Mining financier Stan Bharti, right, counts talk show host Larry King among his advisers.Kathryn Gaitens/Getty Images
Influential proxy research firm Institutional Shareholder Services Inc. (ISS) recommends that shareholders of Aberdeen International Inc. vote to replace long-standing director Stan Bharti with an activist shareholder who is protesting lucrative deals and compensation practices with company insiders.
Toronto-based Aberdeen is managed by Forbes & Manhattan, a private junior mining advisory firm controlled by Mr. Bharti's family. Ryan Morris, a San Francisco based fund manager and activist, is questioning recent decisions by Aberdeen's board through proxy and court challenges. He alleges the board has approved multi-million-dollar payments, loan writeoffs and securities deals at the struggling company, which favour insiders affiliated with Forbes & Manhattan.
"Replacing [Mr.] Bharti, who exerts significant Forbes & Manhattan influence on the board, and bringing [Mr.] Morris on the board, will help improve the overall governance structure and true independence level of the board, with an expectation to provide more transparency and strengthen the independent oversight over related party transactions [and] loans," the ISS report said. Concluding that the "vast majority" of Aberdeen directors are affiliated with Forbes & Manhattan, ISS said Mr. Morris is the best candidate to ensure "truly independent" board oversight. "The dissident appears to have more credibility than management," the report said.
Mr. Morris is seeking to replace all of Aberdeen's seven directors. However, ISS said such a sweeping overhaul "may put the company at a higher risk," because his proposed candidates lack sufficient mining experience.
Aberdeen issued a press release Monday morning that portrayed the ISS report as an endorsement of "the success of the current board." The release also praised Mr. Bharti for his "unequaled series of 'wins' during the last ten years," some of which have been shared with Aberdeen shareholders.
A spokesman for Aberdeen said the release "speaks to the integral role of Mr. Bharti in long-term value creation for all shareholders."
ISS, however, raised a number of concerns about loans, stock sales and other payments to individuals and companies affiliated with the Bharti family's company Forbes & Manhattan. ISS said data from Morris, which alleges Aberdeen wrote off $11-million in loans to companies affiliated with Forbes & Manhattan, Mr. Bharti and and other Aberdeen directors, was "particularly troubling." The loans, ISS said, are equal to 78 per cent of Aberdeen's total market cap.
Aberdeen's stock is currently trading at 13.5 cents on the Toronto Stock Exchange, a steep drop from its high of $1.02 in 2010.
Aberdeen is set to hold a special meeting Feb. 3 for a shareholder vote on the duelling slate of directors proposed by Aberdeen and Mr. Morris. The Superior Court of Ontario is set to hold a hearing Jan. 21 into Mr. Morris's challenge of a stock deal and potential change of control payments that would put millions of dollars into the pockets of insiders. Aberdeen vigorously disputes Mr. Morris's allegations.
Editor's note: The Superior Court of Ontario is set to hold a hearing Jan. 21 into Mr. Morris's challenge of a stock deal. The date was incorrect in an earlier version of this story.