Laurel Hill Advisory Group

An Interview With Dr. William J. Catacosinos, Chairman Of Laurel Hill Advisory Group, LLC And His Senior Colleagues

THE OPTIMIZER:  You probably don’t know this, but we’ve been watching your career as a businessman for a very long time…But for starters, how did you go from a career in nuclear physics to the proxy advisory business? And can we call you “Dr. C”?

Dr. C: Yes, let me start, if you don’t mind, by telling you a little bit about my background…and then loop back to how it has helped to form the culture here – a culture that is important to know about if you really want to know what The Laurel Hill Advisory Group is all about.

I come from an immigrant family that settled in New York City where my father ran a small grocery store on the edge of Harlem. I started helping out there when I was about six – arriving before the sun came up to wash the cigarette butts out of the deposit bottles, count deliveries to be sure the egg and milk cartons and loaves of bread were all there and stock shelves. A typical New York story: public schools – P.S. 173 – then George Washington High School…then NYU, where I got my bachelors and then a Masters degree. I worked as a reporter for a while to put myself through – great experience. Then the U.S. Navy. Then Officer Candidate School. Navy Discipline was a big formative factor for me. In four months of OCS you had to cram in about four years worth of learning. Then, I worked in a shipyard, building big ships…and soon ended up on a project team at Brookhaven National Laboratory where they were building

the largest nuclear accelerator in the world. We had a team of over 800 PhDs – in everything from basic physics to the life sciences. I had a great boss who enforced the same Navy-type discipline; Get in early, watch every penny, check every detail, work as a team; the gigantic project came in ahead of time and under budget.

One day a colleague showed us an invention he was working on his spare time – a device to monitor the functioning of unborn babies. A few of us started developing it at night and on weekends – scrambling for seed capital and eventually, an IPO – when we launched the first commercially successful fetal-heart monitor. Shortly thereafter, we sold out to American Home Products. At the same time, we started another company, replacing teletype terminals with smart ones. After an attempted bear-hug from a Canadian company, we sold that business too, to our biggest customer, NCR. Meanwhile, I had gone on the board of the Long Island Lighting Co. – where I soon discovered that while it looked OK on paper, LILCO was on the brink of bankruptcy. Drafted as chairman, I had to get the Board’s OK to file for bankruptcy – but I was determined not to do so. We had over a million Mom and Pop investors to think about. We sold a nuclear facility that was 100% complete to New York State. With State help we refinanced our debt, we lowered rates, merged with Brooklyn Union Gas and sold off all our transmission and distribution businesses to New York State.

THE OPTIMIZER: And as I well recall you had a major proxy fight along the way. Is this what jump-started your interest in the proxy solicitation and advisory business?

Dr. C: Not yet…Soon after LILCO an investment banker friend called to ask if I thought it would be possible for a private investor group to take over a public utility. I was intrigued. A senior banker I knew bought into the idea, and sold his big New York City bank on it; We bought Texas-New Mexico Power, fixed it up, and a few years later sold it to Public Service of New Mexico. But after that, I did get interested in the proxy solicitation and proxy advisory business: My son Bill was working for the legendary Artie Long, of the old DF King – and Artie and I had worked closely together too over many years, and were good friends. We’d seen it all: bear hugs, underpriced takeover proposals, proxy fights, corporate restructurings, unhappy shareholders; the works.

I’d been the CEO of four NYSE listed companies – and I have to add that at every one, any investor who stuck with us made money. There were a lot of common threads here in terms of succeeding: Discipline, determination, getting to work early, digging into and sticking tightly to the business details, teamwork, toughness when times were tough, a deep network of smart and trustworthy friends and associates that one could really rely on, a culture of service excellence…and of always trying to put shareholders first.

So this brings us back to where we start at Laurel Hill. We have built a company with a very strong culture. It is based on integrity…and it comes with a keen focus on business discipline…and on really understanding the needs of clients…and, most important, of putting the needs of clients – and of their investors – first and foremost.” Let me turn the discussion over now to the president of Laurel Hill Securities, our broker dealer, John O’Grady.

THE OPTIMIZER:  John, tell us a bit about your background.

O’Grady: I go back in this business about 14 years. I started Georgeson Securities back then and I led the M&A Advisory Team. I also specialized in reorganizing companies and in pre and post-bankruptcy activities. Right now, Laurel Hill Securities is ready to go live in all 50 states and the U.S. territories. This lets us cover Blue Sky Laws as a sponsoring broker/dealer and Information Agent in smallish tender offers where companies can achieve a very quick and a very good Return On Investment – without the need to hire an investment banker.

THE OPTIMIZER: We have been predicting that there will be a lot of quick and “smallish deals” going down in this economic environment. Any tips for readers here?

O’Grady: Lawyers, please don’t take this the wrong way, but attorneys should never speak to ordinary shareholders. This is an art – and a science – all in itself. And for an awful lot of deals, both big and small, retail investors – and retail brokers too – can provide the winning edge. The same thought holds true for drafting the fight-letters, and for mapping out the campaign down to the smallest, practical details…like targeting and making the calls. Our top goal here is to time the calls as precisely as possible to the arrival of the written materials, so shareholders will have a decent idea of why you’re calling…and why it might be worth their while to listen.

