The two leading shareholder advisory firms have said they will support an International Brotherhood of Teamsters proposal to separate the chairman and CEO positions at XPO Logistics, Inc. (NYSE:XPO) and appoint an independent director as chair. If that happens, it could eliminate the dual role now performed by Brad Jacobs, the company’s founder.
Glass Lewis & Co. and Institutional Shareholder Services (ISS) filed papers late last month requesting that shareholders support the Teamsters’ resolution at XPO’s annual meeting on May 15. The Teamsters and Glass Lewis have raised similar concerns about the need for independent board leadership and oversight.
However, the Teamsters, which have clashed repeatedly with XPO over representation issues, also addressed the board’s need to reassure XPO’s investor base following the company’s recent performance, which many have viewed as disappointing, and the loss of $600 million in business from its largest customer, which the union identified as Amazon.com, Inc. (NASDAQ:AMZN)
The Glass Lewis and ISS concerns, by contrast, focused on the general notion that a chairperson who is independent of management is preferable to having the same person lead the board and executive team. “We view an independent chair as better able to oversee the executives of the company and set a pro-shareholder agenda without the inherent conflicts that a CEO or other executive insiders face,” Glass Lewis wrote. Giving one individual executive and board leadership “concentrates too much responsibility in a single person and inhibits independent board oversight of executives on behalf of shareholders,” it said.
In its comments, ISS said that while many companies perform well with one person holding the combined posts, “conflicts of interest may arise” when such a structure is in place that “effective board oversight may be enhanced by independent leadership.”
ISS also raised concerns about the “mega-grants of equity” awarded to Jacobs in his dual roles, and the “discretionary” nature of the awards. An independent director may serve as a check on the size of the award and the behavior that enabled it, ISS said.
In its comments, XPO said that Jacobs’ leadership in both roles has been critical to the company’s success since it was established in 2011. Splitting the roles would have an adverse near- and long-term impact and would “unduly risk the speed and quality of the company’s decision-making process.”
The company said that seven of its eight directors are independent, and that the board’s committees and its chairs are all independent. Even the members of XPO’s “acquisition committee” are independent, the company said.
The Teamsters proposal is non-binding, and would call for XPO’s board to adopt a policy, to the extent feasible, that the chair be independent.
Glass Lewis noted that XPO has appointed a lead independent director and vice chair, which the advisory firm said provides “some independent board leadership to balance the power of the combined chair and CEO.”