The company said in a prepared statement to Dallas Business Journal that its classified board structure was recommended while still a trust by the Conversion Exploration Committee. The committee was made up of trustees and investors, most of whom became board members. “The structure is intended to provide stability and continuity to ensure a smooth transition from a trust structure to a c-corporation, and to enable TPL Corporation to attract and retain highly qualified directors who have a focus on the long-term objectives of the company,” a Texas Pacific spokesperson said in a prepared statement to Business Journal.
Tim Schwartz, whose firm Schwartz Investment Counsel owns an almost-1% stake in Texas Pacific, said he was glad when the trust converted to a corporation. “I think that was a huge positive for the company,” Schwartz said. “But since then, I would say there’s been not as much progress as we would have hoped in terms of the corporate governance. And to us, it feels like the board is not that conducive to additional corporate governance improvements. The actions they’ve taken over the past few weeks, that just solidifies that opinion.”
James Spindler, the University of Texas at Austin Mark L. Hart, Jr. Endowed Chair in Corporate and Securities Law and a professor at the McCombs School of Business, said implementing a classified board like Texas Pacific’s can be controversial. Classified boards can entrench directors, protecting them from removal in hostile takeovers or proxy battles — like the one Texas Pacific faced two years ago.
“There’s a general concern among reformers and activist investors, and I think in the larger corporate communities, that classified boards have some negative consequences,” Spindler said. “(They) tend to entrench management. So if you have management that’s making bad decisions, or making self-interested decisions, it’s a lot harder to kick them out.” Harvard Law School professors Alma Cohen and Director of the Program on Corporate Governance Lucian Bebchuk — experts on corporate governance — found through research that there’s a correlation between classified boards and “an economically meaningful reduction in firm value.”
Schwartz Investment Counsel Inc. is the investment adviser to entities that own collectively 35,930 Sub-share Certificates (“Shares”) of Texas Pacific Land Trust (“TPL”). We write this letter:
- To express our support for Mr. Eric L. Oliver’s candidacy for Trustee,
- To urge fellow shareholders to vote for Mr. Oliver, and
- To express our frustration with certain aspects of the General Agents’ and Trustees’ (together “Management”) oversight of TPL.
Mr. Eric L. Oliver is the candidate proposed for Trustee by SoftVest, L.P., which owns over 25% of TPL. We believe Mr. Oliver’s agenda seems reasonable, especially his proposal to convert the TPL trust into a Delaware C corporation. As such, the governance practices of TPL could be updated from a 19th century trust model to a 21st century corporate democracy model under our free-market capitalist system. We believe this corporate structure is utilized by nearly every other New York Stock Exchange listed company. If TPL became a corporation, we shareholders would have a vote in electing every member of the Board of Directors who represent us. Not a radical idea!
- SoftVest is a long-time shareholder in TPL, with a substantial ownership position. Oliver has extensive oil and gas industry experience, including Permian Basin expertise, and can assist Management in its oversight of TPL and in reporting and communicating with current and prospective Shareholders.
- We support Mr. Oliver’s proposal to explore TPL’s conversion to a Delaware corporation subject to modern governance principles.
- Conversion would eliminate the life-tenure of the Trustee position – which we believe is inappropriate for a company of the size and complexity of TPL.
- We support Mr. Oliver’s commitment to provide a higher degree of transparency and more frequent updates to Shareholders.
We have been frustrated with certain aspects of TPL’s management and oversight.
- A history of poor disclosures to Shareholders:
- In our discussions with Management, over the years it was communicated to us that former trustee, Maurice Meyer III, played a major role in the management of TPL, including capital allocation decisions and the execution of share repurchases for TPL. Given that, why was his illness not previously disclosed to shareholders? (Mr. Meyer died on March 24, 2019 at the age of 83.)
- Lack of Meaningful Share ownership by Management:
- Tyler Glover is General Agent and CEO (since 2016) and has been employed by TPL since 2011. In the past 3 years, he earned total cumulative compensation of $3,237,406 (per the recently filed proxy statement). Yet Mr. Glover owns only 100 Shares of TPL, which were recently purchased on 12/4/18 for approximately $60,000.
- Robert Packer is General Agent and CFO (since 2016) and has been employed by TPL since 2011. In the past 3 years, he earned total cumulative compensation of $3,307,219 (per the recently filed proxy statement). Yet Mr. Packer owns only 200 Shares of TPL, with a recent purchase of 100 Shares on 12/4/18 for approximately $60,000.
- The two current trustees only own a combined 1,300 Shares.
- Altogether, Management owns 1,600 Shares. Why does Management have such a small ownership stake in TPL? Don’t they believe in the long-term investment merits of TPL, like we do?
Management’s choice for new trustee is Donald G. Cook.
We acknowledge General Cook’s military credentials and public company board experience. We thank him for his service to our country. But in our opinion, he clearly does not have the requisite oil & gas industry expertise that Mr. Oliver has.
Importantly, due to the Trustees’ life-tenure arrangement currently in place, shareholders may not get another opportunity to voice their opinion regarding the Management of TPL, for another decade or more. Said differently, a vote for General Cook is a vote to possibly never having another chance to vote again.
Schwartz Investment Counsel, Inc. firmly believes that the election of Mr. Eric L. Oliver as TPL’s next trustee, would be in the best interests of all shareholders. Therefore, we strongly urge our fellow shareholders to vote for Mr. Eric L. Oliver as TPL’s new trustee on the WHITE PROXY CARD.
Looks like this is a terminal only article right now so I won’t do my normal block quotation routine.
It is notable that Eric Marshall at Hodges commented in the article about executive comp as being “surprising.” That’s another large holder that isn’t pleased.
Tim Schwartz commented that he is in the corner of HK management and will go with company’s proposed plan at the meeting in May.