Legg Mason Inc. shareholders approved a proposal yesterday to split the positions of chairman and chief executive officer, both of which are held by longtime chief Raymond A. "Chip" Mason, though the change is not likely to be implemented as Mason and other company officials say it's not necessary.
The dual role of chairman and chief executive officer, while common in corporate America, has drawn criticism from shareholders and corporate governance watchdogs who contend that separating the jobs would ensure better oversight and help guard against conflicts of interest.
More than 40 shareholder proposals on the matter have been put to a vote at companies this year.
The Legg Mason board opposed the nonbinding proposal, and Mason said the company answered shareholder concerns by beefing up the role of its lead independent director before the vote.
The chief executive also noted that he is the only company insider on the 13-member board, which is composed of executives of other companies, investment professionals and academics.
"We already have 12 of 13 directors who are independent," Mason said after the annual meeting at the Center Club at the top of the firm's Inner Harbor headquarters in Baltimore. "This just isn't necessary."
The proposal, which called for rewriting Legg Mason's bylaws to require that the chairman be an independent director, won a slight majority of votes. About 48 million shares were cast in favor versus 44 million against it.
Independent-chairman proposals have drawn 25 percent of the vote on average so far this year, according to Institutional Shareholder Services, a proxy advisory service in Rockville.
Shareholders approved such a proposal at CVS/Caremark Corp., where the roles are split but where the current chairman, Edwin M. Crawford, isn't an independent director because he previously served as chief executive.
The proposal failed at Home Depot Inc., where Frank Blake took on both titles in January.
ISS recommended support for the shareholder proposal at Legg Mason, as did adviser Glass Lewis & Co. But Legg Mason officials suggested that ISS, for one, might have sided with the board if it had expanded the role of its lead independent director earlier.
The board made several changes called for by ISS, including giving the lead director the authority to call a meeting without Mason. An ISS official couldn't be reached to comment.
Shareholders at Legg Mason, one of the world's largest money managers, also elected five board members at the meeting and approved a company proposal to increase the stock available under a compensation plan by 5 million shares.
Then Mason gave an overview of the company's performance, noting that annual profit has increased to nearly $650 million from $57 million a decade ago. Legg Mason shares have risen 6 percent this year, to $100.35 yesterday.
Mason had planned to reduce his responsibilities at the company when his heir apparent, James W. Hirschmann, was named president last year. But Hirschmann gave up the post this year, electing to stay in California with his family as head of a Legg Mason subsidiary. The board has begun a new search for a successor.
Mason, who is 70 years old, looked tan yesterday and said he frequently spends weekends at Rehoboth Beach, Del. Still, he said his goal is to "not be the last car out of the parking lot at night."
"Someday that will happen," he added.
While Mason is expected to retire as CEO in the next few years, he may continue as chairman.
The company hinted that might be the plan by arguing in the proxy statement that the independent-director proposal would unduly tie the board's hands by prohibiting the consideration of a former member of management for the chairman post.
The International Brotherhood of Electrical Workers' pension fund submitted the shareholder proposal.
The union noted that Enron Corp., WorldCom Inc. and Tyco International each had a majority of independent directors on their boards when scandals broke. The union pointed to a recent academic study that found that CEOs and their staffs are more likely to be overpaid at companies where the CEO is also the chairman.
"It's the responsibility of the board to provide independent oversight of the company, including the CEO," said Greg Kinczewski, a consultant to the union who spoke at Legg Mason's annual meeting.
"In all honesty, with the chairman and CEO being the same person, there's got to be some dilution of that oversight, and that's not a good idea."
Glass Lewis, in its advisory report, quoted from another study that found that companies with a combined CEO-chairman position are less likely to see a change in CEO when stock returns decline.
A third adviser, Proxy Governance Inc., recommended that Legg Mason shareholders vote against the proposal.
"A separate, independent chairman may be warranted in specific circumstances where there is evidence of an overly dominant CEO and a need for stronger board oversight," the group said in its report. There was no evidence of that with Mason or the board, it said.
laura.smitherman@baltsun.com