Will the Rossi Posse Go After Your Company Next?
from January/February 2003
by Bonnie Azab Powell
Boonville, California (population 720), occupies about five blocks along winding Highway 128, two or so hours north of San Francisco. Among the town’s main attractions are a brewery, two convenience markets, two real estate offices, and an old-fashioned storefront with a stately façade that houses Rossi & Son Hardware, an emporium where boxes of ammunition fill the shelves, hunting knives extend their claws beneath the dusty glass of a display case, and blenders and Wolverine boots jostle for counter space with cordless drills, rakes, fertilizer bags, and faucets.
It could be any store of its kind. Except that under the photocopier back by the office, something’s amiss: Instead of Grainger catalogs, there’s a foot-high stack of annual reports and proxy statements. The explanation is on page 18 of the proxy for Winn-Dixie Stores Inc., which lies on top of the pile. There, below a shareholder proposal recommending that the supermarket chain rotate its auditors every four years, is the name Chris Rossi. Leaf through the other proxies and you’ll come across proposals from other family members—Chris’s dad, Emil; his younger brother, Nick Rossi; and before too long, maybe even his 16-year-old daughter, Vanessa.
Meet the Rossi posse, the most dogged family of shareholder-activists yet. According to the Investor Responsibility Research Center (IRRC), an independent research firm that tracks proxy-voting and corporate governance issues, the Rossis have submitted at least 175 shareholder proposals since 1988—40 of them in 2002. Of the 29 that made it onto ballots that year, 22 won majority shareholder support.
The Rossis themselves don’t keep count of the proxy wars they start, or the exact voting scores. There’s no computer in the hardware store’s broom-closet-size office, only an old wooden desk and walls papered with clippings and notes. Emil, 77, still writes his by hand, while Nick, 41, composes on a Brother word processor in his house next door and Chris, 46, borrows Vanessa’s computer.
But they do know that their 76% success rate for 2002 is quadruple their previous best batting average. Even three of their seven losing proposals for the year—that ChevronTexaco, Exxon Mobil, and General Electric get shareholder approval before adopting any poison-pill takeover-defense plan—received more than 40% of shareholders’ votes.
Don’t mistake father and sons for crackpots. None of them have been to college, but in addition to the hardware store, they own a couple of cattle ranches around Boonville, a timber business, a lot of real estate—and shares in more than 100 companies. The Rossis own their stocks individually, but they look on the portfolio as a family holding. They’re coy about its worth (a couple of days after my visit to Boonville, Emil wrote to tell me that while he felt uncomfortable about not revealing its value, the family isn’t hiding anything) and say they’ve never actually bothered to calculate its annual rate of return. The Rossis sat out the Internet bubble entirely, for which they count themselves lucky.
According to Chris, each of them selects his investments by scrutinizing “the fundamentals—price-earnings ratios and the usual stuff, management and assets.” Some of their picks have been in the family for years, including several companies whose stock has split many times; Emil holds more than 10,000 shares of Exxon Mobil, for example. His sons own as few as 2,000 in the likes of GE, the minimum stake for filing a proposal at any company. The Rossis don’t sell often; they hate paying capital gains taxes. They hate owing money, too. Their only creditors are suppliers, and they pay all of them by the 11th of each month, Emil says.
Their mission is simple: to promote better corporate governance for the companies in their portfolio. “We’re not doing it just because we want to agitate,” says Emil, his cracked and weather-beaten cattleman’s hands the only evidence of his age. “It sounds corny, but we’re doing it because these things are wrong. Boards of directors and CEOs nominate themselves, they pay their own salaries, they write their own checks.”
Other shareholders’ proxy proposals often feature socially motivated missions—urging oil companies to do more about alternative energy sources, for example. That might explain why only 36% of the proxy proposals voted on in 2002 passed, according to the IRRC—less than half the Rossi family’s success rate. The Rossis’ second-favorite campaign, after their assault on poison pills, urges the use of simple-majority votes on major issues like mergers and hostile takeovers, instead of the 80% “supermajority” that many companies require. Both ideas are supported by the Council of Institutional Investors, an organization of pension funds. The Rossis would also love to see directors stand for election annually.
The latest bee in their baseball caps is that company auditors should be rotated every so often. Their Winn-Dixie proposal asks for a four-year rotation, but three or five would suit Chris equally well. “Any rotation would make sure auditors didn’t just go along with the company to keep their jobs,” he says. “What could it hurt?”
Quite a lot, apparently, as far as other Winn-Dixie shareholders are concerned. At the October shareholder meeting, fewer than 10% voted for the Rossi proposal.
