Southwest . . . has not presented a compelling argument that former trust officer [Lee Ann] Anderson [who left Compass Bank to join Southwest] possesses unique expertise that would result in superior management of these assets, or unearthed documented evidence of unitholder dissatisfaction since her departure. In addition, there is no indication that Compass currently lacks the knowledge or resources to properly handle this account . Lastly, the potential benefits of a changeover in trustee appear mostly hypothetical at this point, particularly as Southwest has made no firm commitment to materialize a reduction in G&A expenses if it is appointed trustee .As Southwest has failed to demonstrate tangible evidence of mismanagement by [Compass Bank], or that the potential benefits to unitholders of replacing Compass outweigh any risks associated with such a move, a vote against [Southwest's] request is warranted. In support of its recommendation, ISS reached the following conclusions:
- Southwest's Purported Cost Savings: "Although Southwest claims [cost savings], it has not itemized these costs nor has it made any commitment to materialize such reduction in [general and administrative (G&A) expenses] if it is appointed trustee. . . . During its special meeting solicitation period, Southwest acknowledged that there would be no material changes in terms of fee structure for unitholders in the event of a change, and did not identify any potential cost savings. Since then, however, it has cited an ambitious estimate of annual G&A reduction of $200,000 to $300,000. This seemingly inconsistent narrative in terms of cost savings provides unitholders little certainty in regards to any tangible, material improvement as a result of a change in trustee ."
- Trust Expenses: "[Recent increases in the Trust's G&A expenses] were primarily attributable to increased audit and legal costs related to the Burlington litigation. The most recent Q3 results indicate that, excluding the expenses of $88,000 incurred by the Trust in responding to Southwest's proxy campaign, G&A expenses amounted to $411,462, generally consistent with G&A expenses of $401,966 in Q3 2015, when Anderson was still the trust officer."
- Conflicts of Interest: " It is worth noting that in the 10 years that Compass Bank has served as trustee, no conflicts have been reported . More tellingly for unitholders, the fact that Compass actually initiated litigation against the operator provides evidence that the current trustee is not restricted by conflicts of interest. In fact, from a continuity risk perspective, the removal of the current trustee - a licensed attorney who has overseen the ongoing litigation over the past year - seems at this point to present more downside potential than the installment of a regional bank for the purpose of preemptively mitigating a potential risk of conflict of interest."
- Compass Bank's Ability to Manage Ongoing Litigation: "Despite Southwest's argument that Anderson was deeply involved in the Trust's litigation given her historical knowledge of the Trust, there appears to be no compelling evidence that the current [Compass Bank] trust officer is not adequately qualified to fulfill these functions . In fact, one of the audit exceptions approved by the current trust officer resulted in a net credit adjustment to the Trust of about $760,000 in October 2016."
- "Independent" Analyst: Noting that although Southwest may have obtained the "public endorsement of an apparently knowledgeable sector analyst," ISS concludes that "given Southwest's significant focus on the potential conflicts of interest at Compass as a key justification for its campaign, the bank seems blithely dismissive of any potential conflicts inherent in the fact that the analyst in question has been directly compensated by Southwest itself in recent years . Though this detail might not undermine the credibility of the analyst, it does little to bolster one of Southwest's primary arguments."