Argo-Voce exchange words ahead of AGM as ISS makes recommendation

The war of words between Argo Group and activist shareholder Voce Capital Management has intensified in the run up to a crucial May 24 vote when shareholders will have to choose between supporting Argo’s directors and nominees and proposals for change mooted by Voce.

The latest twist in the saga has been triggered by independent proxy advisory firm Institutional Shareholder Services (ISS) recommending that shareholders vote the white proxy card in support of all of Argo’s directors at the company's Annual General Meeting on May 24.

In recommending the white proxy card in a May 11, 2019, report, ISS noted the “strong results” the Argo board and management have delivered for shareholders and expressed support for Argo’s board and strategic direction.

“The company has delivered strong TSR [total shareholder return] over the short- and long-term and has demonstrated good overall governance; notably, the board has appropriately refreshed itself in recent years. The board also has demonstrated that it has thoughtfully considered many of the concerns raised by the dissident before reaching a conclusion with which the dissident disagrees,” ISS said in a statement.

In concluding that Voce has failed to make a case for its slate of nominees, ISS noted Argo’s “ongoing refreshment process that incorporates active, contributing, and additive Board members.”

ISS observed that: “In fact, independent of the dissident's involvement, the board's refreshment is proceeding at a reasonable pace and the dissident's allegations of a stale board do not appear to accurately reflect the current board dynamic, particularly in the absence of underperforming operations or share returns.”

Gary Woods, Argo’s independent chairman, added: “We value the support of ISS, which recognizes the strength of our board’s nominees and our commitment to increasing shareholder value. Our strategy of focusing on profitable underwriting and relationships, portfolio investment and disciplined capital allocation is driving strong performance.

“ISS’ recommendation underscores the importance of an orderly process for board refreshment, which provides stability to the company's business and supports our commitment to best-in-class governance.”

Voce Capital Management, the beneficial owner of approximately 5.6 percent of the shares of Argo Group International, responded by saying it was “baffled” by the “lopsided recommendation” of ISS. It has also urged shareholders to vote for the blue proxy card in favour of its proposals.

“While we respect the team at ISS and have been before them several times in the past, its formulaic conclusions regarding Argo are baffling to us,” it said. “We have acknowledged from the beginning that Argo’s stock price has appreciated over time. If that’s the end of the inquiry, as it appears to have been for ISS, then with all due respect, there’s no need for a third-party to analyze or weigh in on this proxy contest. The far more relevant questions are why has Argo’s stock performed the way that it has, should it have done better and can it improve going forward?

“Corporate governance is neither a checklist nor an algorithm. In order to properly assess corporate governance, one must evaluate the context and culture in which a company’s governance structure operates and the way in which it is applied. What is so puzzling, and in our view erroneous, about ISS’s report is that it acknowledges many of the governance concerns that we have identified, yet then fails to consider them at all in reaching its lopsided recommendation.”

It added: “If TSR is as paramount and decisive as implied by ISS’s report then why do all of the leading institutional investors and ISS itself spend so much time talking and writing about corporate governance? If this campaign – which has been sharply fought and centered over corporate governance from the very beginning – can be dismissed simply by consulting the stock price, then what does that say?

“At a minimum, it would imply that shareholders should limit themselves to challenging underperforming companies rather than those that are governed poorly, no matter how egregiously so. If so, a large part of the corporate governance community, of which Voce proudly considers itself a member, would be nugatory. We disagree with such a narrow and cramped definition of corporate governance in the strongest possible terms.”