H&R Block announces declassification of board; investor Breeden Capital applauds move

By Jennifer Lanning Drey

Portland, Ore., Aug. 13 - H&R Block, Inc.'s board of directors voted to eliminate its staggered board structure starting with the 2008 annual meeting, according to a company news release.

The decision came just days after H&R Block investor Breeden Capital Management LLC announced its "wake-up call" plan designed to create value for the company through changes in the business and governance reforms.

H&R Block said the action followed discussions with several of the company's largest institutional shareholders.

"Eliminating our classified board structure will further enhance H&R Block's strong corporate governance practices," Mark Ernst, chairman, president and chief executive officer of H&R Block, said in the news release.

"Under our proposed new structure, each board member would be voted on by shareholders every year. Based upon my discussions with several of our largest shareholders over the last several weeks, we feel that this level of accountability is in the best interest of all our shareholders," Ernst said.

Richard C. Breeden, chairman and chief executive officer of Breeden Capital Management, responded to the announcement in a statement, saying, "We have been advocating for months that H&R Block adopt majority voting on an annual basis for all directors to improve board accountability.

"We are pleased that the company has elected to adopt a portion of our suggestion, and look forward to persuading the board to adopt the rest of our many suggestions, following our election to the board.

"It is unfortunate it took this long for management and the board to realize that entrenchment devices like staggered boards do not serve the interests of shareholders."

To ensure the board is declassified starting with the 2008 annual meeting, H&R Block's board also adopted a bylaw amendment under which, to qualify for election and board service, each incumbent director must agree to resign from any portion of his or her current term that extends beyond the 2008 annual meeting.

H&R Block will hold a special meeting of shareholders before Dec. 31 to seek approval of an amendment to the company's articles of incorporation necessary for the change in board structure.

As previously reported, Breeden Capital's suggestions for increasing value in H&R Block also included stopping the bleeding at the company's subprime mortgage lender, Option One; considering divesting H&R Block Bank; considering divesting the securities brokerage business; focusing on expanding margins and maximizing cash flow in tax-related businesses; exploring re-franchising opportunities; and establishing stringent performance goals and standards to "hold senior management accountable."

Breeden Capital had planned to nominate three candidates, including Richard Breeden, to H&R Block's board of directors to bring what it called "fresh perspective and new energy" to the board.

H&R Block is a provider of tax, financial, accounting and business consulting services and products based in Kansas City, Mo.

Breeden Capital, an H&R Block shareholder, is a Greenwich, Conn.-based investment fund manager.

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