Argo-Voce talks break down on new board members

Voce Capital canceled a meeting with Argo’s management and board members, scheduled for this week, after the Bermudian (re)insurer added two new members to its board, The Insurance Insider understands. 

Argo Group, facing criticism from Voce Capital over what it calls “shockingly high” corporate expenses, appointed two board members just two weeks after the activist investor disclosed that it held a 5.8 percent stake.  
   
On 19 February, the insurer’s board appointed Samuel Liss and Anthony Latham as directors without naming them to any committee or disclosing the class of directors they belong to, according to a regulatory disclosure.  

The directors are two of five new independent directors the insurer has added in the past two years, according to a statement from the company.    

Adding additional friendly directors is one strategy corporate executives can use to thwart or diminish the influence of activists or other outside voices.  

Voce, founded by chief investment officer J Daniel Plants, said when it revealed its Argo stake 5 February that it might consider “the nomination of director candidates for election to the board”.  

A meeting between the investor and board members was scheduled for this Wednesday, 27 February in New York.  

According to sources close to the situation, Voce took the decision to take its criticisms public and try the matter in the court of public opinion instead of engaging with the board, deciding that management and the board were already positioning to entrench themselves before hearing its case.  

In a lengthy letter to shareholders on Monday, Voce criticised management of the company, centring on corporate expenses such as yachting and racing sponsorships, art purchases, an upscale office in Manhattan’s pricey Meatpacking district, and perks provided to CEO Mark Watson.  

Voce also said it was seeking to nominate four independent directors, but did not identify them.  
   
Responding to Voce’s assertions, Argo’s board of directors stated in a letter on Monday that the investor had failed to engage “constructively” with it after disclosing its investment. The firm also pointed to the fact it had moved to refresh its board with five new board members over the past two years.  

The dispute appears to centre on what counts as “constructive” engagement.  

Sources close to Argo insist Plants met with management twice, including one prior to the publication of the 13-D securities form which outlined the size of their position.  

However, Voce appears to have taken issue with its initial struggles to schedule a management meeting prior to the 13-D, and particularly with the move to expand the board before the matter was put directly to existing board members.  

San Francisco-based Voce Capital, launched in 2011 by Plants, describes itself as a “fundamental value-oriented, research-driven investment adviser.” Before founding Voce, Plants spent two decades in mergers and acquisitions groups at Goldman Sachs and JP Morgan. He was trained as a corporate attorney and began his career as a securities lawyer at Sullivan & Cromwell.  

Voce is the sponsor of a group of institutional long-short equity funds and “selectively uses public activism to enhance its returns,” according to its LinkedIn page.    

It has previously conducted public proxy fights, including at Natus Medical last year.  

Voce’s two nominees were successfully elected to the board which led to the subsequent replacement of the CEO. The firm’s chairman also agreed to step down, thereby remaking a majority of the board.  

The firm spent about a year researching Argo before making its proposals, according to the letter from Voce.  
   
The investment firm, now the fourth-largest Argo shareholder, said Argo’s corporate expenses are “not only shockingly high – they are shockingly inappropriate.”   

Voce said the existing Argo board “has been compromised in part by its excessive tenures”, noting, for example, that chairman Gary Woods has spent 19 years on the board.  

The board also “lacks pluralism” and is “incestuous”, it argued. He called for new directors as part of a campaign to maximise shareholder value.  

In response, Argo’s board of directors issued a response saying it welcomed input from its shareholders, but was disappointed “Voce has decided not to engage us constructively”.   

“Instead, Voce has sent a letter to shareholders that contains a number of misleading and inaccurate statements and personally attacks the company’s CEO, ignoring Argo’s track record of strong value creation for all shareholders,” the statement said 

Both Argo and Voce declined to comment for this article.