The Rite Aid Board Prescription: Complete The Director Refill

Jan. 16, 2020 9:43 PM ETRite Aid Corporation (RAD)6.29K Comments44 Likes
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Steve Krol
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Summary

  • Six directors replaced in last 2 years.  A good start with six down, and only three more to go to complete the board refill.
  • Accountability, integrity, and good corporate governance at the top is a board requirement for continued new outside investment in Rite Aid stock.
  • Undue influence by a few directors in past years led to Rite Aid's financial woes caused by an acquisition in Eckerd and a conflict of interest merger attempt for Albertsons.
  • A reinstatement of Rite Aid's positive reputation may take time, but I am cautiously optimistic that the end of the Miller, Sammons, Standley dynasty, (all colleagues in the supermarket business) and final replacement of the old-guard directors is the shareholders best prescription for equity improvement.
  • Ms. Heyward Donigan, its refreshingly new CEO, brings in a new pair of eyes and business judgment.  She has acknowledged "execution issues" which is not only encouraging, but 100% true.  Welcome Ms. Donigan.

Background

Investing in Rite Aid (NYSE:RAD) beginning in 2000 and routinely visiting those stores locally in the Manhattan area until 2003, nationwide store visitation began soon after I moved to Florida where Rite Aid has no stores. These inspections ended in 2015 when I advised Corporate in writing that I would no longer play "baby sitter" for them and solve store execution issues that middle management had the luxury to ignore because Corporate was not properly supervising their stores. I call this the "middle management problem," but then that means it is a regional management problem and ultimately a senior management and director problem as well. The "pecking order" was out of order for years not properly supporting our stores where the cash registers are. My inspection of stores around the country demonstrated that our dedicated store employees want to do a good job but oftentimes were prevented from doing so because "nobody was home" at Corporate ensuring that store personnel had the proper tools to get the job done for our customers and investors. For examples of this, readers are directed to read my first of three prior articles published on Seeking Alpha in early 2017.

My shareholder proposal in 2015 on Proxy Access, and more notably the proposal in 2018 on Separation of Chairman and CEO, (until then mostly combined in one executive for more than twenty years) caused the company bylaws to be changed and ultimately led to the resignation of John Standley, CEO (its former joint Chairman), earlier last year. The prior combined roles caused undue influence on the rest of the board of directors which caused malfeasance for many years by not properly managing the executives causing loss of revenues/profits and customers. Throughout these turmoil years the directors and its senior management that were not properly supervised by the board earned more and more salary, more free RAD shares and bonuses, while its shareholders from 2007-2012 and then again from 2017-current became poorer and poorer. Simply put, the past boards were always in "the back pocket" of the Chairman and combined CEO.

Last year my proposal once again won the support of ISS, Glass Lewis, and Rite Aid's top holders on calling for "Special Meetings" at a ten (10%) percent threshold, preferred by ISS, receiving a sixty (60%) percent majority "FOR" vote. The board ran to change the bylaws before the vote, only after first receiving my proposal several months before the Annual Meeting, to allow a more stringent twenty (20%) percent threshold in a vain attempt to keep the "FOR" vote down. Therefore, the ultimate outcome of a near landslide under the circumstances indicates that the top holders still do not fully trust our board. Common sense suggests new investors are waiting for the full removal of the old guard - Bodaken, Syms, and Lofton, hereinafter referred to as "The Culpable Three" who are guilty of poor judgment, lack of accountability, failing to meet their fiduciary responsibilities to their shareholders and closing their eyes to serious conflicts of interest and unethical behavior.

To date, the board has failed to amend the bylaws on "Special Meetings" despite its majority vote results suggesting, among other things, that several of our directors, namely "The Culpable Three," are in fear of their survival on the board and they should be! The most valuable real estate a public company has are the seats in the boardroom. Shareholders and our new majority directors can do much better by the replacement of these three directors that have wasted shareholder assets in the high double-digit millions, as the stock continued to plummet until more recently.

