The Following is a Statement by Western Investment LLC
21 Giugno 2010 - 7:21PM
Business Wire
Western Investment LLC (“Western Investment”) is becoming
increasingly concerned regarding the cavalier attitude towards
adherence to even the most minimal standards of corporate
governance of Deutsche Bank AG (NYSE: DB), the parent company of
Deutsche Investment Management Americas Inc. (together with its
affiliates, “Deutsche”), which is the investment adviser of each of
DWS Enhanced Commodity Strategy Fund, Inc. (NYSE: GCS), DWS RREEF
World Real Estate & Tactical Strategies Fund, Inc. (NYSE: DRP),
DWS Global High Income Fund, Inc. (NYSE: LBF), DWS Dreman Value
Income Edge Fund, Inc. (NYSE: DHG), DWS Multi-Market Income Trust
(NYSE: KMM), DWS Strategic Income Trust (NYSE: KST) and DWS High
Income Trust (NYSE: KHI). Western Investment is a significant
shareholder in many of Deutsche’s closed-end funds.
Deutsche closed-end funds have abysmal corporate governance
records of disregarding fundamental shareholder rights when doing
so has served Deutsche’s interests. In fund after fund there is a
laundry list of entrenchment devices employed by Deutsche to keep
Deutsche’s hand-picked board in office and those funds’ capital
under Deutsch management. These anti-shareholder actions by the
Deutsche closed-end funds do not just hurt shareholders, they
disregard pending legislation in the United States Senate, recent
statements by the Director of the SEC’s Division of Investment
Management, the views of all major proxy advisory firms and public
policy.
The proposed Wall Street reform bill, which was recently passed
by the United States Senate (S. 3217- Restoring American Financial
Stability Act of 2010), includes a provision requiring that issuers
eliminate absolute majority vote requirements or otherwise face
delisting. A significant majority of S&P 500 companies already
comply. This means that someday soon GCS and the other Deutsche
closed-end funds may finally have to change their long criticized
practice of employing an absolute majority voting standard for the
election of directors - a threshold that is nearly impossible to
attain in a contested election. The absolute majority voting
standard requires that to be elected a nominee receive the
affirmative vote of a majority of the shares outstanding and
entitled to vote. Why do GCS and Deutsche continue to fight U.S.
policy? Must an action be prohibited before Deutsche will
discontinue it?
Further, in a speech in November 2009, Andrew Donohue, the
Director of the SEC’s Division of Investment Management, reviewed
numerous practices taken by independent directors of investment
companies and expressed his personal views when commenting on the
legality of such practices - practices continuously used by
Deutsche for its own benefit, to the detriment of shareholders.
- Mr. Donohue criticized classic
entrenchment maneuvers identical to those employed by the Deutsche
directors - delaying the annual meeting and the imposition of a
requirement that the election of directors requires the affirmative
vote of a majority of outstanding shares.
- Mr. Donohue stated that “the
effect of the [meeting] delay is to postpone the ability of the
shareholders to replace the existing board.”
- He similarly noted that the
absolute majority voting rule “amounts to an anti-takeover device
that keeps the existing board in place.”
- Donohue also criticized the
adoption by a fund, or more particularly its board, of state law
provisions, such as the Maryland Control Share Acquisition Act,
that restrict the voting rights of the shareholders, stating “even
when state law authorizes it, [the adoption] may be inconsistent
with federal law and not in the best interest of the fund and its
shareholders.” Mr. Donohue continued, “In my view, a provision
which denies a shareholder deemed to posses ‘control shares’ the
right to vote those shares constitutes a denial of equal voting
rights and may violate the fundamental requirement that every share
of the fund’s stock be voting stock.”
A perfect example of Deutsche’s embarrassing actions can be
found at DWS Enhanced Commodity Strategy Fund, Inc. (formerly named
DWS Global Commodities Stock Fund, Inc.) (“GCS”). At GCS’s 2008
annual meeting of shareholders, Western Investment’s five director
nominees received the vast majority of votes by a margin of 64% to
36%. But, because GCS had an absolute majority voting standard for
the election of directors, it declared that no directors were
elected, so the five Deutsche nominee incumbents who received the
five lowest vote totals were declared by the fund as the winners
(“holdovers” is the polite legal term they used) and have served as
directors ever since, without election. Following the striking 2008
vote of no-confidence by shareholders, GCS recognized that if it
repeated this conduct in 2009, and declared a second consecutive
“failed” election, under then-current law, any shareholder could
have petitioned for GCS’ dissolution. So rather than repeal the
majority vote provision bylaw and assure that shareholders could
elect directors, GCS simply declined to hold an annual meeting in
calendar 2009. It took a lawsuit from Western Investment to compel
GCS to even schedule a shareholder meeting in 2010.
At GCS’s 2010 annual meeting, there are eight directors up for
election. Western Investment has filed a proxy seeking the election
of its eight nominees at GCS’s long overdue 2010 annual meeting. Of
GCS’s eight nominees, four of the incumbents were never even
elected by shareholders. Because GCS still continues to maintain an
absolute majority voting requirement, it is nearly certain that
once again no directors will be elected. The absolute majority vote
bylaw is designed to make contested elections fail. You should know
that Deutsche is employing this device to keep the unpopular and
unelected incumbents in office at many of their other closed-end
funds, including as recently as May 24, 2010 at the annual
shareholders meeting of DWS Dreman Value Edge Fund, Inc. where
Western Investment’s four director nominees received the vast
majority of votes by a margin of 57% to 43%. How is that fair to
shareholders? How is that acceptable corporate governance?
A number of the Deutsche closed-end funds have also recently
unilaterally decided that “if an annual meeting is called for the
purpose of considering the election of Board Members, and a then
current Board Member up for election is not elected and such Board
Member’s successor is not elected and qualified, then the current
Board Member shall remain a member of the relevant class, holding
office until the annual meeting held in the third succeeding year after such annual
meeting is initially called and until the election and
qualification of such Board Member’s successor, if any, or until
such current Board Member sooner dies, resigns, retires or is
removed.” In other words, if they win they get 3-year terms, and if
they don’t win, they still get 3-year terms. It is quite obvious
that the Deutsche Board does not care about the vote of
shareholders and is using the absolute majority voting standard to
ensure that its hand-picked directors will serve in near
perpetuity. We are not alone in thinking that this represents an
abuse and manipulation of shareholder democracy. Not only does such
action counter disclosure provided to shareholders in the
respective funds’ offering documents, we believe it violates the
Investment Company Act of 1940.
In an attempt to resolve this matter, Western Investment
recently sent a detailed letter to Richard Walker, General Counsel
to Deutsche Bank AG. Sadly, Mr. Walker declined to address any of
these material issues with Western Investment, referring Western
Investment instead to Deutsche Bank’s high priced corporate law
firm. Why is Deutsche Bank afraid to have an open and honest
discussion on this matter?
Each shareholder has a choice, Western Investment urges
shareholders to vote against the Deutsche closed-end fund’s
entrenched directors in the upcoming annual meetings of GCS, DRP
and LBF.
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