WASHINGTON – Susan Bayh’s longest-running corporate relationship is with Indianapolis-based Emmis Broadcasting, whose board has drawn accusations of incompetence from one of Emmis’ largest shareholders and a “poor” rating from a firm that evaluates the performance of corporate boards.
Frank Martin, president of Elkhart-based Martin Capital Management, doesn’t exempt Bayh from his stinging criticism of the company leadership.
“The board and management of Emmis have had 13 years to prove they are utterly incompetent to run this business,” he said.
The performance of the board received a “D,” the second-lowest rating by an organization that analyzes corporate boards.
Morningstar’s analysts reported, “We think Emmis’ corporate governance is poor.”
The Corporate Library, which also rates publicly traded boards, issued the board of Emmis a “C” for accelerating the vesting of options.
Bayh, an Emmis director since it went public in 1994, is the lead director, which means she is the person shareholders contact if they want to discuss matters with Emmis’ five independent directors. Independent directors are not employees of a company.
She declined an interview. Company President Jeff Smulyan said the criticisms of Bayh and the other board members are grossly unfair.
Smulyan said he invited Susan Bayh to sit on the board when the company went public because he knew her from various civic activities and socially. Smulyan met Evan Bayh more than 30 years ago when Smulyan worked in the office of Sen. Birch Bayh, Evan Bayh’s father, during summers off from law school.
Susan Bayh “was a woman who had a tremendous grasp of a lot of areas. I thought she would be ideal” as a member of the board of the newly public company, Smulyan said. “Obviously, she’s a lawyer. Obviously a lot of civic areas. Sees media from a different perspective, having been on the other side of the microphone.”
As a board member, Susan Bayh is “a very rational, valuable voice,” Smulyan said, adding that none of the directors has “any problem speaking their mind.”
Morningstar’s evaluation of the Emmis board and its top executive paints a stark picture:
“Thanks to separate share classes, (Chairman and President Jeff) Smulyan controls more than 60 percent of the voting shares, but his economic interest is only 15 percent. He is calling the shots at Emmis; shareholders are just along for the ride. … We’re not certain that Smulyan’s interests are aligned with those of outside shareholders.”
Morningstar said shareholders’ interests weren’t protected when Smulyan tried to take the company private in 2006 but yanked the offer after he couldn’t reach a price agreement with a special committee of the board.
“While his offer was still pending,” Morningstar’s analysts said, “Smulyan said he might use his majority voting power to reject any competing bids. He did not want another buyer to potentially liquidate Emmis and said he would fight to keep the company together for as long as he was around. Smulyan’s rationale was not fair to Emmis shareholders, who want the best price possible for their shares.”
Smulyan said the dual-stock structure is not uncommon in media corporations and that potential shareholders are aware of it before they buy a single share of stock.
Over the years, Susan Bayh’s relationship with Emmis has been more entwined than most directors’ involvement with the companies they help manage:
•From 1997 through early 2002, Emmis paid Bayh $50,000 a year in addition to her director fees “to develop a unified plan for the involvement of the Corporation and each of its stations and publications in various charitable organizations.”
Smulyan said the company wanted to do an analysis of its community involvement in the many cities its stations were located. He said it would have taken too much time for a board member to collect the information without compensation.
•Since 2001, Emmis executives have given $14,900 to Sen. Bayh’s re-election campaign. In addition to money he gave Bayh’s Senate campaign since 1994, Smulyan has donated $35,000 to a political action committee Evan Bayh runs.
“I’ve been a supporter because I believe in the things Evan stands for politically,” Smulyan said.
•In 2006, while Evan Bayh was running for the Democratic nomination for president, Smulyan gave $12,900 to the Democratic Party in Iowa and $4,300 to the Democratic Party in New Hampshire. Those states have the country’s earliest primary and caucus, and contenders campaign heavily there.
•Emmis Publishing was formed in February 2003. One of the first books it published, three months later, was Evan Bayh’s memoir, “From Father to Son: A Private Life in the Public Eye.” In his annual financial disclosure statement, Bayh reported all his royalties were donated to charity.
•The Emmis corporate jet carried Evan Bayh or his designee as a passenger twice in 2005. Bayh’s political action committee reimbursed Emmis $1,371 for the trips.
Smulyan said Bayh might have “hitched a ride” on the jet from time to time, but “he has not normally called up and said, ‘I need the jet.’ ”
In the 14 years she has been an Emmis director, Susan Bayh has accumulated 21,610 shares of stock and options to purchase 51,222 shares. Emmis pays its directors in shares of stock. This year, for instance, Bayh was given 8,875 shares of stock worth $124,149 as payment for her board work.
During that time, Emmis has bought 16 television stations and sold all but one of them; Smulyan tried to buy the Washington Nationals baseball team with Emmis stock backing; and the board rejected Smulyan’s proposal to take the company private.
Martin said none of this added value for the company’s shareholders – one of the main duties of a corporation’s board.
Martin Capital Management owns 3 million shares of Emmis, about 10 percent of the company’s common stock. Martin personally owns 77,000 shares.
Shares of Emmis are selling for less than $5, a historic low.
Martin told the Securities and Exchange Commission that he conducted a video teleconference with five of the Emmis outside directors, including Bayh, in mid-September. Martin is particularly incensed at the ownership structure, which gives Smulyan control of the company even though he owns a minority of the common stock. Smulyan’s special class of stock counts for 10 votes for every share; common stock owners have one vote per share.
Another large shareholder wants the board to negotiate with Smulyan to take the company private. New York investor Arnhold & S. Bleichroeder, which controls 5 percent of the shares, wrote to Bayh and the other independent director, Peter Lund, on Oct. 25.
“We strongly support the idea of a buy-out, funded in part by asset sales, that delivers a substantial premium to the current trading price,” the firm’s three principals wrote in the letter, which was filed with the SEC.
sylviasmith@jg.net