Welcome Ms. Donigan and Why She is Good For Shareholders

Many shareholders here were upset last August when the CEO pick was finally announced after a year later than it should have been, concerned that Ms. Donigan did not appear to have retail store experience. Of course, her predecessor, Mr. Standley, had several dozen years of retail store experience; how did that work out here? Ms. Donigan has been at Rite Aid only 5 months. Look a whole lot better after earnings release?

Ms. Donigan has been given the opportunity of a lifetime. Her biography demonstrates she is the right person for Rite Aid's issues right now. While there is no value assigned for a CEO on the balance sheet, still just five months after being hired, together with her radically improved senior management team, our stock price is up a whopping fifty percent (50%) after earnings last month. The earnings conference call last month went very well and you cannot help but be impressed not only with Ms. Donagin and Mr. Peters, COO, but Matt Schroeder, CFO, as well. They were all truthful and did not try to overdeliver. Wall Street is starting to pay attention and soon, hopefully, they will be convinced. The share price will continue to improve, as a result, and shareholders will be able to sleep a little better at night. There is every indication she will turn the place upside down and not do things the way it had always been done before, namely very, very poorly. So, Ms. Donigan, and Mr. Peters go out and get it! Get back the customers we have lost over the last 20 years, due to prior gross mismanagement of our business. They are out there; you just have to prove to them that Rite Aid deserves their business.

It is highly encouraging that Ms. Donigan has owned up to "execution issues," absolutely true from my previous store inspections around the country that were never previously resolved because senior management refused to admit those issues even after being confronted with them. You cannot fix something if you do not admit there is a problem to begin with. Her candid confession on this topic means we can expect resolution; that's good for employees, customers and investors alike. Despite our meager advertising budget in comparison to our competition, free word of mouth is powerful and this together with a more motivated workforce who should now start believing that there is a future at Rite Aid bodes well for improved revenues and profits.

Overview

Those readers who have read any of my three (3) prior articles on Seeking Alpha note that I steer clear from providing readers with analytical numbers. They have several other fine Contributors there who already do a great job with that. However, Corporate released numbers cannot speak or see; they cannot tell you why our numbers have always taken a major back seat to Walgreens (NYSE:WBA) and CVS (NYSE:CVS), for example. When Rite Aid previously issued press releases that a store was closing due to "non-performance," was it the non-breathing store building not performing, or hidden out of shareholder view was the store mismanaged by living breathing managers not doing their jobs. Nationwide store visitation with my own eyes and conversations with store personnel and customer exit interviews early on told me the answer. The more suburban the store, the fewer customers you ever saw. Even major city stores with customers had serious store execution issues seriously impacting the revenues/profits of the company. In all cases, middle management neglect to solve these issues before their very eyes has always been at the heart of the problem and why we can safely assume customers were lost in the process. Filling out paperwork with lots of numbers to make Corporate happy is not the whole job description of a district or regional manager! Turning all this around is the goldmine in revenues and profits that awaits our new management, and they appear hungry and energized to do just that!

By 2003 , I submitted a letter to the board demanding the resignation of Bob Miller and Mary Sammons, Rite Aid's Chairman/CEO, and President for malfeasance in store operations; no response or action was taken or seen. This, despite the fact that in the previous year I pressured Corporate to do a surprise audit of New York City stores resulting in the resignation of that non-performing regional manager. However, the board continued to protect its senior management at all costs, not its shareholders.

