Argo Group International Holdings recently announced its independent directors are conducting a review of governance and executive compensation matters, following a subpoena from the Securities and Exchange Commission seeking documents around the company’s disclosure of certain compensation-related perquisites.

“The company, working with the assistance of outside counsel, is fully cooperating with the SEC and does not believe that the amounts involved are material to the company’s financial position or results of operations,” Argo said in a statement.

Argo added it is “committed to governance practices that support continued value creation for all shareholders,” consistent with an Aug. 8 press release in which the company disclosed several proposed enhancements to its governance and compensation programs, including declassification of its board and reduction of board size as part of its ongoing refreshment process.

Argo launched the investigation only after receiving the SEC subpoena and following earlier accusations made by activist fund Voce Capital Management, which owns a 5.4 percent stake in Argo’s shares. According to Voce, Argo’s CEO misused corporate assets, like company-owned aircraft and housing. “Earlier this year, Voce published a detailed case demonstrating that a culture of indulgence, entrenchment, and failed oversight has plagued Argo under the aegis of the current board,” Voce said in a press release, issued Oct. 14.

Beginning with a public letter to shareholders on Feb. 25 and supported by a number of subsequent communications, including Voce’s 131-page white paper, “Righting the Ship,” Voce said it has “chronicled Argo’s decrepit corporate governance, particularly as it relates to the board’s lack of proper oversight of management and the absence of any delineation between corporate assets and priorities and those of management. We also called for ‘a top-to-bottom investigation of Argo’s corporate governance practices.’ ”

Tensions escalate

In August, Voce reached out to Argo’s board to request a meeting with its independent directors. “In the ensuing discussions, Voce made a series of proposals to restructure Argo’s board and reform its corporate governance,” Voce said. “While the tenor of the discussions has been polite and professional, as of today Voce has been unable to reach agreement with the board.”

Among the requests made to Argo’s board included retirement of the legacy “Big 5” directors (Messrs. Gary Woods, Sedgwick Browne, Hector De Leon, Mural Josephson, and John Power), “who average nearly two decades of tenure each in board leadership roles and bear direct responsibility for what has occurred,” Voce said. It also called for the replacement of some of the “Big 5” with new independent directors nominated by shareholders (subject to the board’s customary confirmation process).

Additionally, Voce requested the creation of a special committee, “comprised of independent directors and including at least one of the newly appointed directors, which would be tasked with not only responding to the SEC subpoena (and inquiries from any other agencies), but also with conducting a comprehensive investigation, with the assistance of an outside law firm, into any misappropriation of corporate assets, inaccurate disclosures of executive compensation and perquisites, and any other misconduct that may have occurred at Argo.” It also requests the special committee “determine the culpability, if any, of Argo’s senior management in the foregoing and provide to the full board its findings and recommendations.”

The board rejected each of these proposals.

Said Voce: “The disclosure that the company is now under federal investigation vividly illustrates the need for immediate and sweeping changes at Argo.”