Tegna Investor Hits Back at Glass Lewis Report Amid Proxy Fight

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(Bloomberg) -- The boardroom battle at Tegna Inc. is once again breaking new ground with its biggest investor pushing for change at the broadcaster using a new set of rules to criticize the findings of a prominent shareholder advisory firm.

Glass Lewis & Co. recommended last week investors support management’s slate of directors. Standard General LP, which owns a 12% stake in Tegna and has been seeking four seats on its board, has taken issue with several findings in the Glass Lewis report, according to people familiar with the matter.

Its primary accusations contained in a letter filed with Glass Lewis Saturday is that the advisory firm relied on unsubstantiated or non-public information to inform its decision to support the election of all 12 of management’s nominees for the board, the people said, asking to not to be identified because the matter is private.

It also argued, among its many concerns about the report, that the advisory firm seemingly adopted two new policies that suggest shareholders do not make good board members when it stated that it was “increasingly reluctant” to recommend direct representatives of dissident shareholders unless the case “clearly calls for it.” Glass Lewis made the assertion while explaining why it recommended Standard General’s Founding Partner Soo Kim not be elected.

Standard General argued the second new policy is that long-serving directors at underperforming companies should be protected from change because they’ve taken on leadership roles on the board, the people said.

Representatives for Standard General and Tegna declined to comment, while Glass Lewis didn’t immediately respond to a query.

The letter is believed to be the first time Glass Lewis’ recently implemented changes to how it handles feedback from parties in contested situations has been used. The new program, which Glass Lewis launched earlier this month, allows for either side in a proxy fight to submit their concerns about the advisory firm’s report within seven days. Glass Lewis has said it will then send the unedited feedback to its clients.

The changes come as proxy advisory firms, like Glass Lewis and its larger rival Institutional Shareholder Services Inc., have come under increased scrutiny by lawmakers after complaints the current system hasn’t been fair to companies given the substantial sway the advisory firms have on shareholder vote outcomes.

Glass Lewis and ISS provide advice to their clients on how to vote on shareholder matters. While their opinions are not sacrosanct, their views do have a significant influence on the outcome of shareholders votes. This means that both sides in a proxy fight, like the one currently underway at Tegna, spend significant resources trying to convince the advisory firms of the merits of their case.

The changes implemented at Glass Lewis earlier this month are meant to give the subjects of its reports the final say on shareholder matters, the firm said in an April 2 statement. While several companies have already taken advantage of the new system in non-contested situations, including Johnson & Johnson, Kirby Corp., and James River Group Holdings Inc., Standard General is believed to be the first to use it in a fight for board seats.

It’s just the latest first in the Tegna fight, which is also poised to be the first contested situation to be resolved in a virtual meeting slated for April 30.

Glass Lewis sided with Tegna in its report issued Wednesday, arguing it had found that Standard General made “several unverifiable and flatly false” statements in its argument for change. It also argued that the investor had failed to offer any alternative course for the company to create value other than a sale. At the same time, it said Tegna had made a convincing case that it’s delivered a performance in line or better than its peers since becoming a pure-play broadcaster two years ago, and that shareholders had reason to have confidence in its current plans.

Tegna welcomed the report, saying in a statement that it is “a clear recognition of the strength and performance of our existing board.”

The decision was a blow for Standard General. The investment firm had argued the broadcaster’s current leadership has made missteps, including failing to find a buyer. Talks with at least four potential bidders, including private equity giant Apollo Global Management Inc., fell apart last month.

Its argument convinced ISS to support one of its nominees for the board earlier this month.

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