Kathryn Boyd-Batstone / Rivard Report
Argo Group announced Friday that its shareholders have voted to elect all five of its directors to the Argo board, effectively ending the proxy fight that began in February. But a non-binding advisory resolution on executive compensation passed with a slim margin of just 50.53 percent of the votes in favor and 49.47 percent against.
“Our board will carefully consider these results, as well as future shareholder input, in determining executive compensation going forward,” said Chairman Gary Woods in a statement posted to the Argo website.
For months, Argo Group has been fending off claims from an activist hedge fund that its current board and CEO are responsible for a “culture of indulgence.” It now seems as though the San Antonio-based specialty insurance company has won the latest round.
Voce Capital Management, owner of approximately 5.6 percent of Argo’s shares, has been leading a proxy fight to persuade shareholders to vote out some of Argo’s leaders and replace them with its own set of directors. The conflict between Voce and Argo has escalated as Argo prepares for its annual general meeting and election of board directors on Friday.
On Tuesday, Voce announced it was withdrawing its nominations after some state insurance regulators revoked previously granted approvals for Voce’s proxy solicitations. Two of the five states in which Voce filed the required documentation pulled their approvals, according to Voce, after reviewing additional material and information provided by Argo.
Voce called Argo’s tactics “underhanded” and stated it would pursue legal remedies. But the proxy fight appears to be over, at least for now.
Argo also issued a statement Tuesday saying it appears Voce may have failed to disclose all information required by the departments of insurance and “has chosen to abandon its activist campaign before the vote became final.”
Argo is a $2.5 billion international underwriter of specialty insurance and reinsurance products, with offices in the IBC Centre in downtown San Antonio and in New York City as well as London, Singapore, Dubai, Brazil, and several European cities.
Venture capitalist Mark Watson, who grew up in San Antonio and Houston as the son of Titan Holdings’ founder Mark Watson Jr., became president and CEO in 2000, and moved the company – then known as Argonaut – to San Antonio in 2001. Six years later, the company became Argo Group when it acquired Bermuda-based PXRE Group.
In April, the company reported a quarterly net income of $91 million ($2.63 per diluted share) during its first quarter 2019, compared to net income of $25 million during the same period the previous year. Gross written premiums also grew to $761 million despite catastrophic losses of $5.5 million during the first three months of the year.
But in February, Voce issued a letter to Argo shareholders accusing Watson of misusing the company’s assets and undermining shareholder value. Voce has been urging shareholders to vote for five of its nominees for the board.
Voce accused Watson of incurring inappropriate corporate expenses, including the use of a corporate jet as his “personal chariot,” furnishing offices with fine art and designer chairs, and sponsoring race car and sailing matches and teams. Alleging that Argo’s corporate governance is “shockingly deficient,” the Voce letter also urged shareholders to vote for new directors.
“Argo’s board is very far from independent, having long ago been captured by its imperial CEO,” read the letter from J. Daniel Plants, chief investment officer of Voce. He wrote that his San Francisco-based firm had spent a year researching and analyzing Argo and that a slate of new, independent directors could pursue changes at Argo and improve its returns.
Then, in May, came another letter and a 130-page presentation posted online titled, “Righting the Ship,” in which Voce detailed its findings, called for $100 million in expense reductions at Argo, and proposed new board leadership.
The presentation claimed that Argo’s return on equity could climb to more than 10 percent if it cut lavish spending. The slides show images of an Argo-owned New York City penthouse, company-sponsored yachting excursions, and flight manifests to far-flung destinations where Watson owns homes.
Argo’s board of directors issued its own letter to shareholders defending its strategies, outlining past performance, and “correcting Voce Capital’s misrepresentations, careless errors, and outright falsehoods.”
A press release from Argo stated that Voce’s proposed plan revealed “a lack of experience in insurance company operating strategies or execution challenges,” and the “inaccurate financial metrics in its recent presentation, is absurd, consisting of nothing more than speculation and fictional scenarios.”
An Argo spokesman told the Rivard Report Watson was not available to discuss Voce’s claims and referred to a statement by Woods that said, “Our operating strategy has been deliberately constructed to deliver for shareholders and our positive financial outlook supports continued value creation.”
In a presentation distributed to investors, the company stated that “our oversight and governance of the company is strong and serves investors well. Argo has the right board and management team to continue our best-in-class performance and stewardship.”
On May 11, the independent proxy advisory firm Institutional Shareholder Services (ISS) issued a report in favor of Argo’s board and its management of the company, and cited the company’s strong shareholder returns and improving return on equity. ISS urged Argo shareholders to vote in support of all of Argo’s directors at its annual meeting.
Another prominent proxy advisory service company, Glass Lewis, saw it differently, affirming Voce’s views and stating that Argo appears to have an expense management problem. That company’s report concluded: “ … We believe it would be in the interests of shareholders to appoint new directors who could be reasonably expected to focus on expense management and board oversight concerns articulated by Voce.”
Argo released a response to the Glass Lewis report stating that “while the company disagrees with Glass Lewis’ conclusion, important points were made in its report. Those points included strong shareholder returns, robust operational results, and a commitment to board refreshment.”
Voce launched similar proxy campaigns against Natus Medical in 2018, which resulted in shareholders voting in Voce’s two board nominees but not ousting its chairman, and a Colorado air ambulance company, Air Methods, in 2017, which expanded its board.
An avid yachtsman and art collector, Mark Watson splits his time among his New York City, Bermuda, and San Antonio headquarters, which is known to have one of the best corporate art collections in the city. Argo is the title sponsor of the Argo Gold Cup, an annual international sailing competition in Bermuda.
Argo will hold its 2019 general meeting Friday in Bermuda, starting at 9:30 a.m. CST.