* Terra to reappoint directors voted out last week
* Concerns raised by corporate governance experts
By Michael Erman
NEW YORK, Nov 23 (Reuters) - 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 law.
“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 those concerns.
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 reappointment.
“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) ((email@example.com; + 1 646 223 6021; Reuters Messaging: firstname.lastname@example.org))