Royal Caribbean drama: It’s Chairman against large shareholder

Royal Caribbean Ltd.’s largest investor is challenging Chairman and Chief Executive Officer Richard Fain by supporting a plan that could lead to a board shakeup at the second-largest cruise operator.

Investors vote today on a non-binding shareholder proposal calling for the elimination of staggered directors’ terms at Miami-based Royal Caribbean. The company opposes the plan, which would have each board member come up for an annual vote. The measure is supported by Oslo-based A. Wilhelmsen AS, owner of a 19 percent stake, whose chairman, Arne Alexander Wilhelmsen, is a Royal Caribbean director.

Backing from A. Wilhelmsen may be enough to pass the measure, after a similar initiative in 2009 was endorsed by 29 percent of shares voted. A. Wilhelmsen didn’t support the plan four years ago, said a person close to the company. Both Institutional Shareholder Services and Glass Lewis & Co. have recommended in favor of the activist proposal.

“When the largest shareholder wants it, I think that’s a big signal,” said D. Daniel Sokol, who teaches corporate law at the University of Florida in Gainesville. “They’re responding to a larger trend for what constitutes good corporate governance.”

Passage could herald changes at Royal Caribbean, including separation of the chairman and CEO roles as well as turnover at the board, said investor Robert Kurte, who with his father sponsored both proposals.

‘Growing Trend’

“That’s a good, positive sign that there’s some hope for change,” Kurte, a 42-year-old consultant in Weston, Florida, said of Wilhelmsen’s decision. “It’s time for some of these longstanding directors to give up their posts.”

Until 2011 A. Wilhelmsen, which owns shipping and real estate interests, was part of an agreement to vote its shares with the next-largest investor, Cruise Associates, comprised of members of Chicago’s Pritzker family and Israel’s Ofer clan. Together, the three own about 36 percent of Royal Caribbean, data compiled by Bloomberg show.

Staggered boards are a hurdle to activist investors because they require a multi-year effort to make changes. Directors at the company currently serve three-year terms, with no more than four standing for election at a time.

“Royal Caribbean shareholders would be better served by a board whose members are elected annually,” A. Wilhelmsen said in a statement last week.

Thomas Pritzker, 62, a Royal Caribbean board member who is up for re-election, didn’t return a call seeking comment. He is chairman of Hyatt Hotels Corp. Royal Caribbean director Eyal Ofer, a 62-year-old shipping and real-estate magnate worth $6.1 billion according to the Bloomberg Billionaires Index, declined to comment, according to a representative.

Experienced Board

Royal Caribbean fell 2.4 percent to $36.89 yesterday in New York, after larger rival Carnival Corp. cut its forecast for the rest of the year. Royal Caribbean has advanced 8.5 percent this year, lagging behind the 17 percent rise in the Russell 1000 Index.

While board structure isn’t a major concern at Royal Caribbean, the proposal is “part of the move to improve transparency and shareholder returns” at all companies, according to Joshua Herrity, an analyst at Telsey Advisory Group in New York. He said the management is viewed as stable.

The cruise operator’s incorporation articles prevent third parties other than A. Wilhelmsen and Cruise Associates from buying more than 4.9 percent of its stock without board consent, according to its annual report.

Today’s meeting will be held at 9 a.m. local time in Miami. In Royal Caribbean’s proxy statement opposing the proposal, the company cited the “increased continuity, depth of knowledge and focus on the long-term” of the present board.

The shareholder plan isn’t unique to Royal Caribbean, Cynthia Martinez, a company spokeswoman, said in an e-mail. She said the proxy outlines the company’s position.

Management Moat

The Kurtes pointed to studies showing an association between companies with staggered boards and lower valuations, smaller gains from buyouts, and less linkage between pay to performance.

“A staggered board can entrench management and effectively preclude most takeover bids or proxy contests,” Institutional Shareholder Services said in its report. “All directors should be accountable on an annual basis.”

Some Royal Caribbean directors have served for 20 years or more, said Kurte, who with his father, Harold, owns 1,000 shares.

“They’re overall a well-managed company, but there are certain oversight questions that the board needs to address,” Kurte said.

<strong>With assistance from Marie Mawad in Paris. Editors: Anthony Palazzo, Rob Golum. To contact the reporter on this story: Christopher Palmeri in Los Angeles at [email protected]./em>

To contact the editor responsible for this story: Anthony Palazzo at [email protected]