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If labor union American Federation of State, County, and Municipal Employees has the same influence on Countrywide Financial Corp. as it had on Home Depot Inc., the mortgage lender’s chief executive, Angelo Mozilo, better watch out — especially if a serious activist hedge fund joins the cause.
AFSCME director Richard Ferlauto launched two consecutive "just vote no" campaigns against Home Depot chief executive Robert Nardelli in 2005 and 2006. The AFSCME campaign’s message was that Nardelli was overcompensated for an undervalued company that had a stagnating stock performance. About 32% of participating investors voted against Nardelli in 2006 and 5% supported AFSCME’s campaign in 2005. But the institutional support for AFSCME prompted Nardelli to shorten Home Depot’s 2006 annual meeting to 30 minutes. Nardelli also took the Q&A part of the meeting off the agenda. Nardelli's shareholder disenfranchisement ultimately led activist hedge fund manager Ralph Whitworth to take an interest in Home Depot. He began pressing for changes, and quietly indicated his plans to consider nominating two directors to the retailer’s board. Feeling the heat first lit by AFSCME and further fanned by Whitworth, Nardelli stepped down. Flash forward to 2007 and Countrywide, the mortgage company at the center of the subprime mortgage crisis. The Calabasas, Calif.-based company on Friday reported a $1.2 billion loss for its third quarter, prompting action on the part of AFSCME’s Ferlauto, who is seeking to oust Mozilo. Ferlauto describes Mozilo as “credibility challenged,” and calls for the mortgage company to find new leadership. “Late payments at its servicing unit are rising, foreclosures doubling, and new loans are falling as housing sales have dropped. A near-term recovery appears unlikely,” Ferlauto writes. “It’s going to take Countrywide more than a quarter to recover from its bad bets on subprime mortgages, as it is the leader in a reeling industry.” Ferlauto is seeking the support of institutional investors to back his “just vote no” campaign to oust Mozilo, but he may still need the support of an activist hedge fund of the same caliber as Whitworth to achieve his goal. “Mozilo’s credibility is sinking fast, and we are reaching out to major investors to help us change the shortsighted leadership at the top,” Ferlauto writes. — Ron Orol See story about AFSCME campaign from The Los Angeles Times Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World. Categories Deal Video
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