WASHINGTON - The International Brotherhood of Teamsters is considering its legal options with regard to Consolidated Freightways Inc.
In a report on the Big Three trucking companies - of which Consolidated is one - the Teamsters allege two incidences of insider trading by current and former company executives.
The report also attacks executive pay plans at the companies, and outlines the union pension funds' and employee shareholders' 1994 proxy strategy at Consolidated and the other companies - Yellow Corp. and Roadway Services Inc.
A spokesman for Consolidated, Palo Alto, Calif., called the report an attempt to discredit the trucking companies just as the industry's collective bargaining negotiations are beginning. He said the the trading in question was by insiders and as such was disclosed to the Securities and Exchange Commission, but it was not illegal.
The report alleges insider trading several years ago by Lary Scott, the former chief executive officer of Consolidated and, more recently, by Raymond O'Brien, the company's current chairman of the board. In addition, the report said the company secretly diverted profits from its Emery Worldwide air freight unit to a bonus plan for Emery's non-contract employees. Union officials say they told the SEC that Consolidated violated securities laws by failing to disclose the diversion until at least eight weeks after the plan was adopted.
The report contends that instead of allegedly diverting most of 1993's profits to employees, the money should have gone to shareholders, who have seen the stock price of Consolidated Freightways nosedive as a result of losses incurred by Emery in recent years. The stock closed at $23.75 at presstime. In 1990, the stock was trading in the $37 range, union officials say.
Under Consolidated's 1993 incentive compensation plan, the first $11.3 million of profits and 50 cents of each dollar above that level would go into a pool to reward all of Emery's 7,000 non-contract employees. Teamsters, as contract employees, would be excluded.
Because the company did not publicly disclose the plan's existence until May 13, several weeks after its adoption, the stock market "punished Consolidated Freightways severely," with the stock declining nearly 20% to the $13 range and not recovering until late August when Emery posted better than expected results, the Teamsters report said.
"We're looking at a shareholder derivative suit. Our beef is why (the board) didn't pursue this. It's the fiduciary responsibility of the board to police this stuff," said Bartlett Naylor, corporate affairs officer of the union and an author of the Teamsters' report.
James Allen, vice president-public relations and advertising of Consolidated Freightways, said: "Starting Dec. 21, we opened negotiations for a national master freight agreement, an industrywide collective bargaining agreement in the trucking industry . |.|. This is a labor tactic to discredit the employers," he said.
The allegations about Mr. Scott were the subject of a 1990 lawsuit by Consolidated Freightways against its former CEO. The case was subsequently dismissed in state court.
In its allegations about Mr. O'Brien, the report said he sold the stock between Feb. 3 and Feb. 7, 1989, at $36.75 a share, a few days before Consolidated publicly announced a tender offer for Emery. According to the report, Mr. O'Brien wrote to the company's board on Feb. 12 saying: "We expect CF's stock to take a hit in the short term."
In the year after the Emery takeover, the stock fell to less than $15 a share, the report said. Teamsters employee shareholders bought the stock as part of a payroll deduction plan at $35.75 on Feb. 8.
Meanwhile, for the 1994 proxy season, Teamsters members filed two pay-related shareholder proposals at one or more of the Big Three. One asked the board to submit for annual shareholder approval a company's compensation performance goals. The other would link executive pay to a company's investment in employee skills through, for instance, training and development.
The union also introduced proposals on corporate governance issues such as eliminating staggered boards and adopting confidential voting.
"Although the SEC gave shareholders the right to submit resolutions on compensation issues in 1992, most institutional investors have chosen not to do so. (Most don't even support pay proposals as a rule). But a few labor unions have seen an opportunity to exploit the pay issue," said a commentary by the Investor Responsibility Research Center, Washington.
The union plans to use the SEC's new proxy rules to solicit support for its proposals, and plans to organize employee shareholder committees at the three companies, the IRRC commentary said.
The union also is pushing for legislative and regulatory curbs on what it considers excessive pay. The Teamsters report cited a bill introduced by Rep. Martin Sabo, D-Minn., that would restrict executive pay to 25 times that of the company's lowest salaried employee.
Under the new tax rules, pay-for-performance criteria of executive compensation plans must be approved by shareholders if a company wants compensation exceeding $1 million to be tax-deductible. Not all companies will seek the deduction; others might seek a single approval that would be effective for several years.
Mr. Naylor said the Teamsters proposal would limit the amount to $3 million to $4 million.
As for the shareholder proposals at the other companies, Barbara Hasentab, a spokeswoman for Roadway, said "our legal counsel is looking into whether (the resolutions) qualify for inclusion" on the proxy statement. She questioned the Teamsters report's assertion that Daniel Sullivan, Roadway vice president, was paid $504 an hour in 1992.
