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Stanley Hails Bermuda Vote, but Employees Cry Deception

By: David Cay Johnston
The New York Times, May 10, 2002

New Britain, Conn., May 9 — Stanley Works said today that its shareholders had approved by the thinnest of margins its proposal to become a Bermuda company, but employees and retirees contested the outcome and said managers had misled them about how millions of votes would be counted.

The Connecticut attorney general and the state treasurer met tonight to decide how to challenge the balloting in court, based on conflicting instructions from the company about how unvoted shares that employees own in Stanley's 401(k) retirement fund would be counted. Those shares provided more than six times the winning margin in a vote that came down to a difference of about one-half of a percentage point.

In a letter to employees dated April 4, the company said that unvoted shares would count as votes against the Bermuda plan, which is meant to help the company avoid taxes in the United States. But in a second, undated letter that members of the machinists union said they received on Saturday, the company said the April 4 letter had erred. Unvoted 401(k) shares, it said in the second letter, would be voted by the 401(k) plan's trustees "in accordance [with] the trust agreement and applicable law."

Union leaders said today that they were unaware of what the trust agreement called for. After the shareholders voted on the proposal at a meeting this morning, company officials said that, in fact, the agreement called for unvoted 401(k) shares to be cast in the same ratio as all other votes cast. Since the proposal required a two-thirds majority of all shares, whether voted or not, the unvoted 401(k) shares pushed the proposal over the top. Without the disputed ballots, the measure would have lost by more than two million shares, John M. Trani, Stanley's chairman and chief executive, said in an interview several hours after the vote.

At the shareholder meeting, Mr. Trani said 67.2 percent of the company's outstanding shares, slightly more than the minimum two-thirds majority needed, had approved the proposal and that Stanley would reincorporate as a Bermuda company by the end of business on Friday.

"Our shareholders have strongly affirmed the benefits of reincorporation," Mr. Trani said in a statement. "The global playing field has been leveled," he added, "and our company is now better able to compete."

The 401(k) plan, which serves executives as well as factory workers, holds 6 million shares, about 7 percent of the 85 million shares outstanding. Mr. Trani, in the interview, said about half those shares were not voted. Thus, he said, under the 401(k) plan rules, they were counted as about 2.5 million in favor and 450,000 against, which matches the proportion of all other shares voted.

Donald D'Amato, president of the machinists union local, said, "They stole the election." He and other unionists said many of their members had been "tricked into not voting."

Mr. Trani said a preliminary count showed that 57.1 million shares were voted in favor of reincorporation, about 425,000 more than the minimum needed. About 14.9 million shares were voted against the measure, 1 million shares abstained and 12 million shares were not voted, the company said.

The result of the vote was announced at the annual shareholders meeting at the company's headquarters here. In the one-hour meeting, during which people frequently booed, Mr. Trani cut off questions after 20 minutes and said, "I run this meeting."

His answers to shareholders' queries were short, and in response to one question he said that a one-hour annual meeting gave shareholders all the time needed to question the management. He used more than half the meeting to speak himself, including giving a recitation of the company's accomplishments.

Outside the meeting, Denise L. Nappier, Connecticut's state treasurer, said she was appalled at what she called Mr. Trani's arrogance.

"It was quite rude," Ms. Nappier said. "I don't think that's the way to talk to the owners of the company."

At the entrance to the office park where the meeting was held, about a dozen union members, one dressed in an Uncle Sam costume, held up signs accusing the company of being disloyal and unpatriotic. Vinnie Daniele, a steel slitter, said members who had punched out to attend the meeting were barred from returning to their jobs and were told they would be docked the rest of the day's pay.

Since it was founded here in 1843, Stanley has come to dominate this central Connecticut town, producing tools with a familiar yellow-and-black logo. But since its managers announced the plan to become a Bermuda company, Stanley has come under attack from local and national political leaders and unionists, among others.

Company executives said their plan — in which Stanley will keep its offices here but become a Bermuda company in address only and be legally resident in Barbados, even though it need hold only one meeting a year in Barbados — will cut Stanley's income tax bills by at least 28 percent, or $30 million a year. Some members of Congress have criticized such tax strategies and have pledged to try to stop them.

Mr. Trani says the reincorporation is necessary because his competitors pay lower taxes.

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