Avoidance tactics

30 Dec 2005 By Antony Currie Follow @AntonyMCurrie

By arguing investors must show cause to oust directors, the US bank overturns a decade of public statements and SEC filings to the contrary. It says the filings were mistaken. But the timing of this is suspiciously convenient. Sidhu doesn t want investors to vote on his leadership

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Sovereign Bancorp and its largest shareholder, Relational Investors, have traded lawsuits over the ability of shareholders to vote out directors.

On December 22 Relational called for shareholders to vote out all seven members of Sovereign's board at the next annual general meeting. A simple majority would suffice.

A day later Sovereign launched a countersuit, claiming such an action required, under Pennsylvania law, that Relational show cause to be able to proceed with the vote. Sovereign also stated that language used in previous documents it had filed with the SEC that stated the board could be removed without cause, had been included inadvertently, and in error. Sovereign says the mistake was discovered in the spring, and will be rectified in the next relevant SEC filing.

On December 27 Relational filed a counterclaim, asserting that Sovereign should be bound by such language, having used it in various filings since 1993. Relational also claimed that Pennsylvania law does allow for ousting boards without cause, and that, should Sovereign's suit be upheld, directors should resign anyway because they were improperly elected at the AGM earlier this year.

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