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CFO Departs, Hedge Fund Protests

After Ceridian swaps in another finance chief, Pershing Square Capital Management criticizes the management changes as ''a real disappointment.''
Stephen Taub, CFO.com | US
March 14, 2007

Ceridian's chief financial officer has resigned, and an activist hedge fund with a stake in the company is none too happy.

On Monday morning, the business services company announced that its CFO since 2005, Douglas C. Neve, resigned as of March 8. "Doug has been a valued member of the senior management team, and we thank him for his significant contributions to Ceridian over the past few years," said president and chief executive officer Kathryn V. Marinello, in a statement.

Later that day, the company named Gregory Macfarlane as his successor. A 13-year veteran of General Electric, Macfarlane was most recently executive vice president and chief financial officer for GE-WMC Mortgage, a $36 billion mortgage originator.

On Tuesday, Pershing Square Capital Management — an activist hedge fund manager that is waging a proxy contest with Ceridian's board — called Neve's departure "a real disappointment."

"He was one of Ceridian's strongest leaders and a first-class CFO," said William A. Ackman, who heads up Pershing Square, in a statement. "We believe that he's been instrumental in leading the margin improvements [at Ceridian's HRS division] over the last 18 months and addressing the company's accounting, control, and regulatory issues."

Ackman also observed that when Neve joined the company in 2005, Ceridian was in the midst of a long-standing investigation by the Securities and Exchange Commission, had restated its financials five times, and had disclosed a number of material weaknesses in its internal controls. According to the hedge fund manager, Neve has been widely credited with restaffing and rebuilding the company's finance and accounting organization and restoring investor confidence in the company's financial statements.

"Once the proxy contest is behind the company, we hope Doug will consider building on the value that he has created for all of Ceridian's stakeholders, whether as an adviser to the board or senior management," said Ackman.

Ackman was less charitable toward Macfarlane. "At this stage, we believe that the incumbent directors should act with appropriate care regarding long-term employment commitments they extend throughout the company's senior ranks," he stated. "In light of the ongoing proxy contest, we are surprised that the board has deemed it appropriate to award rich financial terms to unproven new hires."

The hedge fund manager continued: "We are puzzled by the board's appointment of a division-level finance executive as CFO, supporting a CEO who similarly lacks public company experience. We need to better understand how the company's compensation and human resources committee concluded that this was the right hire at this time, and how the search — if any — was conducted."

According to a regulatory filing, Macfarlane will receive an annualized base salary of $350,000, a maximum possible bonus of 90 percent of his base, a supplemental cash payment of $25,000 in lieu of additional perquisites, a non-qualified stock option award of 40,750 common shares, a 17,250 share restricted stock award, and a $150,000 signing bonus.

In response to Ackman's criticism, Ceridian defended its decision to change CFOs. "We are extremely pleased to have someone of Greg's caliber join our team," the company stated, according to the Associated Press. "As someone who has a proven track record of improving the business units in which he worked, Greg will be a great asset to Ceridian."

Reuters also pointed out that last week, Pershing Square sued Ceridian to make public two letters in which senior executives share their concerns with board members about the company's management.




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