When starting a business in Texas, it may not occur to company owners that they may one day be forced out of their position, especially if the company is doing well.
More than 45 years ago, Jerry Rubin founded hair-care products company Helen of Troy as a boutique wig shop in El Paso. Today, the company has thousands of employees, conducts multinational business and earns over $1.3 billion a year. After being asked to step down as chief executive, Mr. Rubin filed a business litigation case against the board of directors, claiming it fraudulently forced him out of his company.
According to the lawsuit, during a period of record success in 2011, the company's hedge fund proxy adviser, Institutional Shareholder Services, had the board reduce Mr. Rubin's multimillion-dollar yearly salary and change his contract so he could be fired without cause. Mr. Rubin claimed that the board's deputy chairman assured him he would not be fired, yet he was forced out of the company last year.
The lawsuit states that the deputy chairman had said he was pressured by ISS to make these changes to the contract or lose his own position. Mr. Rubin is seeking approximately $50 million in lost wages and benefits.
This situation illustrates how the relationship between shareholders and company executives can be tenuous, and can also depend on pressure from other sources. While the board may claim that decisions are made in the best interests of the company, those whose compensation or position are being threatened might claim otherwise. To protect their interests during a corporate dispute such as this one, it may help company executives to speak with a corporate attorney.
Source: The Dallas Morning News, "West Texas manufacturer sued by founder for fraud," Mark Curriden, Nov. 25, 2014