Yesterday, Quality Systems (NASDAQ:QSII) announced the election of six of the eight people it nominated to its board, as well as two members of the three-person slate offered by dissident shareholder and director Ahmed Hussein. According to the release, these results were certified by the "independent inspector of elections."
The Motley Fool, having obtained new documents from Dr. Hussein, has learned that the results are not quite final. Dr. Hussein is contesting the vote count and, backed by the law firm Kirkpatrick & Lockhart Nicholson Graham LLP, is preparing a lawsuit. If successful in his claim, Hussein would secure his third nominee to the board, replacing one from management's slate and possibly blocking the passage of the proposed generous compensation package for directors and executives.
The problem, according to documents obtained by The Motley Fool, is that various brokerages submitted unsigned proxies that were voted in favor of the company's slate. These proxies represent shares, held in street name at the brokerages, that individual shareholders failed to submit themselves. According to Dr. Hussein, unsigned proxies cannot be counted in a disputed election, and without those votes -- approximately 832,000 out of a total 13.1 million shares outstanding -- all three of his nominees would have been elected.
Hussein contests that this is illegal.
It certainly strikes us as absurd, regardless of whether or not the process was legal.
In our conversations with Dr. Hussein, he intimated that without the support of independent outside shareowners, he would not have even had the chance to elect his entire slate. Furthermore, he considers it likely that this case will, unfortunately, end up in court. Whatever the outcome, we would have preferred that the company disclose this news in its press release. We're also aware that by making that statement, unfortunately, we may lose all contact with management at Quality Systems. But if a lawsuit is brewing from the vote count, we think management and its board should have revealed it to shareholders in the release.
In the end, what seems to be forgotten here is that a board of directors' main job is to represent shareholders' interests, occasionally in opposition to management. When Quality Systems releases a statement claiming that the voting results are finalized without mentioning the possibility of a lawsuit to the contrary, it strikes us as little more than self-interest. We expect better from a board of directors that must work together. That work should start with transparent disclosure. And so, for example, if there is a dispute on how votes were counted and a respected law firm is taking the case, let's hear it.
We'd certainly prefer that management not tell its owners and the media that the vote is final until it most certainly is.
The authors hold no position in Quality Systems, which is a Motley Fool Stock Advisor recommendation. The Motley Fool has a disclosure policy.