In 2008, during my third hours long phone conversation with Rite Aid's then largest shareholder holding thirty (30%) percent of the shares and 3 board seats, I requested and they assisted me in arranging a meeting with Mr. Standley, newly returned to Rite Aid and Mary Sammons, its still official Chairman/CEO. I say official because it appeared at the meeting that I flew up for at Corporate in November 2008, that Standley was invited back to quietly take over the functions of Chairman/CEO although not officially for several more years. He did 99% of the talking, and regrettably I left that meeting "disgusted" as it appeared to me based on questions asked, that Standley continued his denials on pressing operational difficulties. The day to day functions of a COO, his title at that time, did not appear to be of much interest to him. Proof of that came from a neutral source, Consumers Reports, who rated his Pathmark stores 51 out of 59 supermarket chains reporting when he left, based on mostly customer service type categories. Notwithstanding that Mr. Standley was not the board's first choice to replace Ms. Sammons, undue influence on the board brought him back anyway. Mr. Miller was still on the board after stepping down as Chairman, June 2007, who Standley reported to until 2005 when he resigned to become CEO at Pathmark.

"When the going gets tough, the tough get going" aptly applies with the Closing of the Eckerd acquisition, loading up with an additional $3 billion in debt whose interest expense continues to strangle the company. How ironic that the person who helped cause the mess, Miller, came back in 2018 (together with Cerberus his boss) to attempt to steal Rite Aid's assets in the failed Albertsons merger attempt. Miller left that expanding mess to Sammons, turning nearly 3000 mismanaged stores into now mostly 4800 mismanaged ones with that 1800 store purchase, both of whom received a total bonus of $2 million for simply making sure the acquisition closed. By so doing, and not first waiting to see if the Eckerd stores were successfully integrated into the Rite Aid brand, which they were not according to the board, the board was actually encouraging excessive risk-taking in violation of its fiduciary responsibilities to avoid. How could this senior management team of Miller and Sammons brought in as a direct result of the prior mismanagement and over-expansion of Martin Grass, (and resulting accounting scandal to hide that poor decision acquiring Thrifty Drug in 1996) do the same exact thing again by acquiring Eckerd? Yet they did with a board decision including Marcy Syms. This acquisition has been the monkey on the back of RAD shareholders all these years with only more mismanagement to show for it. When RAD Investor Relations whispers into the phone to say to me that they cannot believe Rite Aid did this deal, you know there is and will be a real problem here.

As shareholders would find out ten (10) years later, Miller then Chairman/CEO of Albertsons having "his guy" Standley at the helm of Rite Aid might just pay potential dividends February 2018 when the Albertsons merger attempt with Rite Aid was announced. Indeed, the same dividend that Standley might obtain when he placed Frank Savage on the Rite Aid board June 2015, both of whom were previously serving on the SUPERVALU (NYSE:SVU) board together, minority-owned by Cerberus. Therefore, "The Culpable Three" were not troubled by the notion that Mr. Savage was reporting back to his boss, Mr. Feinberg head of Cerberus, the details every acquisition offer the board received, but even more importantly how things were moving along at The FTC reviewing the Walgreens full acquisition deal announced October 2015. What an enviable position for Cerberus to be in, to hear it all and who had already engaged in talks with Rite Aid in 2014 and 2015 not enjoyed by any other potential acquirer, of course, not allowed in the boardroom. This was wrong, unethical and lacking in board integrity, which "The Culpable Three" had a fiduciary responsibility to avoid. I give out no points to directors "for getting along" and being comfortable in a country club atmosphere, none.

We know from the Ukraine Impeachment hearings that Mr. Sondland gave a $1 million contribution to candidate Trump's campaign and was rewarded with a political appointment, becoming Ambassador to the EU having had no prior experience in the field. We also know that Mr. Feinberg of Cerberus likewise bestowed a $1 million contribution to the Trump campaign five days before the 2016 election and again it paid off eventually, gaining access to The White House, and yet another political appointment with Feinberg heading up an important intelligence advisory committee reporting directly to President Trump. Yes, just weeks before the Cerberus/Albertsons merger announcement. And how hard was Mr. Feinberg working to gain that access the preceding year? Here is a photo of Mr. Feinberg joining President Trump in March of 2017 visiting a Virginia aircraft carrier. We also know that The FTC is part of The Justice Dept. and that department reports to Trump. Question: Did Cerberus' Feinberg get even more bang for his $1 million political donation buck? We do know that The FTC never officially filed suit to stop the merger; Walgreens and Rite Aid pulled it. The following day The FTC spokesperson issued a highly unusual press release indicating that had they not filed suit in the upcoming days the merger might have been automatically approved; deflecting blame, who knows. However, the substituted Albertsons replacement was quickly approved by The FTC, and Cerberus did not mind that one bit!

