By Scott Miller
smiller@scbiznews.com
Published March 26, 2009
One of the shareholders who sued The South Financial Group over former chairman and CEO Mack Whittle’s $17 million retirement package said he is willing to settle so the company can concentrate on “survival.”
Although the proposed agreement allows Whittle to keep most of his retirement pay, plaintiff John McMullen said it is a good move for corporate governance because, among other additions to governance bylaws, the bank agreed to give smaller shareholders more input in the selection of future board members and ensure only independent board members can serve as chairmen. The agreement also states that the board shall not nominate a former CEO of the company to the board for at least two years after that person’s departure and that 75% of board members should be “independent.”
The changes “are prudent and can be well-served by many, many corporations,” said McMullen, a retired president of the Tampa market of Florida Banks Inc., which merged with The South Financial Group in 2004. “Directors have a fiduciary duty to shareholders. Corporate governance is very, very important today.”
Lee Rudy, the lawyer for the other shareholder, Vernon Mercier, said the governance changes will make South Financial healthier and more responsive to shareholders.
Per the agreement that The South Financial Group announced yesterday, Whittle will pay $250,000 and resign from the board, and the company will pay the plaintiffs’ attorneys $500,000.
A judge must approve the agreement and is expected to consider the matter in May. That same month, South Financial plans to have a shareholder meeting to vote on the election of board members, among other matters.
McMullen and Mercier filed separate lawsuits last year, claiming the bank and its board of directors accelerated Whittle’s retirement so his payout wouldn’t impede the bank’s ability to receive federal bailout funds. The Troubled Asset Relief Program limits the payouts given to CEOs of institutions that take the money. Whittle retired Oct. 27. The bank later received $347 million in TARP money.
Whittle, the bank and its board of directors were named as defendants in the cases. The bank has maintained that Whittle’s retirement package was part of a long-standing employment agreement that couldn’t be broken and that the Treasury knew of Whittle’s retirement package when it approved the bank’s application for funds.
South Financial denies any wrongdoing.
“On behalf of the board of directors, we believe the terms of the agreement are in the best interest of the shareholders and allow us to remain focused on improving our company,” board chairman John C.B. Smith Jr. said in a prepared statement.
The company declined further comment.
Like the company, Whittle was ready to put the matter behind him, said his attorney, William “Billy” Wilkins of Nexsen Pruet.
“Everyone believes that it’s in the best interest of the bank to get these lawsuits behind us so the bank can concentrate all of its energy to do what it does best, which is banking,” Wilkins said. “Mr. Whittle has agreed to assist the bank in this by contributing $250,000 in the settlement.”
McMullen, who said he remains a “small shareholder,” agreed that resolving the suit quickly is in everyone’s best interest.
“This thing could bump around the courts for years, and I don’t think that’s in anybody’s best interest,” he said. “The board should be focused on the company’s survivability and value going forward, if it has any.”
