Frontier launches attack on payout to its retired CEO

A fight between Frontier Communications and its former CEO, New Canaan philanthropist Leonard Tow, simmered quietly for more than a year. The two sides battled in court over life insurance premiums and tax reimbursements the company agreed to pay Tow back when he retired in 2004 at age 76.

It's not an everyday occurrence, a large corporation duking it out with a former executive over money. But it does happen in an age of structured payouts well into the millions that can last decades.

Then this month, boom! In a motion to dismiss Tow's lawsuit filed in Connecticut Superior Court in Stamford, Frontier let rip a tirade the likes of which we almost never witness in corporate life. The company called the payout contract an "unconscionable" sweetheart deal by connected insiders -- and therefore unenforceable.

The two sides might have settled the dispute late last week. On Friday afternoon, a lawyer for Tow, who turns 96 Thursday, filed to withdraw the complaint. A deal would make sense considering Tow's age and a few other factors. Lawyers in the case are not commenting.

What's notable, though, is not the battle itself but the extraordinary language in Frontier's motion, attacking its former leader.

"Tow's hand-picked board of directors, stacked with friend, allies and even his wife, had lavished him with salary, bonuses, stock options and other benefits far out of proportion to that of other executive compensation among peer companies, despite the Company's tepid performance," the motion, filed May 15, read.

Frontier doesn't dispute that the 2004 retirement deal, as written, calls for payments to Tow. But the payouts, which were expected at the time to total $31 million, according to Frontier in the lawsuit, have already totaled more than $60 million and could top $100 million if Tow, who's apparently in good health, lives a few more years.

That's on top of $160 million in total compensation Frontier (then known as Citizens Communications) paid Tow while he was working -- even though Tow made tens of millions of dollars from a different company he controlled for much of the time he headed Citizens, the motion says.

"From the time the...arrangements were entered into, they were egregious in size and in scope," the motion said.

Frontier consulted two experts in executive pay, the company said in the motion. Their conclusion: "The arrangements had no plausible business justification and were wildly contrary to industry norms and practice."

I'm not getting into the details here but if nothing else, congratulations to Tow for living long enough and actively enough to see this battle.

"His massive compensation was not justified by the Company's performance, which over the course of his tenure lagged the Company's competitors and that of the market as a whole. During his 14-year tenure as CEO, the Company's annualized return was only 1.12 percent," the motion said, citing a number that's far below any financial standard for returns over time.

On top of that, the motion said, Tow not only had full use of the $17 million company jet, his board of insiders required him to use it every time he traveled for work or pleasure. The filing also happens to mention that Tow was forced out of his job, and that his tax returns, produced for this case, were reviewed for Frontier by Grant Thornton, whose experts concluded Tow was seeking more than $5 million over and above what the company should have owed him.

And finally, this line, the corporate equivalent of schoolyard trash talking: "The Company made large contributions to Mr. and Mrs. Tow's favored charities, saying that the Tows rather than the Company were responsible for the largesse."

Lawyers for Frontier, which is represented by Day Pitney LLP, declined to comment. A lawyer for Tow at Robinson & Cole LLP and a representative for the Tow Foundation, the family's New Canaan-based charity, did not return my calls seeking comment. Tow's wife, Claire, who co-founded one of his companies with him, died in 2014 according to an obituary published in the New Canaan Advertiser.

The attacks are "pretty strong" and unusual, said Jeffrey Sonnenfeld, a professor and associate dean at the Yale School of management, and a widely quoted expert on CEO culture and leadership. "But it's not unparalleled," he said, naming a few examples.

Making the attacks rarer still is that Tow has not been accused of wrongdoing by authorities. When that happens, as in the case of Dennis Kozlowski at the old Tyco International, who was indicted and served prison time for bilking nearly $100 million from Tyco, companies may distance themselves from the former executive by unleashing attacks in documents.

Tow, a cable TV and telecom executive and entrepreneur, became CEO of then-Citizens Utilities, a holding company, in 1990. He steered the company into his industry, changing its name to Citizens Communications. The company acquired the Frontier brand during his tenure and took the Frontier name in 2008, after Tow retired.

In 1993, the California Public Employees' Retirement System sharply criticized Tow's pay and voted against reappointment of board members, the New York Times reported at the time.

Frontier filed for bankruptcy protection, citing $17.5 billion in debt, in 2020, emerging in 2021 as it sought to remake itself from a largely wireline company with local territories around the country (including the old Southern New England Telephone Co., which it bought in 2014) into a fiber-optic-based data and voice carrier. The company brought in a new CEO and, in 2023, moved the headquarters from Norwalk to Dallas.

Frontier halted some of the payments to Tow, the lawsuit claimed, after it emerged from bankruptcy. Tow filed the lawsuit in 2023, claiming the company owed him $17.7 million. The company said in its May 15 motion that the two sides had already entered into arbitration in New York, as spelled out in the agreement -- meaning, the company said, the judge should dismiss or at least stay the case pending the arbitration.

As the dispute moves toward what appears to be a settlement, we have to wonder: Did the powerfully worded, hardball motion by Frontier have its intended effect?

Perhaps, said Sonnenfeld, who's very outspoken about corporate practices and is credited with leading an exodus of more than 1,000 companies from Russia after the Ukraine attack, but did not take a position in this dispute.

"It is very persuasive," Sonnenfeld said. "It doesn't seem like it's motivated by a personal vendetta."

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