CommonWealth REIT, the U.S. office landlord whose second-largest investors are seeking to oust the board, said one of its trustees has been reappointed after failing to receive enough shareholder votes for election.
Joseph Morea resigned from the board after receiving less than the majority of votes required to be re-elected at CommonWealth’s annual meeting, the Newton, Massachusetts-based real estate investment trust said today in a statement. The board determined that the vote was the result of the company’s battle with investors Corvex Management LP and Related Cos. and not because of any personal failings, CommonWealth said.
“In these circumstances, and because the board’s determination that Mr. Morea’s continued service and leadership would be in the trust’s best interest, the board requested that Mr. Morea accept appointment to the vacancy created by his resignation,” CommonWealth said. “Mr. Morea subsequently accepted appointment as an independent trustee.”
Morea was named to the board in July. He is a retired banker who previously worked as head of U.S. equity markets for RBC Capital Markets, according to the REIT. RBC was one of the underwriters of the company’s share sale earlier this year that the investors tried to block.
Corvex, founded by activist investor Keith Meister, and Related, the New York-based property developer, are soliciting votes to remove the trustees, claiming that an overlap in board membership and the ownership of an external management firm, Reit Management & Research LLC, has led to conflicts of interest and mismanagement. CommonWealth has said it is better off with its management structure and its shares will rise as it focuses on its strategy of owning downtown office buildings.
The REIT’s president, Adam Portnoy, and his father, Barry, a company founder, sit on CommonWealth’s five-member board and are owners of Reit Management & Research.
“Shareholders sent a resounding message that they are displeased with the status quo -– followed by an undeniable response from the board that they have complete and utter disregard for their rights and will stop at nothing to further the Portnoys’ self-serving agenda,” Corvex and Related said in a statement today. “To be clear, we are not attempting a hostile takeover, but rather are pursuing the only path to put an end to CommonWealth’s continued value destruction and egregious corporate-governance practices.”
The move by CommonWealth’s board is common, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
“It’s a case where shareholder suffrage should trump the board’s authority to put someone back on,” Elson said in a telephone interview. “It is routinely done and it’s highly problematic.”
Proxy advisory firms Glass Lewis & Co. and ISS Proxy Advisory Services recommended that investors vote against Morea’s re-election because of CommonWealth’s “recent defensive actions, combined with a history of poor corporate governance (at the trust as well as its affiliates),” Glass Lewis said in an April 25 report.