Let me add something else, on proxy fights: We expect to see plenty of them going forward, including a lot of crossborder deals. They don’t call them fights for nothing. In just the past few months we were involved in two very high profile fights in Canada. At Augen Capital, where we represented the dissidents, the judge of election essentially threw out all our client’s votes. We said, “We need to go to court” – and at the end of the day, our client prevailed and installed his entire slate. The judge, who ruled that withholding a vote is not the same as casting a vote, specifically cited the expert testimony of our SVP, Penny Rice of Laurel Hill Canada in his ruling. At Live Current Media – incorporated in Nevada, but headquartered in Canada – and where insiders held 23% of the shares – and where ISS had recommended the management nominees – our client replaced the entire slate of incumbents…And with a 35% margin of victory.

THE OPTIMIzER: Let me turn to you Francis, to get your take on all this. Maybe you should start by outlining your background, which is a rather unique one, I think.

Byrd: As you know, I spent 10 years with the New York City Pension System, working on proxy issues and other corporate governance matters. This was during the very beginnings of the governance movement, and NYCERS was very much in the forefront. Then I moved to another spot altogether at the oddly-shaped “governance conference table” when I went to Moody’s. There, the main focus was on credit risk: a totally different perspective, for sure. We spoke with over 1000 companies, and published over 500 research papers. And this gave me the chance to speak with numerous CFOs – and lead-directors – and audit committee chairmen – and do some real deepdives on risk assessment and risk management practices.

Dr. C: Francis can’t say this, but I can: He knows everybody who is anybody on the corporate governance scene. He knows who to call. And they will take his call. They may not always end up agreeing with him, but that’s OK too: They will have a good and meaningful dialogue, and they know that Francis will listen – and be a fair-dealer.

THE OPTIMIZER: These are two of my favorite points about calling people: First, if you DO call, investors want you to listen, rather than talk. And second, no one will ever tell you that they are not really the decision maker. You have to find that out for yourself…otherwise you waste an awful lot of time and money. Do you put yourselves out there as people who can initiate meaningful discussions with investors, some of whom may have serious issues or gripes? And do you do a pre-assessment of a client’s own strengths and weaknesses before engaging in such discussions?

Byrd: You’re right; no one ever says “it’s not my job” – unless they know you really well, or figure you’ll find out some other way. A good contact will always direct you to the right place. And yes, we can and do want to serve both as “sounding boards” and as “fair dealers” to get candid comments from and initiate candid discussions with investors. And yes, we need and want to do our own homework first and not to be surprised if people we call bring up what they think may be serious governance shortcomings.

And yes, we can bring a lot of value to CEOs – and to Lead Directors – and to Audit Committee and Risk Management Committee Chairmen, just by doing a high-level strategic assessment. Say we ask each of them to list the top-five strategic priorities; or maybe the five things that worry them the most…or the top-five strategic risks…or the top-five governance priorities. If we get widely divergent answers here, clearly, there are some problems that need addressing before we start “reaching out” to investors.

This kind of assessment does not have to be a “big deal” – nor should it be seen as one, ordinarily. We can do these kinds of assessments one-on-one, in person – or often, on the phone. But I think you’ve put your finger on something that is very important: CEOs and Directors – and activist investors too, for that matter – will really open up only to people they perceive as having the right background and the right kind of shared experiences – and shared goals – to make the discussion worth their time and effort. Here’s where our team really stands out from the pack.

THE OPTIMIZER: Fair disclosure before we ask Sam Berrios a few questions; The Optimizers’s editor first met Sam in a class he taught as a last minute “sub” when Sam was brand new to the industry. So Sam, what have you learned in all the years since then?

Berrios: Like Dr. Catacosinos, I still think that retail investors are very, very important to most public companies. As John said earlier, very often they are the “edge” that provides the margin of victory a company needs. And not just in a close proxy vote: many times a company’s retail investors are customers, or employees, or key suppliers… or maybe just friends and relatives of such people. But they are much more inclined to listen to management, and to vote their way.

On the flip side, way too many retail investors have too small a stake to really pay their way, so I am a great believer in programs that help people to either increase their stake, or cash out. On another important front, a lot of retail investors turn into “lost shareholders” if no one pays attention to them. So we are great believers in “asset reunification programs” – and we know how to make them work well for everyone.

THE OPTIMIZER: Let me ask very candidly about one last subject; your team: As you know, we reported recently on all the “talent” that took the elevator down one day, and rode another elevator up the next day. But first, who was responsible for the great ad you ran – which, we opined back then, was one of the best ads, and one of the best crisis-management pieces we’ve ever seen.

Dr. C: My son, Jamie, came up with the ad, I’m proud to say. After that elevator incident, he stayed up all night, tossing and turning, as I did too. The ad really does convey the kind of culture we’re so proud to have here…And I think it also illustrates a very important trait an organization has to have to succeed in this business over the long term: Resilience. You really do have to be something of a “prize fighter” to do well in this business. And you have to know that you won’t win every match. But you have to get up off the mat, stand up for what you do, and for what you believe in and fight again the next day with everything you have. That sums up our culture – and our team.