Auto Club Seeks to End Director Votes
By SHERRI CRUZ
In the era of good corporate governance, Costa Mesa-based Automobile Club of Southern California has a row on its hands over appointing, rather than electing, its directors.
The nonprofit association, which offers insurance, travel planning and roadside help to motorists, is appealing to members to back a plan that would end contested board elections.
For the past three years, the association said it has had to spend millions of dollars supporting candidates in elections contested by what it calls politically motivated gadflies.
That money could be better spent on products and services for members, officials say.
The association’s critics say the cost of elections is the price of good governance. Eliminating contested elections could lead to mismanagement of members’ dues, they say.
If you’re an Auto Club member, you’ve likely received mailings from the association asking you to back the appointed-directors plan.
“This change requires member approval, and we need your vote,” wrote Thomas McKernan, the Auto Club’s chief executive, in a recent member mailing labeled “Urgent,response requested.”
To change the Auto Club’s bylaws, the majority of at least 15% of members must back the change by Oct. 31.
The biggest challenge for both sides could be member apathy.
Getting 263,000 of Auto Club’s 3.5 million voting members to weigh in one way or the other could be a long shot.
People don’t join the association for politics, said Carol Thorp, an Auto Club spokeswoman.
“They come to us because they want service,” she said. “They just want us to help them out when their car needs to be towed.”
If members don’t like the association’s service, they have the option of going elsewhere, Thorp said.
But 90% of members renew every year, she said.
Critics agree that members don’t give much thought to the association’s bylaws and directors.
But they might if they knew a little more about how the group is run, they say.
Each year, four of 12 Auto Club directors are elected to serve three-year terms. The board’s nominating committee proposes the four candidates.
If there is no challenge, then the insider nominees are considered “elected.”
No Successful Challengers
To challenge the board’s candidates, a member must get about 1,750 signatures from other members to qualify as a petition candidate in a contested election.
The nominating committee’s choices have been contested for the past three years and once in 1971.
But no petition candidate has been elected to the board.
“The club board and management used illegal methods to ensure that their own people were elected,” dissident member Carl Olson charges. “Actually they weren’t even elected.”
The dissidents, some of whom are libertarians who believe the association should lobby for lower taxes on drivers, haven’t had any luck in court either.
Los Angeles-based attorney and Auto Club member Scott Koepke represented Olson and fellow dissident Mark Seidenberg in a lawsuit they brought against the club in 2001. Both members have mounted failed petition candidate bids for the board.
The suit alleged that the association’s election process was unfair and that some of its accounting practices were illegal.
In 2001, through a restraining order, the two succeeded in getting the association to put outside candidates on the proxy.
Earlier this year, a Los Angles Superior Court judge awarded the dissidents $1.2 million in lawyer fees and said the association needed to change some of its contested election procedures.
The rest of the association’s election procedures were upheld.
The judge denied the dissidents damages in their bid to overturn the club’s 2001 board vote and also rebuffed charges of accounting misdeeds.
Both sides are appealing parts of the judgment.
As for the appointed-directors plan, Koepke contends the directors are “scared that the membership is waking up and participating and taking control of their club.”
The association is set up as a nonprofit “mutual benefit corporation.” It has no owners and is run with members’ dues for their benefit.
Unlike a public company, it doesn’t pay dividends to its members.
Dues are $44 a year for a “primary” membership, which includes four towing services.
The Auto Club makes the bulk of its revenue selling auto insurance and travel planning.
We’re Not Enron
The club counts 6 million members in all, including “associate members” who piggyback on a relative’s membership.
It’s the largest group under the national American Automobile Association umbrella.
Local officials scoff at the notion their plan is out of sync with conventional wisdom in the post-Enron era.
The association isn’t a public company and doesn’t have to adhere to the Securities and Exchange Commission’s rules, spokeswoman Thorp said.
“We’re just asking if (members are) willing to do this,” she said. “There’s no economic risk to a member … This is not a cloak-and-dagger operation.”
