Profits and tempers rise at Hawkins

Last week, Google CEO Eric Schmidt resigned from the board of Apple Inc. because of looming conflicts between the two digital giants. It was a high-profile move that illuminates the behind-the-scenes world of corporate boards.

Rarely does the work of board members, who govern corporations as the elected representatives of the shareholders, surface beyond antiseptically worded filings to the Securities and Exchanges Commission (SEC). Internal strife on boards at well-performing firms rarely rises above the level of country club buzz.

That makes a recent boardroom showdown at Hawkins Inc. something of an anomaly. The 90-year-old provider of specialty chemicals to manufacturers and water-treatment concerns has posted rising profitability and market value in recent years. That's a claim few companies can make.

"It's incredible what our 260 employees have done for you," Chief Executive John Hawkins, 57, told satisfied shareholders at the annual meeting last week in a salute to colleagues. "We have a great future ahead of us."

Hawkins, a plain-talker, is the son of the founder. He started out 40 years ago at his father's company as a shop-floor laborer, gets high marks from long-term shareholders for below-average compensation and a servant-leader approach to running a company that has grown from a small local manufacturer-distributor to a Midwest power that last fiscal year posted record earnings on revenue of $284 million.

John Hawkins and board chairman Jack McKeon, a longtime director and retired president of ConAgra, candidly answered questions after last week's annual meeting about a board spat that led to the departure of two dissident directors.

"This is a very independent board," McKeon said. "Directors are expected to speak their mind."

In summary, McKeon asked Gey and another director not involved in the exchange to step down from the board because he suspected them of poor-mouthing management to a prospective director of the company, among other differences. It was the last straw in an increasingly rancorous rift between Gey and McKeon, a veteran corporate executive and outside director.

Gey, a onetime Pentair executive, declined to comment for this report. But he let rip in his last few months as a Hawkins director.

In one e-mail last winter, he accused McKeon of being a management toady and of "blind allegiance" to CEO Hawkins. Gey also said McKeon stifled dissent and sought retribution against those who disagreed with him and management.

According to the correspondence, contained in an SEC filing, Gey called McKeon and the board "ethically challenged" and alleged they were pursuing a vendetta against him for disagreeing with Hawkins' strategy of avoiding debt and other strategies.

McKeon, in an interview that synthesized his written communications, talked about a series of disagreements and differing views of the company with Gey, whom he also praised as a well-prepared director.

McKeon is an unabashed supporter of John Hawkins.

"It's unbelievable to me that any of you would have said something to a [board candidate] that would lead him to conclude that 'certain' board members are not confident in management," McKeon wrote fellow board members in December. "This is an excellent company that has had great success -- short of something cataclysmic -- management is not going to change, so those of you who are troubled with management need to move on."

Several lawyers and directors of local companies who are familiar with the spat declined to comment, other than to say it was unusual and bruising.

Give credit to Hawkins for full disclosure in filing sensitive communications. Several observers last week noted that less-diligent companies would not have disclosed the internal communications, choosing a more relaxed view of SEC rules.

The communications among board members provide a pages-long, real-time look at a long-festering boardroom disagreement that spilled over into heated charges of disloyalty and resulted in the departure of Gey. Another director, who was not involved in the e-mail exchanges, also departed the board.

Meanwhile, somebody must be doing something right at Hawkins.

Last week, the board, citing extraordinary fiscal 2009 results and a strong cash position, authorized a regular semiannual cash dividend of 28 cents per share and a special one-time dividend of 10 cents per share, payable in October.

Last week's annual meeting was attended by dozens of employee-shareholders, none of whom had governance-related questions. Employees and directors of the company own more than 20 percent of the stock.