Proxy fights, by their very nature, are messy and expensive affairs. They can get ugly, in fact. Harsh rhetoric, sharp accusations and exaggerated claims are the stuff of which proxy fights are made. One side is declared the winner when all the votes are counted, but in reality everybody loses a little.
The recently concluded proxy fight at Columbia First Federal Savings and Loan was no different. Management won, but fighting the challenge was, by management's own admission, an expensive undertaking. Moreover, victory was achieved at the risk of losing control of the board and the company in the future. In exchange for support from one of its biggest stockholders, Columbia First's management agreed to rescind a policy limiting maximum stock ownership by a single investor to 10 percent. Diana Corp. of Milwaukee, which supported management in the proxy fight, owns 10 percent but wants to increase its holdings to as much 24.9 percent.
Dissident shareholder Harold N. Goldsmith, a Baltimore businessman who led the fight against management for control of the board, probably deserved to be considered as a candidate for a director's seat. He is, after all, one of the thrift's largest individual shareholders, and his strong ties to the Maryland business community could be an asset to Columbia First.
But Goldsmith and his associates based their challenge and bid for three seats on the board on claims that lack credibility. To argue, for example, that management and the current board are too old and that younger people would provide better leadership is an assertion based more on theory and bravado than proof. Goldsmith is 45 and Dewitt T. Hartwell, Columbia First's chairman, is 63. Hartwell has more experience at running a large savings and loan, and in the absence of any proof of gross mismanagement or a recent string of sharp earnings declines, Hartwell is hardly a candidate for pasture.
A case might be made, nevertheless, that Columbia First, like most thrifts, may need to beef up management by hiring more experts in other areas of the financial services industry. Although they have been thrust into a more competitive environment in recent years, many S&Ls continue to cling to management, marketing and lending philosophies that worked in less hectic economic periods. Few S&Ls bothered to recruit aggressively from all areas of the financial services industry after Congress and federal regulators gave thrifts expanded powers a few years ago to compete against banks and others.
Goldsmith might have been in a stronger position -- had he been a little more tactful in seeking a seat on the board -- to prod Columbia First's management into making changes that might have strengthened the thrift. Instead, he resorted to age-bashing in an attempt to unseat three incumbent directors. One of the incumbents, real estate executive Flaxie M. Pinkett, is the only woman as well as one of three minorities on Columbia First's board. Indeed, few Washington area companies have as many minorities on their boards. Challenging Pinkett, who is highly respected in the local business community, showed a lack of understanding of the dynamics at work in Columbia First's board.
But the dissidents showed an even greater lack of understanding of the dynamics of the thrift industry when they criticized Columbia First for losing $33.5 million from 1981 through 1984. At least 70 percent of the nation's federally insured S&Ls lost money in the first half of 1981, setting the stage for the industry's worst earnings slump since World War II.
Toward the end of 1981, all but 10 of the 38 federally insured thrifts in metropolitan Washington were bobbing in a sea of red ink. In the following three or four years, hundreds of the nation's S&Ls collapsed or were forced into mergers to stanch the flow of red ink. Seven years ago, there were nearly 20 S&Ls in the District. Fewer than five remain today following a string of mergers and near failures.
With inflation soaring, the nation's thrifts were caught in an interest-rate squeeze, severely depressing earnings at the start of the decade, and savings institutions were primarily mortgage lenders. Most mortgage loans in their portfolios carried fixed rates for long terms. The typical home mortgage carried a cost of to the purchaser of 6 percent.
That was manageable for thrifts that were paying less than 5 percent at the time on passbook savings accounts. But as inflation soared and as savers began looking for higher rates on their savings, S&Ls and other thrifts were forced to pay more to attract deposits. With higher operating expenses, it was virtually impossible for S&Ls to match higher savings rates of competitors, such as money market mutual funds, without sustaining losses.
Weak institutions buckled under the pressure; those with better management and strong capital survived. There is, nonetheless, considerable turbulence in the industry. Most area S&Ls were described last year by analysts as generally safe and healthy -- though not as robust as they might be, given the strength of the local market. Even Perpetual Savings Bank, the area's largest thrift, was put in that category.
Still, prudent management -- some might say typically conservative management -- has enabled thrifts such as Columbia First to survive. Certainly it lost money in the first four years of this decade, but it also has put together a string of profitable years since going public in 1985, ending fiscal 1987 with a profit of $7.6 million and a net worth of $83 million.
Going public, improving earnings, acquiring a thrift in Virginia, obtaining the right to expand in Maryland and moving corporate offices from the District to Rosslyn as part of a cost-saving program hardly seem like measures that would be taken by a management and board lacking vigor.