The Amateur Albertsons Negotiation - Good For Cerberus/Bad For RAD Shareholders

Most legitimate boards acting in the shareholder interest only understand that if a merger negotiation does not appear to be at "arms length," claimed in our merger proxies but hardly true, the odds that the merger will be approved by its shareholders are slim to none. The June 2018 SEC filing announcing retention bonuses were to be doled out in the millions to many of those shown the door soon thereafter was likely the time the board realized that the merger was in trouble. Notwithstanding this, the board forged ahead anyway with millions more in wasted advertising dollars still attempting to force that deal down the throats of their vulnerable shareholders. In the interest of full disclosure, I made a written presentation to ISS and Glass Lewis to stop it. I do not regret that effort, believing a board that shareholders have 100% control in is still better than the 28% Cerberus would give RAD shareholders at Albertsons, especially with those chosen to represent us on that board. Our current stock price does not represent the value of the enterprise; it represents what our prior pre-2018 directors did to their shareholders causing loss of reputation to the company, given all the conflicts of interest and self-serving behavior. That is now slowly being corrected and so is our stock price. Our board had reason to know, without benefit of excuse or blind ignorance, that the Negotiation Committee directors formed just one month before the announced deal for cosmetic purposes were the most conflicted directors on the whole board. Indeed, since that Committee was formed because according to Standley talks about him becoming CEO of a combined company were "suddenly" suggested, he recused himself from merger discussions in January 2018, only one (1) month prior to the merger announcement. This does not pass the "giggle test" since succession of the aging Miller (Albertsons Chairman and CEO) were assumed in 2014 and 2015 when talks had first begun. This meant that Standley should have recused himself six months earlier when talks resumed again mid-2017, not January 2018, if integrity and avoiding even the perception of a conflict of interest was to be avoided. Further, given Standley's close professional relationship with Miller for more than two dozen years, common sense suggests that they could have had talks by phone or otherwise outside of the board's knowledge or board minutes dictation.

As noted in the merger proxy, with merger talks stalled, Cerberus' Feinberg requested and engaged in a private conversation with "his guy" Savage outside the presence of the other two negotiation directors. Subsequently, and quickly thereafter, the merger roadblocks were resolved. This private conversation was wrong, unethical and lacking in board integrity no matter how RAD outside lawyers attempted to smooth this over in the merger proxies. There is no evidence in the proxy materials that the board and specifically "The Culpable Three" had any problem with this private conversation suggesting, once again, that for all those directors working for Standley and not their shareholders this was the wrong function of our pre-2018 board and should have never happened.

Just How Truly "Independent" Have Our Pre-2018 Directors Been

Each of the Negotiation Committee directors had previously been labeled as "independent," who according to the board met NYSE independence standards. Because they make that edict, does not necessarily make it so in light of the fact that the NYSE does not have the time or inclination to validate it. However, Paragraph 303A.02 of The NYSE Manual-Director Independence- makes something very clear that our board had ignored for years, namely,

It is not possible to anticipate, or explicitly to provide for, all circumstances that might signal potential conflicts of interest, or that might bear on the materiality of a directors relationship to a listed company."

Our Nominating Committee exists in part to make shareholders "feel warm and fuzzy" falsely suggesting it creates an additional layer of screening to protect shareholders. Ignoring the above Paragraph 303A.02 above has been the RAD Chairman/CEO ticket to get "pals" loyal to management on the board to complete what over the years has been a country club atmosphere terribly impacting its shareholders. Mr. Standley only waited six (6) months after returning to the company before he helped his long time buddy Mr. Jessick get on the Rite Aid board, April 2009.

