Two more advisory firms urge WaMu directors be rejected

Two more proxy-advisory firms have taken aim at Washington Mutual's board, urging shareholders to reject several of the troubled thrift's directors at its annual meeting later this month.

ISS Governance Services, perhaps the best known of the firms that advise big institutional investors how to vote their shares, blasted the WaMu board's finance committee for not raising more red flags as the company loaded up on subprime mortgages and other higher-risk loans during the housing boom.

ISS said the committee was ineffective and contributed to "a systematic failure of risk-management oversight at WaMu."

The firm also slammed the compensation committee for establishing a 2008 executive bonus plan that will be calculated excluding loan-loss reserves — the money WaMu must set aside to cover its rising tide of busted loans — as well as foreclosure and restructuring costs.

"This modification runs counter to the pay-for-performance concept and holds no executives responsible for the subprime mess that the company is currently facing," ISS said in a report made public Friday.

ISS also asked why, "given the magnitude of the company's losses and recent changes in the executive suites at Citigroup and Merrill Lynch ... the board did not replace (Kerry) Killinger as CEO, particularly given the critical strategic decisions that the company still faces."

The advisory firm recommended that WaMu shareholders withhold their votes from nine of the 13 candidates standing for board positions — every member of the finance and compensation committees, except for one director, Stephen Chazen, who took office last month.

The targeted directors are Stephen Frank, Charles Lillis, Phillip Matthews, Margaret Osmer McQuade, Regina Montoya, Michael Murphy, Mary Pugh, William Reed Jr. and James Stever.

Another advisory firm, Egan-Jones Proxy Services, on Friday recommended votes against Stever, the compensation committee chairman, for his role in establishing "insufficiently objective" performance measures for executive bonuses, and Lillis and Matthews for serving on too many other corporate boards.

On Thursday Glass, Lewis & Co. recommended votes against the entire compensation committee and Pugh, the finance-committee chair.

In a statement Friday, WaMu called on its shareholders to support all the board nominees, citing "their record of skill, diligence, and deep understanding of the company."

"We strongly believe our directors, along with our management, are the right team to help WaMu work through the current market challenges and restore value to our shareholders," the company stated.

WaMu's annual meeting is scheduled for 1 p.m. April 15 at Benaroya Hall in downtown Seattle.

The board candidates face no opposition; shareholders have the option of voting for each company-endorsed candidate or withholding their vote.

Under a bylaw change adopted last year, candidates who receive fewer "for" votes than "withholds" must offer to resign; the full board then decides whether to accept the resignation.

Also Friday, a respected bank analyst for Keefe, Bruyette & Woods cut his outlook for WaMu, saying the lender likely will have to set aside billions more for bad loans than the $8 billion it's already projected.

Analyst Fred Cannon increased his estimate of WaMu's loss this year from $1.45 to $3.15 a share.

In New York Stock Exchange trading Friday, WaMu shares lost $1.32, or 11.5 percent, to close at $10.17. A year ago, the stock was trading at around $40.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com