Boardroom battles getting personal

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Tony Busseri assumed it would take time and money to mount a proxy battle to reshuffle the board at struggling investment company TriNorth Capital Inc.

He never figured it might cost him his reputation as well.

But that is the dilemma Mr. Busseri, an Oakville, Ont.-based private equity investor, encountered last week when former colleagues advised him that private investigators were asking embarrassing questions about his past. Days later, Mr. Busseri found himself in the crosshairs of what he called a "character assassination" attempt by TriNorth.

The attack came in the form of a published group letter that criticized his management skills at previous jobs, including his stint restructuring Environmental Management Solutions Inc., a onetime proxy battle target now known as Englobe Corp.

"When you're married and have kids, it's disturbing and disappointing when people behave like this," Mr. Busseri said. "It feels like intimidation."

Walied Soliman, TriNorth's lawyer and a proxy battle specialist with Ogilvy Renault LLP, said Mr. Busseri shouldn't be surprised by the counterattack.

"It's a lot more common than you would think" for directors to hire private investigators to dig up information on opponents, Mr. Soliman said. "When you are in these situations, it is important for you to determine who you are up against," he explained.

Until recently, most Canadian directors and their legal counsel didn't have the stomach for undercover investigations and mudslinging - tactics common in U.S. boardroom struggles. But the gloves are coming off here now as companies grapple with a devastating recession, swooning stock prices, and heightened regulatory and shareholder attention on governance practices.

Whether it's a proxy battle or internal feud, corporate opponents and their legal advisers are pushing the boundaries by going to greater lengths to dish the dirt.

Some will say that boards are defending vulnerable companies from opportunists. Others argue that directors are merely pre-empting sharp-elbowed activists who have a history of playing rough. Or maybe directors are acting tough to insulate themselves from lawsuits lobbed by shareholders who are complaining they are too soft on misbehaving executives or raiders.

Regardless of what is motivating boards, one thing is clear: Reputations are coming under unprecedented attacks.

"It blindsided me," Jim Brickman, founder of Brick Brewing Co. Ltd., said in an interview after the company filed a lawsuit last week seeking $1-million for allegedly improper personal expense claims and payroll abuses. Mr. Brickman denies the allegations.

The lawsuit is raising eyebrows in legal circles for a number of reasons. The timing of the claim is the biggest surprise. It comes six months after the company says it pushed the former chairman out in December over a falling-out with new directors and executives.

Carol Hansell, a leading expert on boardroom governance with Davies Phillips & Vineberg LLP, said few Canadian directors were willing until recently to personally attack former or current executives because reputations would permanently be damaged before the case was ever settled or tried in court.

"Reputation is sacred. People work very, very hard to build it up over the years. A lot of this stuff can be quite unfair and used as a tactic," she said.

Mr. Busseri said he anticipates that it will cost close to half a million dollars to hire lawyers and a proxy solicitation service to campaign for new directors at TriNorth. He is "disappointed" that the company is spending money on private investigators when it is struggling to recover.

"What has this got to do with improving shareholder values?" he said.

TriNorth specializes in providing seed money for a variety of companies and is managed by Lawrence Asset Management Inc., a hedge fund founded by Bay Street veteran Jack Lawrence. TriNorth's five-man board includes former Bank of Canada governor John Crow. In the past year, the company's stock price has plunged 90 per cent to pennies a share on the Toronto Stock Exchange.

A spokesman for the company said the board was "acting in the best interests of shareholders" by gathering "factual and carefully sourced" information about Mr. Busseri ahead of the company's June 22 annual meeting, when shareholders will vote on the opposing slates of directors.

"Like any responsible board, the TriNorth board is seeking to ensure that shareholders are provided with complete information ahead of an important vote that will decide the future of the company," the spokesman said.

It's less clear what Brick Brewing or its shareholders will gain by slapping a lawsuit against its founder months after he left the company. The disputed $1-million of expenses and other payroll issues involve a curiously small amount of money to seek from Mr. Brickman, who has been with the company since it was launched as Canada's first craft brewery in Waterloo, Ont., 25 years ago.

By the time Brick's litigators Gavin Smyth and Joe Groia at Groia & Co. are finished billing the company for their work, it's a pretty good bet that there won't be much if anything left after any potential claim or settlement is paid.

"I'm not sure at the end of the day what they're doing for the shareholder," Mr. Brickman said. "It doesn't make much sense. It's just another distraction that this company doesn't need." Neither the lawyers or the spokesman for the company were available to comment.

In a publicly released response to the brewer's lawsuit, Mr. Brickman said: "The company seems to be moving far from its community roots to a world of high-priced lawyers and hardball litigation."

Governance expert Ms. Hansell said it is very rare to see a Canadian board level charges against a founder or executive after they have left the company because it casts a cloud over the company at a time when it should be focused on maximizing shareholder value.

"When a public company has an issue with a previous CEO, what is the benefit to having this stuff sloshed around in public?" Ms. Hansell said.