* Terra to reappoint directors voted out last week
* Concerns raised by corporate governance experts
By Michael Erman
NEW YORK, Nov 23 Fertilizer maker Terra
Industries Inc TRA.N plans to reappoint three directors voted
off the company's board by shareholders last week, raising
concerns from corporate governance experts.
Terra has been fending off a hostile bid from rival CF
Industries Holdings Inc (CF.N) since January. On Friday,
Terra's shareholders elected three directors backed by CF
rather than the slate of incumbent directors backed by Terra,
which included the company's chairman, Henry Slack.
The company plans to install the new directors on its board
once the election is certified. But it said in a statement on
Sunday that it also plans to expand its board from eight to
eleven directors so the directors that were not elected can
continue to serve on the board.
Charles Mulford, an accounting professor at Georgia
Institute of Technology, said that the reappointment "flies in
the face of good corporate governance," even if the move is
legal in Maryland, the state where Terra is incorporated.
"The fact that legally they are permitted to do something
doesn't mean that morally that's the thing to do. One should
question whether the Maryland statutes should even permit such
a thing," he said.
The move was not entirely unexpected. CF Industries CEO
Steve Wilson sent a letter to Terra shareholders earlier this
month saying that the reappointment was legal under Maryland
"If the Terra board decided to take such action in the
exercise of its fiduciary duties (without disenfranchising
stockholders through increasing the size of the board beyond
what would result from reappointing those directors), we would
not be in a position to object," Wilson wrote in the letter
Top proxy advisory firm RiskMetrics Group suggested that
some Terra shareholders had been concerned about backing the CF
bid because "'good' incumbent directors will be voted off the
board and be replaced with allegedly less qualified CF
nominees." It said that the Wilson letter adequately addressed
Terra would not be the first company to reappoint directors
that had been voted down by the company's shareholders.
Blockbuster Inc BBI.N reappointed John Antioco, who was
then chairman and chief executive of the company, to the
company's board after a slate backed by dissident shareholder
Carl Icahn was elected in 2005.
Massey Energy MEE.N and Wegener Corp WGNR.O also
reappointed directors after losing proxy fights, according to
research firm FactSet SharkRepellent.
Still, Nell Minow, editor of the Corporate Library, said
she had the "greatest possible concerns" about the
"The shareholders have sent a message of no confidence by
voting in the independent directors. The managers are sending a
message back saying 'we don't care,'" Minow said.
(Reporting by Michael Erman, editing by Matthew Lewis)
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