Stephen Gordon is no longer chairman of Opus Bank, which he co-founded in 2010.
The Irvine-based firm decided last month “to further enhance” its corporate governance structure by separating the roles of chairman and chief executive. Gordon remains on the nine-member board of directors and as chief executive.
The board named Paul G. Grieg nonexecutive chairman. He joined the board last April and was previously chairman and chief executive of FirstMerit Corp. in Ohio, until it was acquired in 2016 by Huntington Bancshares Inc. for $3.4 billion in stock and cash. He was also a director at Federal Reserve Bank of Cleveland.
“An investment in Opus has a key-man risk, given that Steven is so instrumental and involved throughout the bank,” JMP Securities LLC analyst Christopher York said in an interview. “Separating the role of CEO and chairman mitigates that risk to some extent.”
Last year Institutional Shareholder Services, which advises large investors on votes, gave Opus its poorest score—10—for governance risk. ISS, among other things, criticized the company’s staggered director elections and its audit and risk oversight committees as being weak.
After the changes, the ISS upgraded the score to eight, praising the company’s audit and risk oversight changes.
Besides the chief executive/chairman split, governance changes include a stricter, metrics-based bonus system, seeking women for the now all-male board, and annual reviews of board directors; it did no reviews before. The changes were noted near the end of a Jan. 22 press release on its fourth-quarter and 2017 results. Company executives didn’t discuss the changes on a conference call with analysts or in their slide presentation.
“Since the bank was founded seven years ago, it has grown and flourished and has emerged as a formidable publicly-held financial institution that is accountable and responsive to its shareholders and customers,” the bank said in a statement sent to the Business Journal for this story.
“As a result, the board of directors has adopted corporate governance enhancements that reflect that maturation and have positioned the bank for continued success and growth.”
Reforms
Opus was founded when Gordon led a group of investors, including some prominent Wall Street firms, to buy, recapitalize and rename Bay Cities National Bank. He built it into the second-largest bank based in the county, with $7.9 billion in assets a little over a year ago. Assets are now down to $7.5 billion.
Opus encountered problematic loans in 2016, and auditor KPMG Inc. said last year that it wasn’t maintaining effective internal controls. Chief Financial Officer Nicole Carrillo departed in November, and that same month, the bank settled for $17 million in a shareholder lawsuit alleging it misled investors from 2014 to 2016 about its loans’ quality.
Another executive, Donald E. Royer, has run into a legal problem of his own.
According to the state bar, he was “suspended” in August for failing to complete the MultiState Professional Responsibility Examination within the required time and events surrounding it. Royer, who’s practiced law since 1976, was “discipline free” until the case, according to the bar.
Royer, who’s been with the bank since its 2010 recapitalization, was serving as senior executive vice president and general counsel and was a member of its executive committee, according to the 2017 proxy. Last week the bank’s website didn’t include Royer’s general counsel title or executive committee membership.
Opus has filed a number of lawsuits against former employees and is suing rival First Foundation Inc. for alleged theft of employees.
The bank declined to comment on Royer’s status, citing personnel policy.
Despite the turmoil, its profits have improved in recent quarters, rising fourfold to $47.6 million last year, and its stock has jumped 54% since a 52-week low last March.
The Changes
While the governance changes are for the better and welcomed by investors, analyst York said it was surprising to learn the bank is just now implementing them.
“The changes imply that previously there were not a lot of checks and balances,” he said.
The bank decided to:
• Submit for shareholder approval a measure to end staggered director elections.
• Require the chief executive to own stock worth six times his or her own salary. Gordon’s 2016 salary was $800,000. He owns about 2.2 million shares currently valued at $62.8 million.
• Require each director to own Opus stock worth at least three times the annual cash retainer. Each nonemployee director collected at least $70,000 in 2016.
• Require that future equity incentive awards have a minimum 12-month vesting period.
• Require that at least 50% of each incentive award for executive officers be subject to “at least one relative performance-based metric.”
• Adopt a formal clawback policy allowing for recoupment of executive incentive compensation in the event of an accounting restatement due to material error, omission or fraud.
• Prohibit excise tax gross-up arrangements in future employment agreements.
• Submit for shareholder approval the repricing, replacement or exchange of any under-water stock options or stock appreciation rights.
• Commit to seek female board members.
• Put in place a process to annually evaluate board members and committees.
