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Two proposals by institutional shareholders designed to increase independent oversight at Cintas Corp. failed to gain a majority of votes Tuesday at the company’s annual meeting.
The proposals included one by the North Carolina Retirement Systems, which represents the pension investments of unionized North Carolina state government workers. It sought to have an independent chairman — unconnected to the Farmer family — appointed to the board of directors to enhance oversight and improve the company’s abysmal safety record.
The other proposal sought an advisory shareholder vote on executive pay.
As the meeting was conducted, more than 300 protesters comprised of Cintas workers from across the nation and their local supporters rallied outside of the company’s Mason headquarters (pictured above), demanding an end to what they described as egregiously unsafe working conditions at the uniform supplier’s industrial laundries.
A proposal by another institutional shareholder — CtW Investment Group — was also defeated that would have blocked the appointment of David Phillips to the Cintas board due to what it described as an undisclosed conflict of interest and weak leadership in his role as the company’s Nominating and Corporate Governance Committee chairman.
(See my recent news article "Cintas Under a Microscope" for background on these shareholder proposals.)
Cintas didn’t reveal the vote totals for board appointments. CtW representatives said about 35 percent of outside shareholders opposed Phillips’ appointment, which amounted to a “vote of no confidence.”
CtW had alleged that in his role as committee chairman, “Mr. Phillips bears responsibility for many of the company’s questionable governance practices, which include … inadequate response to legitimate governance concerns."
Further, CtW disliked that Phillips serves as trustee of Cincinnati Works, which received more than $200,000 in charitable contributions from foundations controlled by Cintas insiders and affiliates.
Each of the proposals had been endorsed by the Union of Needletrades, Industrial and Textile Employees (UNITE), an organization trying to unionize Cintas workers for more than five years.
Some Cintas employees who were given proxies by shareholders were denied access to the annual meeting, according to UNITE.
The U.S. Occupational Safety and Health Administration (OSHA) has cited at least 10 Cintas facilities nationwide in just over a year for safety violations, including one that resulted in the death of a worker. Since 2003 Cintas has been cited for more than 170 OSHA violations in its facilities, including more than 70 citations that OSHA deemed could cause “death or serious physical harm."
(Photo of protest outside Cintas annual meeting on Oct. 15 by Cameron Knight. See more photos here)
An institutional shareholder at Cintas Corp. will make a motion at the company’s annual meeting later this month seeking to have an independent chairman appointed to its board of directors to improve oversight and increase company performance.
Representatives for the North Carolina Retirement Systems (NCRS), which represents the pension investments of retired North Carolina state employees, said objective oversight is needed at Cintas to represent shareholders and “reverse a five-year trend of underperformance.”
At the company’s annual meeting on Oct. 14th, the pension fund will also support a proposal seeking an advisory shareholder vote on executive pay and will oppose appointing nominee David Phillips to the firm’s board of directors.
The various proposals are supported by Risk Metrics/ISS Governance Services and Glass Lewis, which offer proxy services to institutional shareholders.
Although Cintas is the largest uniform rental company in North America, its stock has underperformed the S&P 500 and its peers for the past five years, according to pension fund representatives. Cintas’s share price is down 18 percent during that period, while shares of its largest publicly-traded competitors are up 83 percent and 4 percent respectively.
Also, Cintas has lost market share in recent years, a trend that accelerated in 2008.
“These proposals offer an opportunity to make real change at a company that is underperforming and failing to address the concerns of shareholders,” said State Treasurer Richard Moore, who manages NCRS, in a prepared statement. “I encourage other institutional investors and shareholders to vote for these proposals and for improved governance at Cintas.”
Some shareholders contend that current Board Chairman Richard T. Farmer and his son, Cintas CEO Scott Farmer, have stacked the 11-member board of directors with friends and close associates that too closely follow the Farmer family’s directives. Cintas began as a private company started by Richard Farmer’s grandfather in 1929, before it was taken public in 1983.
Another institutional shareholder, CtW Investment Group, first proposed blocking Phillips’ appointment to the board due to what it described as an undisclosed conflict of interest and weak leadership in his role as the company’s Nominating and Corporate Governance Committee chairman.
“As lead director and chairman of the Nominating and Corporate Governance Committee, Mr. Phillips bears responsibility for many of the company’s questionable governance practices, which include … inadequate response to legitimate governance concerns,” Michael Garland, a CtW executive, wrote in an Oct. 1 letter to other shareholders.
The letter continues, “As discussed above, nominee Phillips serves as trustee of Cincinnati Works, which received over $200,000 in charitable contributions from foundations controlled by insiders and affiliates of the Company. We question the need for the Company to engage in such significant charitable contributions with one of its directors, especially considering the amount of such contributions as a percentage of Cincinnati Works’ annual revenue.”
In July, yet another institutional shareholder — the Manville Personal Injury Settlement Trust — filed a lawsuit alleging the firm’s board of directors isn’t fulfilling its fiduciary duties and fosters a corporate culture that ignores safety regulations.
At least 10 Cintas facilities nationwide have been cited for safety violations by the U.S. Occupational Safety and Health Administration (OSHA) in just over the past year.
OSHA imposed a $2.78 million fine against Cintas last year for violations that led to the death of Eleazar Torres-Gomez at the company’s laundry facility near Tulsa, Okla., in March 2007. Gomez died after he jumped onto a conveyor belt to dislodge clothes and was dragged into an industrial dryer, where he burned to death.
Federal and state inspectors have issued citations against Cintas facilities in Alabama, Arkansas, California, Illinois, Indiana, Ohio, Texas and Washington.
Since 2003 Cintas has been cited for more than 170 OSHA violations in its facilities, including more than 70 citations that OSHA deemed could cause “death or serious physical harm.”
Cintas representatives say the company has adequate safety procedures and blame the accidents on workers who don't follow their training on how to handle machinery.
Based in Mason, Ohio, Cintas is the largest uniform supplier in the United States. Cintas reported $531 million in profits for the 2008 fiscal year, which ended in May.— Kevin Osborne