Shareholders Rebuff Sunrise
Shareholders have rebuffed Sunrise Senior Living, the McLean assisted living provider, on two issues of corporate governance.
Sunrise said an overwhelming number of shareholders at last week's annual meeting approved a nonbinding resolution to elect all nine of the company's directors every year, rather than three per year.
A pension fund associated with the Service Employees International Union proposed the change, saying it would make management more accountable. But the company had implored shareholders not to back it, saying the current structure provides "board stability."
In addition, most shareholders opposed the re-election of director Craig R. Callen, an Aetna executive who sits on the board's compensation and audit committees, following questions about the company's accounting and stock granting practices.
The shareholder action come as Sunrise, a 26-year-old company that operates 453 assisted living centers in the North America and Europe, works to clear up accounting problems.
The company announced last year it would restate up to $125 million in earnings and has since faced a Securities and Exchange commission investigation and shareholder lawsuits. Sunrise said an internal review found no misconduct. In the meantime, the company has said it is exploring its strategic alternatives, including a possible sale.
"The votes illustrates that shareholders want a more independent board, especially as the company considers a potential sale," said Stephen Abrecht, executive director of the SEIU Master Trust, the union's $1.7 billion pension fund.
The company declined to comment on the results, which are non binding and would require action by the board to implement. "The board will consider the results of this shareholder meeting at a future board meeting," said Meghan Lublin, a Sunrise spokeswoman. "But we can't speculate on what the board will do next."
Lisa Fairfax, director of the business law program at the University of Maryland School of Law, said measures such as the one to hold annual board elections have become popular in recent years to counter signs of "board entrenchment and uncooperativeness."
According to RiskMetrics, a consulting firm specializing in corporate governance issues, a majority of shareholders have approved changing the timing of elections in 27 of 33 instances the question has come before companies in the past year.
Less successful have been votes aimed at expressing displeasure over individual board members. Only eight of the more than 31,000 directors up for election in 2006 didn't receive majority support, a RiskMetrics survey found
Despite the vote against him, Callen remains a board member because he was unopposed. At the same meeting, Lynn Krominga, an attorney and recently appointed independent board member, was elected with almost no opposition. Paul Klaassen, the company's founder and chief executive, was also re-elected, but 22 percent of shareholders didn't support him. (Klaassen holds 10.5 percent of shares.)
"That's a vote of no confidence," said Thomas Lys, an expert in corporate governance at the Kellog School of Management at Northwestern University. "At the end of the day you have a very large dissatisfied group and it's very hard for the CEO to contain it."
Another shareholder resolution -- to require Sunrise executives to return compensation if the earnings restatement requires the company to lower profit figures -- failed. The resolution was opposed by the company's leadership.
Just over 50 percent of shareholders voted at the meeting, an unusual event in itself because federal securities rules don't permit companies whose books are out of order to hold annual meetings.
However, one major investor, a New York hedge fund, sued under state law in Delaware, where Sunrise is incorporated, to force the company to hold the meeting. A Delaware court set the date and agenda for the meeting.
Sunrise stock closed up 3 percent yesterday, climbing $1.12 to $38.67.
-- Zachary Goldfarb
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