A court battle pitting the two brothers behind Dye & Durham Ltd. DND-T against one another has exposed broad discontent among institutional shareholders toward the real estate software company dating to well before activists launched campaigns against it this year.
Their discontent boiled over last fall as several investors, including ex-chairman Tyler Proud, successfully pushed to replace two directors. There was also a concerted effort by Mr. Proud and other investors to withhold support for then-chairman Brian Derksen at last December’s annual meeting after he refused a demand by several of them to resign.
Those who didn’t vote for him included EdgePoint Wealth Management, Mawer Investment Management, the asset management arms of Bank of Montreal and Canadian Imperial Bank of Commerce, and PenderFund Capital Management.
Mr. Derksen, who had already said he would step down after the annual meeting, was re-elected with 68-per-cent support. He quit as chair in May and said he won’t run again.
The revelations are contained in court filings related to a dispute between Tyler Proud and the Toronto company led by brother Matthew Proud. Ontario Superior Court Justice Peter Osborne is hearing the case Wednesday.
At issue is an attempt by Tyler to replace his nominee to the board, Edward Prittie, a director since the July, 2020, initial public offering, with hedge fund manager Eric Shahinian at a coming shareholder meeting called at the behest of activist Engine Capital LP. Under an investor rights agreement, each of the brothers’ holding companies is entitled to nominate a director at shareholder meetings as long as they own 5 per cent of the stock. Tyler’s OneMove Capital has an 8.4-per-cent stake but lacks the unilateral right to remove its nominee from the board.
At the meeting prompted by Engine, shareholders are to vote on whether to remove three directors – Mr. Derksen, chair Colleen Moorehead and Leslie O’Donoghue – and replace them with Engine nominees. It was postponed from its original Aug. 20 date because of the litigation. Ms. O’Donoghue resigned last month. Another activist, Blacksheep Fund Management, is also putting forth a nominee.
D&D has agreed to put forward Mr. Shahinian’s name but refused to include a proposal by OneMove to vote Mr. Prittie off, calling it invalid and related to a personal grievance because he refused Tyler’s requests to resign. OneMove says D&D is attempting to disenfranchise it and that it has acted responsibly.
If OneMove persuades the judge to allow voting on Mr. Prittie’s removal, it could result in four dissident-backed outsiders joining the board, upending the power balance. If the court rules for D&D, it would leave five dissident-backed nominees contesting three spots, leaving four incumbents – assuming D&D appoints a friendly replacement for Ms. O’Donoghue beforehand.
D&D claims that Tyler, who ceased to be a director before the IPO over concerns about his independence, had been “a combative and disruptive force” affecting the board’s ability to function. Mr. Derksen said in an affidavit Tyler “excessively challenged Matthew’s and management’s positions/decisions in an unproductive manner” and that he lacked board experience. D&D has alleged Tyler sought to subsequently improperly control the company and accused him of working in co-ordination with other dissidents. Tyler has denied those allegations.
Tyler Proud said in an affidavit he pushed D&D to no avail for more than a year to improve its performance and strategy, slow its acquisition pace, cut debt and improve the board’s management oversight.
Investor discontent has dogged D&D since the board agreed to a huge equity award for Matthew after an end to talks of a management buyout. While investors approved the pay package in December, 2021, compensation committee members David MacDonald and Mario Di Pietro drew far fewer votes in their re-election to the board than other directors. Shareholders voted down an options grant to directors.
Court filings reveal that big shareholders shared a litany of misgivings with Mr. Derksen in fall of 2022. A “shareholder engagement” deck summarized his meetings with Mawer, Manulife, Invesco, Fidelity, CIBC, CI Global Management Capital Group and OneMove, finding “virtually all” said the 2021 CEO pay package was “excessive” and not aligned with shareholder interests.
“Virtually” all criticized the lack of diversity on what was then an all-male board (Ms. O’Donoghue was added later that year). “Many or most” said there were trust issues regarding D&D over perceptions of weak governance, senior management self-interest, limited communications and transparency and access to the CEO. Many or most raised issues about customer communications, executive turnover and employee discontent.
Mr. Derksen had already shared concerns in an August, 2022, text to Tyler filed with the court. He wrote governance “continues to be a struggle” with too many inexperienced and unengaged directors and no women. He said neither of the brothers’ nominees “have appropriate public board experience or level of engagement.” The board made some fixes but Mr. Derksen later called them “small steps.”
Investor meetings in October, 2023, surfaced “broad” concern about D&D’s debt and acquisitions, another deck prepared by Mr. Derksen shows. Long-term investors were “confounded, looking for clear direction and consistent action” and unclear about its value-creation plan. New investors were “scared and staying away” because of debt and “credibility issues,” he said.
The board’s search for a new chair failed. Meanwhile, Tyler and Mawer told the board last October they wouldn’t support Mr. Di Pietro or Mr. MacDonald at the next AGM, prompting both to withdraw, Mr. Derksen’s affidavit said. Instead, candidates named by Mawer and EdgePoint (Ms. Moorehead and Peter Brimm) were nominated and elected. At a board committee meeting last November with Mawer, EdgePoint, PenderFund and Tyler, Mr. Derksen was urged by the group to resign. When he didn’t, they and others withheld votes for him at the AGM.
D&D has created a lot of drama since its IPO. Its penchant for buying legal software companies with dominant competitive positions then sharply hiking prices has angered clients. An attempted multibillion-dollar takeover of an Australian company failed. Britain’s competition regulator forced it to divest a purchase. D&D has taken steps to ease its heavy debt load and cut costs. But its stock has languished.