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Frank Voisin
Frank Voisin
Articles (222)  | Author's Website |

GTSI Corp: A Big Win for Corporate Governance

March 14, 2012 | About:

Today GTSI Corp (NASDAQ: GTSI) filed its preliminary proxy documentation. Contained within it is a company-proposed amendment to the company’s constating documents which would declassify the board of directors (emphasis added):

The Certificate of Incorporation currently provides that, subject to the rights of any series of Preferred Stock to elect additional directors under specified circumstances, the Board is divided into three classes of directors designated as Class 1, Class 2 and Class 3, with each class having a three-year term. (Currently the Board has 10 directors, consisting of four Class 1 directors, three Class 2 directors and three Class 3 directors.) Consequently, at any given annual stockholders meeting, the stockholders have the ability to elect only one class of directors for a full term of three years to succeed the directors of the class whose term expire at such annual meeting. …

The Board, after careful consideration and having declared it advisable, submits and recommends for stockholder approval a proposal to amend the Company’s Restated Certificate of Incorporation (the “Certificate of Incorporation”) to declassify the Board and provide for the annual election of all directors for a one-year term, as described below. The Company currently has a classified Board consisting of four Class 1 directors, three Class 2 directors and three Class 3 directors. At each annual stockholders meeting, one class of directors is elected for a term of three years to succeed the directors whose term expires at such annual stockholders meeting. …

If approved by the stockholders at the Meeting, the Charter Amendment will become effective upon the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware (which would occur during the Meeting but prior to the consideration of Proposal 2 – to elect the entire Board). The Board will then be declassified immediately, so that every director will stand for election at the Meeting (and thereafter) for a one-year term to hold office until the next annual meeting of stockholders and until his successor is duly elected and qualified or until his earlier death, resignation or removal (Proposal 2).
This is a huge win for shareholders, as it reduces board entrenchment and increases the ability of activist investors to hold the board responsible for poor performance. Here’s what the company says about its motivation, in part:

Principally, the Board believes that the Charter Amendment will enhance the responsiveness and accountability of the Board and the Company to the stockholders and more align the Board’s and stockholders’ interests.
I couldn’t agree more.

Author Disclosure: Long GTSI

About the author:

Frank Voisin
Frank is an entrepreneur who owned four restaurants by the time he was twenty. He sold his businesses and returned to school, completing a concurrent Law / MBA degree. At the same time, he successfully completed all three levels of the CFA exams. He now invests full time with a focus on value investing. Frank Voisin writes about value investing topics at http://www.frankvoisin.com.

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