local employees. Politicians really care about protecting rich, well-connected CEOs. There is one person who Sardar Biglari has said he wants to replace if he is successful in taking over Fremont. Guess who it is. CEO Dick Dunning.

I say, good riddance.

Disclosure: Long FMMH


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