Helen of Troy isn’t just a famous mythological beauty. It’s also a publicly-traded maker of personal care products. And now, it and its directors are defendants in a suit by Helen of Troy’s founder, Gerald “Jerry” Rubin.
Executives who bring suit against their former employers frequently want to show that they were terminated for reasons other than performance, and Rubin is no different. In his complaint, as reported by El Paso Inc., Rubin describes the history of Helen of Troy and its staggering growth. From humble origins – a “wig shop in El Paso, Texas” – Helen of Troy grew into a “global consumer products behemoth, generating revenues in excess of approximately 1.3 billion dollars.” And then the roof caved in. Rather than “celebrating [Rubin’s] extraordinary success,” Rubin alleges, Helen of Troy’s directors turned on him in order to save their own skins, and eventually forced him out of the company.
Why did the directors need to sacrifice Rubin to save their positions? According to Rubin, the answer lies with an entity called Institutional Shareholder Services (“ISS”). ISS is a proxy advisory firm that conducts analysis of corporate governance issues and advises shareholders on how to vote. Because shareholders often follow ISS’s recommendations, it can have substantial influence over the affairs of publicly-traded companies. Indeed, some participants in a recent SEC roundtable suggested that ISS could have “outsized influence on shareholder voting,” or even that it has the power of a “$4 trillion voter” because institutional investors rely on it to decide how to vote.
Rubin alleges that if ISS decides a CEO is making too much money, it will demand that the compensation be cut or that the CEO be fired. If its demand isn’t followed, it will “engineer the removal of the board members through [a] negative vote recommendation.” Board members then will cave to ISS’s wishes to preserve their own positions.
Rubin claims that this is what happened in his case.
He says that Helen of Troy’s “stellar earnings” and “unabated growth” translated into higher earnings for him, until ISS started making threats. Had the directors been “steel-eyed,” they would not have been shaken by the threats, but they were “made of a more malleable material.”
Because of pressure from ISS, Rubin says, the directors asked him to enter into a three-year employment agreement that allowed Helen of Troy to terminate him early without paying the full value of his contract. Rubin claims that one director promised him that Helen of Troy would never fire him before the three-year term was up, saying that the early termination provision was only included to assuage ISS.
Then, however, Helen of Troy reported to the public that Rubin had earned $41 million in 2013 (which Rubin disputes). ISS complained more vociferously, and the board presented Rubin an ultimatum: resign voluntarily in exchange for sums lower than the full value of his contract, or be fired and get nothing. Rubin took the voluntary resignation option, entering into a $15 million separation agreement without releasing his claims, and then filed his complaint, which is how we’ve become privy to this interesting story.
A number of Rubin’s claims are based on the allegation that Helen of Troy promised him that it would never exercise the early termination provision. Helen of Troy is likely to defend the case by arguing that the written employment agreement constituted the entire contract, and that the court (and the jury) can’t consider an alleged promise that wasn’t included in the writing.
Even if Rubin can’t prove the promise about early termination, he has other claims as well. He also alleges that Helen of Troy breached his separation agreement when it made the required payment in restricted shares and failed to give him restricted stock units when the company met its earnings.
In addition to attorneys’ fees for the litigation, Rubin seeks compensatory and punitive damages. According to El Paso Inc., he's seeking as much as $50 million.
We’ll be watching to see how this case turns out. If it doesn’t settle quickly, the case could lead to a series of interesting rulings on issues of oral and written promises, attorneys’ fees due for litigating employment and severance agreement claims, the method by which stock units are to be issued to terminated executives, and accounting triggers for stock payouts.