So, let's see who the Negotiation Committee's chosen directors really represented. Hint - not its shareholders:

A. Frank Savage - We know he was Cerberus' guy and that he took a private call from his boss, Feinberg, outside the presence of the other two Committee members. Not surprisingly, he also expressed interest on being a director on the merged Albertsons board. According to Blackwells Capital, involved in a proxy fight at SUPERVALU recently and a board Savage was on representing Cerberus, Savage and 5 other directors materially harmed its shareholders in transactions involving Cerberus. Shareholder returns were down 71% during Savage's tenure there. Most of Blackwells complaints against that board could easily also apply to Rite Aid's pre-2018 directors as well. The end of the Albertsons merger and poof, Savage disappears from our board.

B. David Jessick - Just like the American Express Card, Mr. Jessick and Mr. Standley seem not to be able to "leave home without each other." They both arrived at Rite Aid together as prior colleagues in 2000, left Rite Aid together to join Pathmark in 2005 where Standley, as CEO, reported directly to Jessick as Chairman. But shareholders you say the proxies since 2009 never revealed their close Pathmark relationship because Jessick omitted Pathmark from his full proxy biography ever since they both returned to Rite Aid in 2008/2009? That's right, why mention that and jeopardize Jessick's "independent" status. He was scheduled to be a director on the Albertsons merged board as well; loyalty to Standley certainly does have its rewards! "The Culpable Three" had no problem hearing about this discrepancy at every Annual Meeting and doing nothing about it, a "material" fact of avoided transparency when this writer kept bringing it up. The end of the Albertsons merger and poof again, Jessick disappears from the board.

C. Michael Regan - dizzying circular relationships between directors and its senior management has always been Rite Aid's way of picking directors prior to last year. Some may want to thank Mr. Bodagan for this, our new Chairman by default. However, I chalk this up and the other director resignations more likely to the direction from our RAD outside attorneys who wanted to sanitize the board to appear "pure as the driven snow" standing before possible future court judges. But follow the bouncing circular ball on Mr. Regan, lead "independent" director no less:

Previously CFO at Harrah's Entertainment, part of the Caesars Entertainment (NASDAQ:CZR) portfolio reporting to Philip Satre. Philip Satre, prior CEO at Harrah's, places Bob Miller on his Harrah's board. Bob Miller, becomes Chairman/CEO of Rite Aid and returns the favor by placing Satre on his board, as eventual lead "independent" director. Of course, Satre assists Regan to get on the Rite Aid board, after all it is great money if you can get it. Bob Miller, also on the board of Nordstrom (NYSE:JWN), is instrumental in assisting Satre to become Chairman of the board of Nordstrom.

Does Regan owe Satre a favor? Also does Regan owe Standley a favor/vote to approve the merger, after all he was tapped to be on the merged Albertsons board as well. Does Satre owe Miller a favor as Chairman/CEO of Albertsons, in 2018, who in turn reports to Cerberus, owner of Albertsons. So there you have it. Everyone owes everyone a favor, except to the Rite Aid shareholders paying directors their huge fees/salaries! Does any of the three (3) members of the Negotiation Committee appear to be acting solely for the benefit of their shareholders, or in truth did they have other primary masters? Once again, "The Culpable Three" are quietly going along with all this "to get along" violating their fiduciary responsibility to their shareholders. The end of the Albertsons merger and once again, poof, Regan disappears from the board.

The Managerial Moment of Truth

For Mr. Bodaken, our Chairman by default, the above title of a book he co-authored has no resemblance to his actions as a Rite Aid director previously or Chairman now. In the book he proclaims, "truth is the most important competitive advantages there is in building a business." Later on he proclaims, "unearthing the truth is one thing. Telling it is yet another thing entirely." Further on "truth telling must be an organization norm."

