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Econ101

Well-known member
Judge: 'Unusual And Difficult' Issues In Tyson Pay Case



By Peg Brickley

Of DOW JONES NEWSWIRES

Wall Street Journal

September 21, 2006 7:33 a.m.



GEORGETOWN, Del. (Dow Jones)--A Delaware judge said Wednesday he faces "unusual and difficult issues" in deciding whether shareholders can haul leaders of Tyson Foods Inc. (TSN) into court to answer charges they let the meat producer's founding family turn the company into a "personal piggy bank."



Chancellor William B. Chandler III said Wednesday he would rule as soon as possible on a motion to dismiss a shareholder lawsuit over spending at Tyson Foods, a company largely under the control of the Tyson family.



"There are some unusual and difficult issues that are implicated in this case and that may cause me to take a little longer than I would like to take in getting you an answer," Chancellor said at the conclusion of hours of arguments on the motion to block the lawsuit.



Hoping for dismissal are defendants including retired chairman and chief executive Don Tyson, son of the company's founder, and his son, John Tyson, who now chairs the board of the Arkansas producer of poultry and meat products.



If they succeed, the lawsuit filed in February 2005 will be stopped at the pretrial stage.



If Chandler allows the case to move forward, Tyson Foods and its board may find themselves in a Delaware courtroom, answering questions under oath about top executive pay dealings that corporate activists have questioned for years.



David Graham, their attorney, said Wednesday there is no evidence of grounds for a lawsuit, which takes aim at things the company has openly disclosed.



In the absence of evidence of "extreme" overpayment to leaders, Graham said, Tyson Foods' leaders are shielded by Delaware's "business judgment" rule which protects corporate executives from being second-guessed over questionable decisions made in good faith.



Shareholder attorney Stuart Grant said Tyson Foods' board made "no business judgment" when it handed Don Tyson a credit card to cover his travel and entertainment expenses, as part of a consulting contract.



"Boats, booze, women, whatever you need. Enjoy! That's the business judgment they claim to be making," said Grant, a Delaware lawyer who filed the suit.



The Securities and Exchange Commission penalized Tyson Foods and Don Tyson for failing to disclose the compensation arrangements, which have since been changed.



Current Chief Executive Richard Bond and members of the board of directors are also on the roster of defendants in the shareholder lawsuit.



They are accused of standing idle or helping while the Tyson family used Tyson Foods as a "personal piggy bank."



Corporate governance critics suspect the Tyson family has used its majority voting power to steer side deals with Tyson Foods their way in transactions involving everything from waste-water treatment to chicken-breeding research. Those deals put $163 million into the pockets of Tyson family members over a seven-year period, according to the complaint.



The lawsuit also challenges a series of fortuitously timed stock option grants that shareholders say amount to a new form of insider trading, as well as allegedly lush consulting contracts.



Much of the attention at Wednesday's hearing focused on the allegations about stock option grants in 1999 and 2001, grants shareholders said were timed to make sure profits hooked to information known only to those at the top wind up in the pockets of executives.



"Spring-loading is the term that's used," shareholder attorney Grant said. The term describes the practice of issuing options at a time when the board that approves them knows good news is on the way that will drive the stock price up.



Executives who get the options can exercise them at a strike price that was set by a market unaware information is about to be released that will lift the share price. Shareholders say spring-loading is a way for insiders to capitalize on material inside information, and a breach of fiduciary duty. "The question is, is Delaware going to tolerate it or not?" Grant said. Tyson Foods defense attorney Graham said the option grants were reasonable compensation and within the authority of the board.



It was a point that drew intense questioning from Chancellor Chandler. The top judge of Delaware's corporate law tribunal focused on the purpose behind Tyson Foods' stock option plan.



Were the stock options just a form of compensation, the judge asked, or were they designed to promote better performance by executives?



Either way, Graham said, Tyson Foods' decisions on how to pay executives are protected by the business judgment rule.



Shareholder attorney Grant said Tyson Foods' board abandoned its duty in failing to rein in the ruling family.



"Tyson Foods is all about pigs and chickens, and they also happen to raise swine and poultry," Grant said. "We can't let the chickens claim business judgment when the pigs come to feed at the trough."



-By Peg Brickley, Dow Jones Newswires



online.wsj.com
 

Mike

Well-known member
This judges' decision could have big implications on the corporate world in the USA. It will be interesting to see if it goes to trial and the outcome if it does.
 

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