Fremont Michigan: Adventures at the Frontier of Corporate Governance

Mar.29.09 | About: Fremont Michigan (FMMH)

Sometimes, the managements of public companies disappoint us. I have been engaged in a long term relational/activist investment in Fremont Michigan Insuracorp (OTC:FMMH) and have gotten to know management, including CEO Richard Dunning, CFO Kevin Kaastra, COO Kent Shantz, EVP David Mangin, VP Kurt Dettmer, and VP Bill Hall in meetings, phone conversations, emails, and at an annual meeting one year. I think Fremont's employees are hard working and honest. However, I have become disappointed by basic issues of corporate governance. Recently, I nominated myself to Fremont's Board of Directors, and the company refused to recognize my nomination. Their outside counsel, Paul Yared, wrote that they could find no record that I am a shareholder. I sent in documentary evidence from Interactive Brokers, but Paul Yared would not budge. Ignoring my documentary evidence, he said Fremont could find no record of me or my broker on the Nobo list. He would not respond to phone calls from my lawyer and correspondence explaining that most shares at any company are held under the name of Cede & Co. My lawyers and I wanted to give management the benefit of the doubt, despite my many meetings with them as a shareholder, and assume that they were confused, rather than throwing up roadblocks to my nomination.

What am I to think when their outside counsel does not even have the courtesy to return my lawyer's phone calls?

Indeed, page 32 of Fremont's latest 10-K states:

As of March 16, 2009, the Company had 43 shareholders of record. For purposes of this determination, Cede & Co., the nominee for the Depositary Trust Company which holds all but 11,020 of the Company’s outstanding shares, is treated as one holder.

Out of over 1.7 million shares outstanding, only 11,020 are not held in the name of Cede & Co! Clearly, CEO Richard Dunning has the direct day-to-day responsibility for overseeing the nomination process, which is central to the integrity of any company's corporate governance. Documentary evidence of share ownership cannot be ignored. I have written to Fremont's Board of Directors with my concerns. As of this writing, I am not aware of any reply by mail, over the phone, or by email.

If I were a Fremont employee, I would be so disappointed. The example for treating shareholders properly comes from the top. Clearly, this sort of behavior does not do Fremont, its employees, or its shareholders justice. I want to be remembered for doing the right thing, and promoting good corporate governance and shareholder rights. The most valuable thing a company has is its reputation. If management shows through its actions that it does not feel the same way, corporate boards should step in with forceful action, consistent with their legal, ethical, and fiduciary duties to the company and its shareholders.

Who owns a stock company? Though the rules were different when Fremont was mutual, management must remember that the owners are the shareholders, not the insiders and policyholders.

Last, why is management concerned with the nomination of a true “outsider” to the company's board? I believe that open communication facilitates trust. Insurance is a trust business. Is management concerned that an outsider will see something that breaks that trust?

For me, it is a privilege to fight for the right thing. We all want corporate America to behave better. Maybe in my little part of it, I can actually do something and stand tall against bad behavior. I know I am not going to give up. It is truly a David and Goliath struggle. All of the cards are stacked against the small investor. I may not have a slingshot, but I have my wits, the truth, and the goodwill of every American who believes that might does not make right.

Disclosure: Harry Long owns FMMH shares directly, through partnerships, and through trusts. To the best of his knowledge, certain of his family members own FMMH shares through partnerships and trusts. Such ownership may change at any time.