The last remaining independent member of the board of directors of Liberty Tax has resigned, protesting three newly appointed executives as “not qualified to hold these positions in a public company”. In his letter of resignation, Longfield wrote in a letter filed with the SEC that the issue of Tone at the Top “has greatly impeded the company in finding a national audit firm to accept an engagement, which is critical to our status as a publicly traded company.”
The problems at the tax services chain followed the firing of Hewitt in September after an investigation found complaints by employees that he could be heard having sex in his office and allegations he favored employees with whom he had romantic relationships.
However, as the only holder of Class B shares, Hewitt has the ability to appoint all board members and is using that power to control the company.
Longfield said a special board meeting on February 19, the board fired CEO Ed Brunot and ended a short-term consulting agreement with former CFO Kathy Donovan, who resigned in November after Hewitt replaced two independent board members with his allies. He noted that at the meeting, Nicole Ossenfort, a Class B board member, was named CEO and she stated in an email that Hewitt would act as an advisor. The other new executives are Shaun York as COO and Ryan Dodson as chief strategy officer. These are the executives who Longfield said were not qualified.
The board also dismissed Skadden Arps, the law firm that investigated Hewitt’s behavior and replaced the firm with the law firm of William Mullen, Hewitt’s personal counsel. KPMG resigned in December because of its concern about the integrity and tone set by the former CEO. The company is facing a suit by a pension fund that holds shares and class action suits.
The lack of independent directors is a big issue as Liberty has already received a proposed delisting warning from NASDAQ as all audit committee members are supposed to be independent. Instead, Hewitt appointed William Minner as chair of the audit and compensation committee. Longfield said the board also terminated a previously approved board process for recruiting highly qualified independent directors at a time several were in the process of personal interviews
Instead, Hewitt plans to submit three candidates for filling Class A vacancies “with the intention of electing all of these new directors as Class A directors at a special shareholders meeting to be held no later than April 16, 2018.”
Moreover, Liberty has yet to file its financial reports for the quarter ended October 31. It has also received a notice of possible delisting of its shares because of that issue.
