May 26, 2011
Today, the CtW Investment Group sent the following letter to the board of the Alpha Natural Resources (NYSE: ANR) board calling for urgent action – including the rescinding of employment agreements with Massey Energy (NYSE: MEE) executives - in response to the findings of the
Governor's Independent Investigation Panel on the causes of the Upper Big Branch mining disaster.
May 26, 2011
, Chairman,Board of DirectorsAlpha Natural Resources, Inc.
One Alpha Place
P.O. Box 2345
Dear Mr. Quillen:
In light of this week's scathing report regarding Massey Energy's Upper Big Branch (UBB) operations by the
Governor's Independent Investigation Panel (GIIP) -- and in advance of next week's shareholder meeting -- the CtW Investment Group, on behalf of shareholders of Alpha Natural Resources and Massey Energy, calls for the board to sever employment agreements with key Massey executives and managers and take immediate steps to fortify the independent oversight of safety, including appointing additional independent directors. Failure to take swift action could undercut the future of the combined entity to both sets of shareholders -- exposing the company to the same tragic lapses of safety, heightening the integration risks, and eroding any potential synergies. Ignoring the report's findings could also undermine one of the key benefits of the merger -- resetting Massey's acrimonious and increasingly burdensome relationship with its regulators -- and instead potentially taint Alpha with the worst elements of Massey.
The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a coalition of unions representing five million members, to enhance long-term shareholder returns through active ownership. Members of CtW affiliates participate in Taft-Hartley plans with over
in assets, including shares of both Massey and Alpha.
CtW Investment Group wrote to the Massey board prior to the UBB catastrophe arguing that board failure to exercise sufficient oversight over former CEO
exposes "Massey and its shareholders to unnecessary legal, regulatory and reputational risks." Subsequent to the accident, we worked with a coalition of institutional investors in a campaign against directors serving on Massey's safety committee. They were opposed by 48.5 to 49.8 percent of the shares voted at Massey's 2010 annual meeting. We believe this investor coalition ultimately caused the board to break with executives and led to the retirement of Blankenship.
As detailed in the enclosed analysis, which draws three key recommendations for minimizing integration risk, the GIIP describes a manner of "profoundly reckless" operating at the UBB mine, the "normalization of deviance," and a "corporate mentality that placed the drive to produce above worker 'safety."(1) For Massey shareholders the concern is that the failure to purge the combined company of this toxic culture could lead to future exposures, whilst at the same time rewarding executives for failure. For Alpha investors, we worry that integration and cultural issues may have been underappreciated during the diligence process, which demands heightened board vigilance going forward. The key lesson of the Massey tragedy, applicable to both shareholders, is the importance of independent oversight.