As reported in an article Monday in Agenda,Gentiva Health Services reported in an 8-K filing with the SEC that a special meeting of the Board of Directors was conducted by telephone conference call were held on Sunday, March 22, 2009 at 9:00 a.m. The special meeting had been called pursuant to notice properly given under the Company's By-Laws sent to all directors the evening prior. The purpose of the meeting was not stated in the noticed and materials related to the meeting were only distributed thirty minutes prior to the conference call. The business of the special meeting consisted of two matters: 1) consideration of a resolution to amend the Charter of the Board's Corporate Governance and Nominating Committee to provide that director nominees would be subject to the approval of the entire board instead of only the independent directors and 2) a proposal to reconstitute the membership of the Nominating Committee and to appoint Victor Ganzi and Raymond Troubh (both each have been on the board for 10 years), effective immediately, as members of the Nominating Committee, to serve with Gail Wilensky as Chairperson. Mr. Ganzi and Mr. Troubh are two of the members of the Audit Committee, so adding them to serve as two of the three members of the Nominating Committee may increase their power on the board, and this raises the potential for a “board within a board” situation, where a few directors hold all of the power and the other directors have less influence on board decisions. Moreover, Mr. Troubh is 82 years old, raising concern about succession planning. These resolutions would appear to have the undesirable effect of increasing the influence of relatively long-tenured directors (whose independence may be compromised by their long service) over new director nominees.
Both resolutions were narrowly approved, with six directors (Messrs. Victor Ganzi, Ronald Malone, Stuart Olsten, Tony Strange, Raymond Troubh and Rodney Windley) voting in favor and five directors (Messrs. Stuart Levine, Josh Weston and Drs. Gail Wilensky, Mary Mundinger and John Quelch) abstaining. At the meeting, the five abstaining directors commented unfavorably about the manner in which the meeting had been noticed, the amount of time they had to consider these matters and the process by which the proposed actions were presented to the Board. Afterward, from between March 22nd to March 26th, Dr. Quelch, Mr. Levine, Dr. Wilensky, Mr. Weston, and Dr. Mundinger notified that Chairman of the Board that they decided not to stand for re-election at the company’s 2009 annual meeting on May 14, 2009, charging that the board votes had weakened their power to pick new members. Mr. Weston stated that his decision was “triggered by [the Chairman’s] awful behavior before and during last Sunday’s sudden and very surprising board meeting.” He also criticized the company for a “total lack of candor, courtesy and transparency.”
At the May 14th annual meeting, the company thus nominated only six directors, down from a board of 11 members before the recent events. Only three of the nominated directors meet listing exchange independence standards; if these directors are elected, the board will thus not have a majority independent board. The company has a plurality election standard and as result, in an uncontested election a candidate can be elected by a single vote. The company says it will remedy this defect as soon as possible after the annual meeting by adding one independent director, and that it intends to increase its board size to nine.
This will be an interesting one to watch going forward.
Kimberly Gladman, CFA, Ph.D. — Director of Research and Ratings
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