I agree with these statements in the book, so much so that Mr. Bodaken and the other two old-guard members must resign. The truth came knocking on the doors of "The Culpable Three" numerous times, and each time they refused to answer the door as follows:

1. After the second failed and highly conflicted merger attempt in August 2018, the "truth" was that Mr. Standley should have stepped down immediately. Mr. Bodaken failed to appreciate the amount of damage to company reputation that can quickly occur after such events. Retaining Mr. Standley as CEO six (6) additional months before his announced resignation, making sure to first shovel over more millions of dollars to him and other senior managers only to purge them from the company less than one (1) year later, did nothing to instill investor confidence to remain a shareholder or to become one for the first time. It also violated the Compensation Committee's responsibility to safeguard the assets of its shareholders. Mr. Bodaken would be hard-pressed to find a single case where a CEO in a public company would be allowed to remain on the payroll even one additional day after not one but two failed merger attempts, especially after the second attempt was chock full of conflicts of interest and self-dealing. This kind of arrogance on the board and in the C-Suite cannot be tolerated by its shareholders and our new majority board must step in and resolve this now.

2. In "truth" Mr. Bodaken's first attempt to run a proper Annual Meeting as Chairman last July was evasive at best and poorly orchestrated. As previously indicated, legitimate questions asked of directors before a vote on any proxy question, including director nominees, were dodged pertaining to serious questions of alleged unethical conduct by one of his own Committee members. This information has been known by Mr. Bodaken and repeated to him at each Annual Meeting, but not shared with his non-attending shareholders for over six (6) years. This was a question of "materiality" and was intentionally missing from the proxies. Does the board have to be continually reminded that their mission is to protect their shareholders, not their fellow directors or senior executives?

3. In "truth" Mr. Bodaken allowed Frank Savage on the board for three (3) years from 2015-2018; this was not only a conflict of interest but was simply unethical given that the head of Cerberus was Savage's boss, and with Rite Aid merger discussions already begun with Cerberus/Albertsons the year prior in 2014. Although impractical, the full board should have resigned August 2018 on this fact alone. We are patient shareholders, however, and new majority directors get the rest done now!

Mr. Standley resigned from the SUPERVALU board just months before installing Mr. Savage on the Rite Aid board. In "truth" whether consciousness of guilt or not, it gave the appearance that Mr. Standley was attempting to create distance between himself and Mr. Savage whose relationship was never clearly spelled out in the regular proxies, with just a quick passing statement in the merger proxy.

Why "The Culpable Three" Directors Must Resign

Maya Angelou, the American poet, is quoted as saying, "When people show you who they are, believe them the first time." Our long-term directors, Bodaken, Syms, and Lofton are responsible for previously causing the loss of ninety-five percent (95%) of shareholder equity. Joining forces and moving from their previous committees, Compensation and Audit, to hide out in the Corporate Governance and Nominating Committee is not the definition of accountability. It is classic boardroom entrenchment, pure and simple. Page 37 of the 2019 proxy spells out the poor performance of two of them, according to our top holders no less, on their prior Compensation Committee assignment. For Lofton on the Audit Committee previously, our governance rules should have been triggered by him and his fellow committee directors; unsurprisingly they were not. He failed in his fiduciary responsibilities there since the audit committee ignored one of their duties, under the Code of Ethics for a CEO, which is for the Audit Committee to timely determine appropriate actions when the CEO violates this code. Namely, "to act at all times with integrity, avoiding actual or apparent conflict of interest in personal and professional relationships." ISS and Glass Lewis were not shy in suggesting that the Albertsons merger had substantial conflicts, likely leading to the inadequate price RAD shareholders would receive. Indeed, one of the advisory firms recommended a vote "Against" Bodaken to become Chairman in 2018!

