The Corporate Library has some serious concerns regarding Scholastic Corporation's corporate governance. Their annual meeting is today. To purchase the company's governance rating and risk profile at a steep discount, visit our online store. The profile contains:
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A major area of concern for Scholastic Corporation's corporate governance relates to board composition. Eight of the 10-member board have tenures of at least ten years. Five of them are long-tenured with at least 16 years of service, including Chairman and CEO Richard Robinson and former executive vice president Richard M. Spaulding. In addition, five directors are over 70 years of age. In fact, the average age of directors is approximately 66 years. While we recognize the benefit that comes with experience, it becomes increasingly challenging to act independently with such extensive service. This raises concerns about board entrenchment and succession planning.
Another concern relates to takeover defenses. The company has a dual class structure consisting of Common Stock and Class A Stock. Mr. Robinson and his family are beneficial owners of all Class A Stock, which is entitled to vote for eight of the ten directors. Shareholders of the Common Stock are entitled to only vote for the remaining two directors. This raises concerns about the lack of independent representation available to public shareholders and their interests being subordinated to those of the Robinson’s family.
There continues to be major concern related to executive compensation. The company’s Management Incentive Program entitles the company discretion to increase or decrease the total bonus paid to an executive, except for Mr. Robinson and Chief Financial Officer Maureen O’Connell. In addition, a small discretionary pool was approved by the Human Resources and Compensation Committee (HRCC) to be added to the available bonus pool based on business unit and/or individual performance. Given only that the company only met the free cash flow target and not the operating income target which resulted in the funding of the corporate bonus pool at a level of 21.5% of the targeted amount, the discretion bonus pool was most likely implemented to ensure that executives are sufficiently compensated. This is “pay-for-underperformance.” For more in-depth analysis on The Corporate Library's concerns with regards to the company's executive compensation, purchase the complete report or request a free trial to our governance risk database.
Hoang Nguyen — Ratings Analyst
