Black & Decker defends Archibald's relationship with board member

Director who had 'private business' ties with CEO approved acquisition by Stanley

March 10, 2010|By Lorraine Mirabella |

Black & Decker Corp. defended Tuesday a real estate partnership between chief executive Nolan D. Archibald and a company board member who approved the toolmaker's pending acquisition by the Stanley Works and a lucrative compensation package for Archibald.

Towson-based Black & Decker, which plans to put the $4.5 billion all-stock merger to a shareholder vote Friday, issued a news release in response to inquiries about whether the "private business relationship" with M. Anthony Burns compromised Burns' independence as a director.

Archibald and Burns have been co-owners since August 2005 of the Red Ledges real estate development in Heber City, Utah, a private golf community where homes start at $900,000. The toolmaker said in its statement that the company is not affiliated with the project.

"Personal business relationships between individuals (as opposed to relationships with the company) generally are not relevant to the independence tests under the New York Stock Exchange rules," the company said.

Roger Young, a Black & Decker spokesman, said he could not comment on the nature of the inquiries that prompted the announcement.

Questions were raised about the relationship between Burns, the retired head of Ryder Systems Inc., and Black & Decker's chief executive of 24 years in a series of commentaries on Citybizlist Baltimore by Douglas M. Schmidt, chief executive of financial services company Chessiecap Inc.

Schmidt said he found it objectionable that Burns, a college friend of Archibald's, had been selected by Black & Decker's board to be one of three independent directors on a special "transaction committee" that evaluated and recommended the Stanley deal.

As part of that deal, Archibald will become executive chairman of the newly combined company, with a pay package to include an annual base salary of $1.5 million and up to $1.9 million in annual bonuses. He also will be eligible for stock options and awards, as well as a "cost synergy bonus" of up to $45 million if he meets certain goals by the end of his three-year contract.

Archibald also has agreed to give up $20.5 million in severance he is eligible to receive because he is technically being terminated from his CEO post in the merger.

In an interview Tuesday, Schmidt said he learned about the real estate deal "from insiders at the company who were aghast at this behavior."

"You have a CEO who's going to receive [an] outside compensation package from the buyer, including the synergy bonus and 1 million shares of stock options, and you have his friend and business partner on the key committee that evaluates whether this transaction is a good idea for the board, someone in a multimillion-dollar business relationship with the CEO," Schmidt said. "As a practical matter for the common observer, it's a conflict of interest."

Burns "has informed Black & Decker that his private business relationship with Mr. Archibald did not affect his evaluation of the Stanley transaction," Black & Decker said in its statement.

Schmidt argued that that judgment was not Burns' to make.

"Shareholders should not have to rely upon Tony Burns to act above all human motivation," he said. "When you're in a conflicted scenario, it means that there's a motivation to act in a different way."

Experts on corporate governance disagreed on whether the real estate partnership posed a conflict.

Katy Davis, a San Francisco-based research analyst on the merger and acquisition team of Glass, Lewis & Co., an independent investment research and proxy advisory firm, said she finds no "material relationship" between the real estate partnership and the company.

"They are business partners, but there aren't any specific sums of money disclosed, and it doesn't directly relate to the company itself," she said, adding that her firm wouldn't be concerned about Burns' serving on the transaction committee. "It sounds like they are business partners, basically, which happens pretty often.

"We'd be more concerned if the amount they received from the real estate project was a significant portion of [their] net worth," Davis added.

But Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, disagreed, saying the relationship "affects independence from a governance standpoint." He said it has become less common for a chief executive to have a significant financial relationship with a board member.

"It's a financial connection," Elson said. "Clearly, there's a financial connection to management. How can you be objective in setting someone's compensation with whom you have significant financial dealings?"

Tim Perra, a spokesman for Stanley, said Tuesday that the company was aware of Black & Decker's disclosure of the business relationship.

"It speaks for itself," Perra said. "We're looking forward to the shareholder meetings on Friday and successfully closing a transaction that we think will bring incredible value for shareholders, customers and end users."

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