Citing a lack of leadership, federal investigations, and a downward spiral of stock value, the CtW Investment Group let Beazer's board of directors know that it wasn't happy with the company's direction and that it wants instant redress - in the form of the immediate removal of CEO Ian J. McCarthy.
"Against this backdrop, it is disturbing that the Beazer board has yet to remove Mr. McCarthy, who is responsible for the most stunning leadership failure in the entire home building industry," says Michael I. Garland, CtW Investment Group's director of value strategies. "Mr. McCarthy allowed Beazer to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives."
In a letter to Laurent Alpert, the head of the Beazer board's Nominating/Corporate Governance Committee, CtW Investment Group Executive Director William Patterson, echoed Garland's sentiments.
"With Beazer's stock down nearly 80 percent this year and cancellations reaching a staggering 68 percent last quarter, decisive action by Beazer's independent directors is required to restore investor, creditor, customer, and regulatory confidence," Patterson wrote.
"While the board has recently removed two other executives who violated company policy, its failure to hold Mr. McCarthy accountable reflects, in our view, a troubling lack of independent leadership," Patterson added.
The CtW Investment Group manages pension funds for unions affiliated with Change to Win, a union coalition representing nearly 6 million members. These funds, together with public pension funds in which CtW union members participate, have about $1.4 trillion in assets and are substantial long-term Beazer shareholders who hold more than 300,000 shares.
According to Patterson's letter, the group is also urging Beazer to name an independent board chairman and establish a legal and regulatory compliance committee. The shareholders' demands follow a failed request to Beazer to establish regulatory committees.
In addition, the group also takes issue with McCarthy's "egregious executive compensation."
"Mr. McCarthy was paid over $57 million in total compensation over the past five years, including $22 million in 2006 alone - an amount the Corporate Library reports was among the very highest for similarly sized firms," Patterson writes. "On top of that, Mr. McCarthy executed his largest ever sale of company stock - 179.535 shares at $43.07 each, totaling $7.7 million - last November, less than two months before the stock began its steady collapse to its current $9.52 per share."
According to Garland, builders such as Beazer, who have their own affiliated mortgage unit, are exposed to regulatory oversight and litigation. Recently, Beazer admitted that employees of its Beazer Mortgage Corp. subsidiary violated certain U.S. Department of Housing and Urban Development (HUD) regulations, particularly in relation to down-payment assistance programs. These types of actions, Garland said, make Beazer the "poster child for why there needs to be greater board oversight" in the housing sector.
"Shareholders are looking to boards [of directors] right now in this meltdown to move quickly to replace failed leadership," Garland told BUILDER Online. "You've seen Merrill Lynch and Citigroup replace their CEOs. The circumstances at Beazer, although not as big a household name, are far more serious."
Garland added that the CtW Investment Group is looking for Beazer's board of directors to take swift action or, at the very least, provide a "substantive response."
"This is a company who has managed to successfully negotiate with its creditors to avoid bankruptcy," Garland explained. "This is a company on the edge and we're looking for them to demonstrate to the shareholders that they're going to take aggressive action and try to restore credibility to the company and reverse what we hope is not a continuing decline."
McCarthy, who was attending the UBS Building & Building Products CEO Conference in New York City, did not directly address the CtW Investment Group's letter and statements but he was asked about the company's compliance policies. He told the gathering of builder executives that as of last week, Beazer had adopted a new compliance policy and appointed someone to oversee compliance practices. In addition, he said that he takes comfort in the fact that Beazer's compliance practices are better than they were in 2001. He added that he did not want to respond further about the subject. Calls to Beazer's corporate office for further comment were not returned prior to press time.
To view a pdf of the CtW Investment Group's letter to Laurent Alpert, click here.
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