Even if it had passed, the board would have been free to ignore it, of course. Other than for the election of directors, shareholder votes are nonbinding—and often treated with no more respect than unsolicited comment cards stuffed in a company’s suggestion box. At Maytag, for example, shareholders have sided with the Rossis on their simple-majority requirement for three years in a row. After this year’s vote, company spokesman Jim Powell told Corporate Board Member that the directors had taken it “under advisement. Other than that, we have no further comment.” Powell had a lot more to say than his counterpart at Electronic Data Systems, where the Rossis’ proxy proposals also got majority support for two years running. EDS failed to return e-mails or phone calls.
The fact that companies can ignore shareholder votes irritates many. “It’s as if our government said, ‘You can vote against this Proposition 36 or whatever, but we’re going to do it anyway,’” grouses Chris. “It’s just wrong.” Ann Yerger, the Council of Institutional Investors’ director of research, agrees. “The issue of majority votes on shareholder proposals has been one of the most frustrating for our members,” she says. “People wonder, ‘Why bother doing them, when nothing happens?’ Well, they can be a powerful tool for opening the door to communication between a company and its stakeholders. But the fact is, directors have tremendous discretion in what they do with them, and there are strong feelings on both sides about poison pills, classified boards, and simple-majority voting. It’s the rare company that is going to change those structures voluntarily.”
One that has is the formerly much-maligned board of Walt Disney Co. In an about-face, Disney’s directors adopted a 2002 shareholder proposal—not from any of the Rossis—that the company prohibit its external auditors from providing consulting services. Shareholder-activist Nell Minow, co-founder and editor of the Corporate Library (www.thecorporatelibrary.com), a corporate governance website, thinks that in the post-Enron, diving-Dow world, more companies will follow Disney’s lead. “It’s hard to measure the influence that shareholder proposals have,” says Minow. “In the past, companies have been sensitive about these things, even if they didn’t follow through with them. But no one likes to have a vote of no confidence, and the pressure on boards is only going to increase.”
The Rossis aren’t counting on that, but then they know that patience can sometimes pay off. Emil’s father, John Rossi, started buying stocks in the 1920s after immigrating to Brooklyn from Venice. His policy of selling once he’d made a good profit was lucky. He dumped most of his U.S. Steel shares just before the 1929 market crash, enabling the family to weather the hard times that afflicted his new country. John bought a house in Boonville in 1932 and the store in 1945. Emil, back from World War II military service in Europe, went to work at Rossi & Son a year later and has been there ever since.
Emil’s questioning of corporate governance started in the early ’70s, when he realized that some directors of U.S. Steel, in which the family still had stock, didn’t own shares in the company. He began to push a proposal that the steelmaker’s directors, as well as those of other companies, be required to own at least 2,000 shares and to hold them until they retired. “It took a while, but nowadays you’ll never find one who doesn’t own stock,” Nick says proudly.
As his father had done for him, Emil gave Nick and Chris stocks when they were in grade school. (Vanessa got her first shares as a tot.) Before long the Rossi boys had turned into activists too, and started writing letters to various companies, pushing for such things as more shareholder input on executive pay. In 1995, the Securities and Exchange Commission moved in that direction when it stated that shareholders should have a say in how executive compensation packages are structured. “I’m sure we had something to do with that,” says Emil, who in the ’90s ran unsuccessfully for Congress three times as a Libertarian. “It might take time, but people like us can make changes.”
Increasingly, the Rossis have found allies among the big pension funds. In 2002 TIAA-CREF and the California Public Employees’ Retirement System supported their successful proposal to get Kimberly-Clark to terminate any poison pills in effect and require shareholder approval for the installation of new ones.
The Rossis obviously appreciate such mighty confederates, but they have a softer spot for their fellow individual activists. Emil sees institutional investors as Johnny-come-latelys to the reform movement. In the past, he says, “management would just wine them and dine them until they voted however they wanted them to.” He’s proud that the only perk he’s ever received was a free dinner with Pacific Gas & Electric’s then-CEO, Stan Skinner, in the mid-1990s.
Most CEOs are less sportsmanlike than Skinner about proposals for change. And sometimes tempers run short on both sides. Security guards forcibly ejected Nick Rossi from Safeway’s annual meeting in May after he hurled a booklet containing the meeting rules at general counsel Robert Gordon, who in Nick’s opinion was ignoring those very guidelines. At least, that’s how the company recalls the incident. Nick remembers it differently. “All I threw was papers, and I tossed them at the podium, not at him,” he says, looking agitated all over again. “It’s 15 minutes a year they have to listen to us. Why are they so threatened?” Still, Safeway shareholders voted to adopt his poison-pill proposal with a 71% majority.
Do the Rossis have a hankering to stand for election as directors themselves? “You bet, but it seems so unlikely I’d win that I haven’t bothered trying,” says Nick. Of course, he could change his mind, as could any of them, and victory might be more likely than he thinks. Better batten down the hatches.
