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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Unusual Potlatch stock voting system under fire

Potlatch Corp. shareholders get a subtle reward for buying and holding stock. In corporate-speak, it’s called “time-phased voting” or “super-voting” status.

In practical terms, it means that Potlatch’s long-term shareholders – those who’ve owned their stock four years or more – get four votes per share at the company’s annual meetings. Newcomers get just one vote per share.

Corporate investors hate the system. It dilutes their influence, and they claim it puts a downward pressure on the forest-product company’s stock price.

“It’s anti-democratic,” said David Winters, chairman of Franklin Mutual Advisers LLC, a mutual fund series that holds nearly 10 percent of Potlatch stock. “It’s a very unusual structure. … It serves to entrench the management.”

Franklin Mutual has been lobbying for “one share, one vote.” At Potlatch’s annual meeting in May, shareholders will vote whether to keep the system, or ditch it.

The two-tier voting structure dates from 1985. Potlatch had just rebuffed a hostile takeover attempt by Canadian financiers, the Belzberg family of Vancouver, B.C. In an era of corporate raiders, Potlatch’s board hoped that time-phased voting would deter future hostile takeover efforts.

“There were things going on that made our board very nervous,” said Mike Sullivan, company spokesman.

Since newcomers have fewer votes, the two-tier system makes it harder for an outside firm to gain influence. Shares in employee stock plans also count for four votes.

Spokane-based Potlatch produces commodities – wood, plywood, toilet paper and other tissue products. The company’s stock price fluctuates with the market.

There’s always a fear, Sullivan said, that a hostile takeover could occur at the bottom of a cycle, when Potlatch’s stock price is low. The new owner could sell off the company’s valuable timber holdings and short-change Potlatch’s long-time shareholders, he said.

Potlatch is among a handful of New York Stock Exchange-traded companies that still use time-phased voting. The New York Stock Exchange banned the practice in 1994, and other exchanges followed suit. Companies that already had the voting structure in place were allowed to continue it.

One-share, one-vote is the norm for American public companies, said Franklin Mutual’s Winters.

“Today, there are other ways of protecting shareholders from an unfair bid,” Winters said.

The mutual fund series has owned Potlatch stock for less than four years. Last year, Franklin Mutual authored a non-binding shareholder resolution, asking the company to change the voting structure.

Only 34 percent of the votes came back in favor. But the vote was misleading, according to Winters, whose firm later analyzed the voting results. “If each share received one vote, the resolution would have passed with a clear majority,” he said.

Potlatch shareholders will mull the issue again in May, this time voting on a board-sponsored proposal to eliminate time-phased voting.

If one-share, one-vote prevails, the company will look at other ways to protect long-term shareholders in the event of a takeover, Sullivan said. A shareholder rights plan is one possibility. In the event of a hostile takeover, long-time shareholders could purchase additional stock at discounted prices, Sullivan said.