Magna vote shows low support for some directors

TORONTO - Shareholders have pressured Magna International Inc. (TSX:MG) to release details of a vote which suggests that many were not pleased with the performance of three directors who oversaw a controversial deal to buy out founder Frank Stronach's controlling stake.

The auto parts giant said in a statement that those directors -- including chairman and former Ontario premier Mike Harris -- received only minority support, in part because a shareholder advisory firm recommended institutional investors abstain from voting for them at the company's annual meeting in May.

"These three directors served on a special committee of Magna's board, which some institutional shareholders questioned for not making a recommendation on the 2010 plan of arrangement that ended Magna's former dual-class share structure," Magna (NYSE:MGA) said in the statement released late Tuesday.

Some of the large institutional investors voted against Magna's proposal, which saw Stronach give up his special voting shares in an exchange worth US$863 million in cash and shares -- a premium of about 1,800 per cent.

The release of the information comes after three large shareholders -- the Canada Pension Plan Investment Board, Connor, Clark & Lunn Investment Management and RBC Global Asset Management -- filed a lawsuit Monday to compel it to disclose the results.

Michel Leduc, a senior vice-president at the CPPIB, said the investors took legal action as a last resort after being rebuffed by the company upon several "quiet" requests for the information.

Leduc said the investors believe the information is crucial to shareholders ahead of Magna's 2012 annual general meeting.

"The collective objective of the institutional investors were absolutely forward-looking," he said.

"The reason is we think that the results are indeed vital to the voting decisions of Magna shareholders in connection with the election with directors in the 2012 election."

In the legal filings, the investors call Magna's refusal to release the information "oppressive and unfairly prejudicial."

But, Leduc said, now that Magna has complied, the investor group will drop the lawsuit. He would not comment on whether the CPPIB had abstained from voting for directors of the special committee.

Harris, who was appointed chairman after May's meeting, received only 38 per cent of shareholder votes, the disclosure shows.

As lead director, Harris held a key position that gave him responsibilities when dealing with matters that may be a conflict of interest between the company and Stronach, the board's then chairman.

The other members of that special committee -- Louis Lataif, former dean of the School of Management of Boston University, and Donald Resnick, a Toronto accountant -- also received only 38 per cent of the vote.

However, shareholder approval is largely a formality, as they can only vote "for" or abstain, rather than oppose candidates that are selected by the company. The only way a low vote would result in a director being deposed would be in a case where new candidates were running against current members for a seat on the board.

The results also showed that Stronach, the recipient of the multi-million dollar buyout, received 84 per cent of shareholder votes. Other directors also got strong support from shareholders.

The company was not immediately available for comment Wednesday.

The CPPIB and the Ontario Teachers Pension Plan were vocally opposed to the buyout deal because they said the payout was excessive and that it would dilute the value of their holdings. They also noted that the lack of direction from the board's special committee was disconcerting.

But because Magna was broadly held, with its three largest class A shareholders owning only about five per cent of the company each, the opposition failed to scuttle the deal. It was eventually approved by three-quarters of shareholders and an Ontario court judge, whose decision was upheld on appeal.

The controversy also drew attention from the Ontario Securities Commission, which was concerned that shareholders were being asked to approve the plan without a recommendation by the board.

Magna said its share price has shot up 105 per cent on the New York Stock Exchange since the deal went through. It added that since its completion, Magna's board -- under Harris, its first independent chair in more than 40 years -- has adopted new corporate governance practices.

Leduc said the CPPIB is satisfied with a number of governance changes at Magna and said there are no current plans to pressure the company on other issues.

Frank Stronach and his family controlled the company for years through a stock structure that gives the Stronach Trust more votes than all other shareholders.

In June, Stronach sold more than six million Magna shares for proceeds of less than $300 million cash. The 78-year-old has been selling shares gradually since last fall.

The tool and die maker who went on to build a multibillion dollar international auto parts empire, stepped down as chairman of Magna International Inc. in April and was replaced by Harris.

Magna has more than 102,000 employees at 263 plants and 84 product development, engineering and sales centres around the world.

Shares in the company lost 21 cents to $36.28 Wednesday on the Toronto Stock Exchange.