Mr. Lofton, now Chair of the Corporate Governance Nominating Committee, additionally refused to respond at the 2019 Annual Meeting when directly asked about Ms. Syms unilateral decision to delist the stable NYSE $17 public stock of her family-owned Syms Corporation in late 2007, two years after becoming a RAD director and placing them on the pink sheets. Her explanation to the press as to why she did this was disingenuous at best and was not accepted by ISS or her shareholders who immediately sued her and her company. The stock plunged in price, and while she reversed course too late and eventually placed the shares back on the NASDAQ, by then the damage was already done to her common shareholders and the company as well that went bankrupt; a company her father worked so hard to make a success she quickly bankrupted. Rite Aid directors were doing a recent reverse stock split to maintain status on the NYSE, while one of the current board's own, Ms. Syms, thought nothing about stripping her Syms Corp. shareholders of the protections of The SEC that the original NYSE listing provided.

Shareholders are entitled to draw a negative inference to a legitimate question asked before a proxy vote if there is a refusal to answer. Mr. Bodaken's five second non-answer in defense of her did him no favors in a test of his own credibility or accountability. So, I do just that now and draw a negative inference; the delisting of Syms Corporation stock was clearly unethical so as to hide material information on the company, to keep the stock price down instead of up, and now no longer mandatory to be timely divulged on the pink sheets as it would have been had it remained on The NYSE. According to the business press and her Plaintiff shareholders, she was specifically and intentionally acting against the interests of her own shareholders there.

She is presumed unethical as well due to further refusals to answer questions before the election on her fitness to serve on the board, by inventing a company in 2013 called TPD Group. She initially claimed, when confronted on this at the Annual Meeting by this writer, that this company was operated out of her home spare bedroom as its President and only employee because she was questioned about having little in the way of self-made accomplishments in 2012, the year before. Her invention is beyond the "giggle test," although shareholders in the audience in 2013 were heard laughing when she announced her corporate headquarters address was her spare bedroom. That company, TPD Group, vanished last year which either never really existed or gets chalked up as another unsuccessful Syms endeavor. It was replaced by being a director on the board of a private company this year, whose management likely owed her yet another favor. And for all of this unfortunate behavior, loyalty has its rewards once again with Ms. Syms unbelievably tapped to be a director on the merged Albertsons board as well; nothing short of a slap in the face to RAD shareholders compliments of the pre-2018 board. Favors for everyone, it seems, but not for the retail shareholders paying their way all along as owners of the company, with little to no purchases of shares in the open market by any of the directors in quite some time. If they do not believe in the company enough to purchase shares in the open market out of their own wallet like retail shareholders must do then they should find another way to make a very good living.

Potential Violation of SEC Rules

SEC Rule 14(A) on proxy solicitation forbids omissions of fact considered material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. I maintain that if Ms. Syms history was fully exposed in the proxies, she would not receive fifty (50%) percent of the vote and as required in our bylaws would be forced to resign immediately. Actually, if the Nominating Committee had to meet their obligations to their shareholders for a change, she would be asked to resign beforehand and not be on the ballot in the first place.

Conclusion

Boards of directors may not want to develop a certain reputation because they believe they act in private in the boardroom, but they can develop them nonetheless. Our plummeting stock price has already proved that quite convincingly, an indictment of the pre-2018 board. The only question is what is the new majority board going to do about it! Mr. Bodaken has comforted the comfortable, the RAD senior management as long as he could including shoveling over more millions of dollars in bonuses to non-performers, and he afflicts the afflicted, his lowly retail shareholders being fully responsible for the loss of equity value. Perhaps his own $20 million exit package from California Blue Cross, a non-profit company no less, caused him to want to sprinkle more millions around of shareholder assets to his RAD senior management equals, who knows. Those retention bonuses to senior executives and subsequent purging of most of them from the payroll less than a year later demonstrated one critical thing, namely that the pre-2018 board neglected their responsibility to work responsibly on succession planning all along should the Chairman/CEO, thereafter CEO, be unable to fulfill its duties to their shareholders. The result, a fast drop in our share price and company reputation. "The Culpable Three" directors can never gain back that reputation and be effective for their shareholders here. They must resign and make way for other talented directors who can actually make a difference for their shareholders like we have witnessed lately from the new majority board.

