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Behind the News: Lawsuit over Simon’s bonus may expose board’s mindset

Greg Andrews
March 27, 2013
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BTN-andrewsThe $120 million retention bonus that Simon Property Group Inc.’s board awarded David Simon two years ago has spawned a bitter legal battle in Delaware that promises to shed fascinating light on the inner workings of the board.

The huge stock bonus, which David Simon will collect if he stays with the company through July 2019, received harsh criticism from corporate governance watchdogs, as rich pay packages usually do.

But what was more surprising was that, in a non-binding vote at Simon’s annual meeting last spring, shareholders representing a whopping 73 percent of shares opposed the bonus.

That’s remarkable because, during Simon’s 18 years of running the business, owning Simon shares has almost been like holding a winning lottery ticket. Simon Property Group has ballooned into the largest real estate company in the world, and the stock price has chugged higher and higher.

As you would expect, Simon’s board has argued that it’s worth spending a hefty sum to ensure he stays at the helm for many more years.

What’s never been clear – but almost surely will come to light as the discovery process gains momentum in the Delaware lawsuit – is what led the board to suddenly conclude that it needed to take dramatic steps to ensure Simon wouldn’t quit or jump to another company.

Family business

From the outside, neither scenario looks likely. After all, Simon is the son of company co-founder Melvin Simon and the nephew of co-founder Herb Simon. So he’s essentially leading the family business. How would taking the reins at, say, Home Depot be a better gig?

It seemed out of the blue when, in the company’s April 2011 proxy statement, the board’s compensation committee said it had believed for several years that Simon’s compensation “was not commensurate with his contributions” and that it was working on a long-term contract that would be more generous.

Without offering specifics, the board in the company’s April 2012 proxy raised the specter of David Simon’s getting recruited away.

Stepping in to sue in August were the Louisiana Municipal Police Employees Retirement System and the Delaware County Employees’ Retirement Fund. In court filings, they call Simon’s new compensation package “outlandish on its face” because it doesn’t stipulate that the company achieve any performance benchmarks for Simon to get the $120 million.

Legal issues

The plaintiffs allege board members breached their fiduciary duty to shareholders and violated the law by amending the company’s 1998 incentive-compensation plan without putting it to a shareholder vote.

The plan had to be changed, the plaintiffs argue, because it tied pay to performance goals and clearly barred “a retention award payable to an employee simply for sitting at his or her desk for a designated period.”

Simon argues the amendment did not constitute a “material change” requiring shareholder approval – a position buttressed by a 2011 e-mail exchange between the company and a New York Stock Exchange official.

The NYSE mandates that its listed companies put material revisions to incentive plans to shareholder votes. After the company explained to the exchange why it didn’t think the changes triggered that requirement, John Carey, chief counsel for NYSE Regulation, followed up with an e-mail saying, “We have discussed your question and we have concluded that we agree with your analysis.”

The plaintiffs dismiss the exchange, arguing that Carey’s e-mail fell far short of providing an official legal interpretation. They also argue that taking the position that the changes weren’t material “strains credulity.”

Such legal issues could decide which side prevails in the case. But more interesting will be the e-mails and other documents Simon will turn over during discovery. Perhaps we’ll finally learn the full story behind the board’s lofty, no-strings-attached payout.•

__________

This “Behind the News” column originally appeared in the Indianapolis Business Journal.

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  1. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  4. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

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