Tuesday, February 28, 2006

Cdn Banks vs. Verdun Showdown

The Globe and Mail, Sinclair Stewart, 28 February 2006

For years, Robert Verdun has been one of Corporate Canada's biggest gadflies, a controversial shareholder activist known for his withering assessments of the country's Big Banks.

This week, however, as the banks begin hosting their annual meetings, the tables could be turned, and it could soon be Mr. Verdun who finds himself on the wrong side of an attack.

A lawyer for Robert Astley, the former Clarica Life insurance Co. boss who now sits on Bank of Montreal's board, sent a legal warning to Mr. Verdun last month. The message was blunt: If Mr. Verdun continued to publicly question Mr. Astley's ethics, and his fitness as a director, he would be slapped with a lawsuit.

Mr. Verdun, reached at his home in Elmira, Ont., said he is undaunted by the threat of legal action; so much so, in fact, that he filed a complaint with the Ontario Securities Commission yesterday, demanding an investigation into what he called a "misleading" disclosure by BMO that "casts doubt on the honesty, ethics, and integrity of the entire board."

The complaint is sure to add fuel to the already combustible relationship between Mr. Verdun and the bank's directors, particularly Mr. Astley, in the lead-up to the bank's annual meeting Thursday in Calgary.

Don Jack, Mr. Astley's lawyer, could not be reached for yesterday, but sources said he plans to attend the meeting personally to monitor Mr. Verdun's behaviour.

Banks are naturally loath to get embroiled in a David and Goliath legal showdown with a small investor, because of the obvious public relations nightmare that could ensue.

Yet, given the escalating nature of the feud between Mr. Verdun and Mr. Astley, this case could well prove an exception.

"It firms my resolve to keep fighting this one," Mr. Verdun said of the legal letter. "I'm not the least bit concerned."

The conflict between the two sides erupted last year in Toronto, when Mr. Verdun spent nearly a half-hour at a microphone chastising BMO directors at the company's chaotic annual meeting.

He saved his most acid criticism for Mr. Astley, who he claimed should "never be a director of any public company" because of Clarica's involvement in a troubled financing with the City of Waterloo.

The city struck a deal with MFP Financial Services Ltd. to build a sports arena, and MFP sold the debt to Clarica, then headed by Mr. Astley. When the cost turned out to be nearly double the original estimates, the city sued both companies; the matter eventually was settled.

Mr. Verdun went on the offensive again last month, issuing a shareholder proposal to each of the major banks that anyone tainted by "judicial findings of unethical behaviour" should not be allowed to serve as a director.

He acknowledged that Mr. Astley was never found guilty of any unethical conduct, and was not singled out during the inquiry. However, he pointed out that a judge chastised Clarica for abdicating its due diligence, and said decisions on the financing were made at the highest levels.

BMO offered a vigorous defence of Mr. Astley in its proxy circular, condemning Mr. Verdun's "personal attack" and noting that the former insurance executive was never implicated in the scandal. In fact, he was thanked by the mayor of Waterloo for bringing some of the problems to light.

Mr. Verdun, however, after being hit with the legal warning, took the matter to the regulators. In his letter to OSC chairman David Wilson, he argued that BMO's defence of Mr. Astley in its proxy circular was "unethical" and "dishonest."

A BMO spokesman said the bank stands behind the disclosure in its proxy circular as fair and accurate.

"The board has the highest regard for Bob Astley," Paul Deegan said. "Beyond that, in terms of the judicial inquiry, no one at Clarica was found to have done anything wrong at all."

Mr. Deegan said this year's meeting in Calgary is unlikely to be a repeat of 2005, when Mr. Verdun exceeded his personal allotment of time, and repeatedly quarrelled with BMO chairman David Galloway, who in several instances seemed unable to maintain control of the gathering.

"I don't think the chair is going to allow one of our directors to be assailed, especially when the statements are inappropriate personal attacks," he said.

"You want to give shareholders latitude at meetings, but when it comes down to it, the meeting will have to be run in there interests of all shareholders."