What does Massey do now?

blankenship.gi.top.jpg By Eleanor Bloxham, contributor


FORTUNE -- The board of Massey is preparing for a shareholder showdown on Tuesday in Richmond, Va. After some tense volleys with shareholder activists, the board needs to be ready to answer some rather pointed questions about how it's allowed the company to come under fire-for both the April mine explosion which killed 29, and the subsequent investigation into wrongdoing by the Department of Justice.

Massey board had twice as many meetings on compensation as on safety

Where a board spends its time can say a lot about what it cares about. For example, in the wake of the Lehman Brothers collapse, questions were raised about the infrequent meetings of the finance and risk committee and whether they were paying enough attention to this crucial area of oversight. Massey (MEE) shareholders are similarly publicly questioning whether safety oversight has really been job one for the board, let alone the company.

According to its recent shareholder proxy, Massey's Safety, Environmental and Public Policy board committee met only four times last year. In contrast, the Compensation committee met more than twice that often - ten times in 2009. The Audit committee of the board met nine times and the board itself eight times. (The governance and nominations committee also met only four times.)

Recent SEC filings, including one filed May 5, have sought to address shareholder related concerns since the tragedy. The May 5 filing states: "The board puts a priority on Safety and Environmental oversight - All directors participate in quarterly meetings of the Safety, Environmental and Public Policy Committee." The board needs to address whether this is adequate in light of all that has happened.

Only one sentence in the multi-paragraph section of the proxy, entitled Board of Director's Role in Risk Oversight, is devoted to the Safety, Environmental and Public Policy committee. In contrast, the Finance committee receives the most space in the risk oversight section. Massey referred Fortune to its prior press conferences and statements on this and other issues, available on their website.

Are board members leading the committees they're most suited for?

Although all members of the board are said to participate on it, the Safety, Environmental and Public Policy committee is formally comprised of everyone except Chairman and CEO Don Blankenship and Lead Director Admiral Inman. According to the proxy and the May 5 filing, Baxter Philips, the management member of the safety committee, has no background in safety while Don Blankenship is said to have extensive experience, but isn't a member.

No member of the board is listed as having relevant environmental experience, according to the proxy statement and May 5 filing. (There are a number of environmental issues on this year's proxy.)

The chairman of a committee often wields significant power in setting the agenda; it matters who is sitting in the big chair. There are two non-management members of the board who have safety in their relevant backgrounds and thus would be on that basis most suitable for the position of safety committee chairman, but neither are the current chair:

Richard H. Foglesong is listed as the board member with "experience in safety performance and public policy matters" but he chairs the Compensation committee. Stanley Suboleski described as the "former commissioner of the Federal Mine Safety and Health Review Commission" chairs no committee. (And his independence is unclear since according to the proxy, he "provides consulting services to [Massey and its] affiliates from time to time in return for a consulting fee".)

Rather than one of these two, James Crawford chairs the safety committee. The words safety, environment and public policy are not mentioned with respect to his relevant experience or expertise.

In the wake of the crisis, a Massey press release on May 4 announced that "A committee, established in August 2009 to look into shareholder inquires, will take on the role of examining Massey's track record on safety, facts related to the UBB tragedy and the related investigations by various agencies including the FBI." This committee is also not chaired by a board member with safety expertise, but rather by Richard Gabrys, a board member with public auditing experience "especially," according to the May 5th filing, in "mergers and acquisitions".

Going into the annual meeting, a withhold vote against Mr. Gabrys was recommended by advisory firms RiskMetrics, Glass Lewis, and CtW Investment Group. They were joined by nine public pension funds (and Gabrys was joined by two other directors in the withhold recommendations). Massey, in a May 4 press release, outlined a letter it had sent saying if the blocking of Gabrys' election is successful, it "would undoubtedly substantially disrupt the Board's continuing effort to be responsive to shareholder concerns."

Should a CEO also be the chairman, especially during a crisis?

In times of crisis, boards need to build and repair their bridges. One of the reasons the Disney board was able to get over its severe problems with shareholders is that the chairman and CEO positions were separated and a diplomat, Senator George Mitchell was made chairman of the board. Mitchell knew how to calm the waters, having handled the successful peace negotiations in Ireland. His calming influence and tact were responsible for the improved relations with shareholders including Roy Disney, which brought peace to the company.

Currently, the chairman and CEO positions are combined at Massey, and there is no shareholder proposal in this year's proxy to address this. The proxy states: "We believe having Mr. Blankenship serve as our Chairman of the Board and Chief Executive Officer... minimizes ambiguity concerning who is leading us...[and] eliminates the potential for conflicts between the Chairman of the Board and the Chief Executive Officer."

Boards, however, are not meant to be composed of CEO loyalists. Boards led by a CEO tend to become rubber stamps, rather than independent oversight bodies. Re-thinking the board leadership structure may be difficult, but the newest members of the board should seriously re-consider what makes sense in light of the situation Massey finds itself in.

The acrimony in the correspondence between Admiral Inman and shareholders has been palpable. (The letters can be read on CtW's website.) Although there has been some recent cooling down, Inman was an admiral, a commander by training. Even if Inman were diplomatic by temperament, he has been a board member for 25 years (and Mr. Blankenship for 14 years).

All other directors but one have tenures of 5 years or less. With such seniority, it's human nature for Inman and Blankenship to be defensive of the past and less open to outside suggestions for the future than newer members of the board. It is for this reason, among others, that many boards have term limits for their members. That's something Massey board should consider.

Blankenship and Inman have an opportunity at the annual meeting to listen and respond to shareholder concerns. On Friday evening, May 14, Massey sent out a press release indicating a step toward allowing all board members to come up for election annually. More measures like that one are critical to the future of the Massey firm.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance, a board advisory firm. To top of page