CoolBrands to overhaul board after criticisms

Nearly half of the company's board will continue to be made up of inside directors, including Mr. Smith, Mr. Stein, co-chairman Michael Serruya, executive vice-president and secretary Aaron Serruya, and vice-chairman and chief operating officer David Smith. "That's still a bit unusual …" Mr. McIlveen said yesterday. "You don't need that many executives on the board in my view. However, give them some space…

The Globe and Mail
December 1, 2004

CoolBrands to overhaul board after criticisms
May also axe dual-class share structure
Keith McArthur

CoolBrands International Inc. — which has been widely criticized for its corporate governance practices — announced yesterday that it will add five independent directors to its board and remove insiders from its audit committee.

The Markham, Ont.-based manufacturer of frozen desserts said it may take further steps to improve governance after a review by its independent directors — possibly even doing away with its dual-class share structure.

"Everything's on the table. We're going to have a thoughtful process. We're going to listen and respond to the input from our independent directors," David Stein, CoolBrands' president and co-chief executive officer, said yesterday.

Analysts said it is positive that the company had bowed to demands that it improve its corporate governance, but said CoolBrands still has work to do before it can achieve its stated goal of being seen as a leader in the area.

For the past two years, CoolBrands placed dead last in Report on Business's annual ranking of corporate governance practices among companies included in Canada's benchmark S&P/TSX composite index.

And in October, Dundee Securities Corp. analyst John McIlveen suspended coverage of the company with a list of demands of what CoolBrands would have to do in order to get him to resume coverage, including appointing an independent board, ending its business with a related company owned by CoolBrands co-chairman Richard Smith and adopting a single-class share structure.

Yesterday, Mr. McIlveen said he will be watching with "much interest" to see what the independent committee of the board recommends after it finishes its corporate governance review.

CoolBrands posted a profit for the year ended Aug. 31 that was 54 per cent higher than the year before. But Mr. Stein warned that after focusing on profit in 2004, the company will turn its attention to revenue and market share in 2005 to respond to competitive pressures and new consumer trends.

Mr. Stein said there has been a "fundamental shift" in the frozen foods segment. Consumers are no longer willing to pay a premium for healthier snacks, which have become mainstream. CoolBrands is developing several new desserts to respond to the impending loss of its Weight Watchers Smart Ones licensed business.

In addition, Mr. Stein said Unilever PLC and Nestlé SA, CoolBrands' two main competitors, are pursuing market share at the expense of profitability.

Mr. Stein said the five new directors bring extensive experience in consumer products and ice cream that will help the company respond to these challenges as it focuses on increasing revenue.

The new directors include Mark Stevens, who was president of the Haagen-Dazs Co. from 1985 to 1989, and Joseph Binder, president of Penguin Supermarkets Inc., a privately owned chain of supermarkets operating under the Key Food banner. Mr. Binder will serve as the lead director.

In order to make room for the new directors, CoolBrands will expand its board to 11 members. Nearly half of the company's board will continue to be made up of inside directors, including Mr. Smith, Mr. Stein, co-chairman Michael Serruya, executive vice-president and secretary Aaron Serruya, and vice-chairman and chief operating officer David Smith.

"That's still a bit unusual …" Mr. McIlveen said yesterday. "You don't need that many executives on the board in my view. However, give them some space. See what the new independent board members come up with in terms of their new governance recommendations."

Douglas Cooper, an analyst with Paradigm Capital, said investors should be pleased with CoolBrands' efforts to improve governance. "Five independent board members is obviously a big positive … People have been complaining about it [the company's governance] for years and to their credit they're doing something about it," Mr. Cooper said.

For the year ended Aug. 31, CoolBrands posted a profit of $48.9-million or 87 cents a diluted share on revenue of $642.8-million, up from $31.7-million or 59 cents on $357.3-million for fiscal 2003.

For the fourth quarter, profit was $14.7-million or 26 cents on revenue of $178.7-million, compared with $14.8-million or 27 cents on $154-million a year earlier.

The company said it is considering reporting its 2005 results in U.S. dollars because most of its revenue comes from the United States.

CoolBrands' subordinated voting shares fell 8 cents to $8.44 yesterday on the Toronto Stock Exchange.


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