Central Laborers’ Pension Fund v. Chellgren (Ashland)
Central Laborers Achieve Historic Corporate Governance Reforms
A settlement providing for unprecedented corporate governance reforms was reached in a shareholder derivative action filed by the Central Laborers’ Pension Fund against certain current and former Ashland Inc. directors and senior officers.
The lawsuit, which was filed in 2002, alleged that the Ashland Board of Directors (the “Board”) failed to adequately oversee company operations and protect shareholder value by, among other things, permitting the company to become a recidivist polluter and incurring tens of millions of dollars in fines; allowing executives to engage in insider trading; and destroying the company’s reputation in the business community. The settlement provides for substantially improved governance procedures at Ashland and commits the company to changes that extend far beyond the corporate governance improvements required under the Sarbanes-Oxley Act of 2002.
“This is an important milestone for Ashland and its shareholders, as these changes will significantly increase shareholder input into how this company is governed,” said Darren Robbins, an attorney for the pension fund. “At Ashland and across the country, corporate directors are increasingly recognizing the importance of including shareholders in the governing processes.”
As part of the settlement, Ashland is implementing an innovative approach that will directly involve its shareholders in the director election process, which should produce additional highly qualified candidates for election to the Board. Ashland will also significantly strengthen the independence standards and require that at least two-thirds of the Board qualify as independent. The terms of the settlement also provide enhanced director stock ownership standards, and require that shareholder approval be obtained prior to the adoption of stock option plans for Ashland’s officers or directors. The settlement also establishes a mandatory holding period for a portion of the Ashland shares acquired by the company’s directors and senior officers via option exercise.
“This settlement includes a package of corporate governance reforms with little precedent and positions Ashland to be at the forefront of corporate governance in America. It must not be forgotten that corporate officers and directors work for the benefit of and are accountable to shareholders,” said Edward M. Smith, Chairman of the Central Laborers’ Pension Fund.
“With heightened independence standards and a board whose interests are aligned with shareholders through stock ownership, Ashland will be well positioned to protect and serve the interests of its public shareholders,” said Richard Bennett of Lens Governance Advisors. “In particular, direct involvement by shareholders in the director nomination and election process is beneficial not only for shareholders of Ashland, but also to the movement by shareholders nationwide to improve corporate governance.”
Central Laborers’ Pension Fund v. Chellgren, No. 02-CI-02174 (Ky. Cir. Ct., Kenton Cty.)