Reelected, by 38% to 62%!
from January/February 2006
Three directors of Career Education Corp.—outsiders Dennis Chookaszian, 61, the former CEO and chairman of CNA Financial, and Robert Dowdell, 59, CEO of Marshall & Swift, a data-analysis firm in the real estate industry, and insider Patrick Pesch, 48, the CFO—were all reelected to the board last May, even though each of them collected votes representing only 38% of the outstanding shares. The other 62% were withheld, which makes the election a poster child for reformers. They want directors who don’t get majority support to be banned from taking their boardroom seats.
The shareholder revolt at Career Education—it owns various vocational schools and colleges—was organized by Steve Bostic, 62, general partner of White Oak Capital. Bostic is Career Education’s largest private investor, with 1.1% of the shares, worth about $38 million at the time of the vote. Between April and October 2004, the price of the stock dropped from $71 to the high $20’s in response to various investigations of the company by the Securities and Exchange Commission, the Department of Education, and the Department of Justice, not to mention a flock of lawsuits. Though Career Education has done well financially, its shares were mired in the $30’s in late November. “There was tremendous shareholder dissatisfaction,” says Bostic. “There are many issues that need cleaning up.”
Neither of the outside directors returned phone calls requesting comment. Speaking for the company, general counsel Janice Block says, “Institutional shareholders were not upset with individual directors.” (The company has a staggered board, and it was the trio’s turn to run for reelection.) The shareholders “just wanted to send a message,” says Block, “and we heard them.” Or at least partly. Career Education agreed to eliminate a poison pill, as shareholders had requested. But instead of replacing all five outside directors, it said it would add two independent ones. And the company stood pat on keeping a staggered board, despite a 66% vote to declassify it—that is, to elect all directors annually. “We need to protect against an opportunistic shareholder who would try to take advantage without paying a fair price to the shareholders,” Block says.
But what investors really want, of course, is a higher stock price—which is exactly what an opportunistic shareholder might provoke.