Research done by Edelman Financial Communications indicates that boards do indeed develop their own reputations. Two thirds of institutional investors managing over $1 trillion in assets say they "must trust a company's board of directors before making or recommending an investment." They also agreed "an engaged and effective board is important when considering a company in which to invest." It is no wonder that our stock price is being held down by "The Culpable Three" directors, all now together on the Corporate Governance and Nominating Committee no less, where they have already shown they are not qualified to continue those responsibilities. No director, pre-2018, after the Albertsons fiasco and allowing such a conflicted Negotiation Committee to be filled with all Albertsons and Standley loyalists should remain in our boardroom, period. No director, pre-2018, should remain after closing their eyes to Ms. Syms past activities in her own family-owned public company. It is not an exaggeration to suggest "she is the enemy of the common shareholder" and could not realistically be invited onto the board of any public company with knowledge of those activities. Yet she has lingered here with full pre-2018 board knowledge of these events for an extra seven (7) years!

The six (6) new directors installed since 2018, including its energized new CEO, must be allowed to fully shine on their own without the unneeded controversy caused by "The Culpable Three." The honeymoon for our new directors will soon be over. They must act in the interest of their suffering shareholders, notwithstanding a certain new loyalty they may want to have for Mr. Bodaken who hired them all. The public trust in this public company cannot be fully reinstated with "The Culpable Three" remaining on the board.

I wrote most of this article before the earnings release last month because I believe this company still has much better value yet to be unearthed. I remain cautious but optimistic that what our company lacked for more than the last 20+ years, which I was a witness to, has now been replaced with effective and hard working senior managers rolling up their sleeves to put in a full days work for their shareholders first, and not themselves, and is now being addressed with the new board and its new CEO. They deserve our support for the hard work in front of them and they will get that from this shareholder. However, they must act and do the right thing. Not for this writer, perhaps loathe to honor my requests on behalf of all other shareholders, but for themselves. Because I can assure this board that the issues surrounding "The Culpable Three" stand no chance of being swept under the rug; I will not allow that. Eventually, if they do not act, these three (3) directors could very well affect the future of the remaining directors. Looking the other way will no longer be tolerated, endless conflicts of interest will not be tolerated, nor will not meeting their duties as directors be tolerated from the pre-2018 directors. This could be a new day for all RAD shareholders with the removal of "The Culpable Three." All shareholders as well as our dedicated employees and the new directors themselves should settle for nothing less.

Finally, in an article that I could not have said it better myself, entitled "What Constitutes Board Director Misconduct?" written by Nick Price, he summarizes what our pre-2018 directors should have done all along, but did not, ignoring their loyalty duties to their shareholders. As a result, we have today's RAD stock price. Our new directors should heed his following advice:

Strong relationships between board directors may make it hard to call someone out for unethical behavior, unwise choices, and other misgivings that affect the corporation and its shareholders. Board directors should never hold their relationships above the best interests of those they serve. When one board director engages in inappropriate behavior, on the larger scale, it’s always a reflection on the rest of the board directors and on the leadership of the organization. Difficult as it may be, when allegations of misconduct arise, the remaining board directors have an obligation to investigate the details, take a proactive stance, and when appropriate or required, communicate the results to the shareholders and to the public. In addition to dealing directly with scandals and debacles, shareholders and the public will be watching to see how well the board handles such matters, which goes a long way toward restoring an organization’s credibility."

My $64,000 question - What will our new majority directors do? Will they go down the same easy path as before with the same negative results, or show shareholders after all these years that they are finally here to serve their only appropriate master - their shareholders.

This article was written by

Steve Krol profile picture
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Full time investor, mini-activist with troubled managements leading to takeovers, otherwise turnaround stories. Long only.
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Disclosure: I am/we are long RAD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Any proceeds from this article will go to my charity.

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