When Liberty Tax’s John Hewitt got booted last September as CEO from the company he founded, the tax prep franchise’s general counsel put on her game face: "I don’t believe it poses a problem for the company," said Vice President Vanessa Szajnoga, even though Hewitt remained chairman, holds all of the Class B shares and can appoint a majority of directors to the board.
But what a colossal tumult it is. Liberty Tax’s last remaining Class A independent director, Ross Longfield, resigned his board seat effective March 21, saying actions by Hewitt and others "undermine any semblance of an independent representation for Class A shareholders in Liberty Tax Service," he wrote in an 8-K filing with the Securities & Exchange Commission in late February.
"Furthermore, it has quickly become apparent to me that the board and the new senior executives are making it virtually impossible for the chief financial officer and the general counsel to do their jobs effectively," he wrote, "particularly as these three new executives are not qualified to hold these positions in a public company and they are all beholden to John Hewitt."
A momentous meeting
As detailed in the filing, a board meeting on February 19 was momentous, resulting in the immediate termination of CEO Edward Brunot and former CFO and consultant Kathy Donovan, and the appointment of Class B director Nicole Ossenfort as president and CEO, along with "two other Hewitt associates" in the roles of chief operating officer and chief strategy officer, the letter said.
The moves further strengthened Hewitt’s influence and control "as demonstrated in an email from Ossenfort stating that Hewitt will act in an advisory role," the letter said.
Longfield’s letter also criticized the replacement of the company’s law firm Skadden Arps, "a highly regarded firm with deep experience in corporate governance matters," with the law firm of Williams Mullen, "John Hewitt’s personal counsel," to serve as the company’s corporate general counsel.
And he decried the termination of the previously board-approved process "already well underway" with the National Association of Corporate Directors to identify and "recruit highly qualified independent directors." Instead, Hewitt submitted three candidates for consideration to fill the three Class A vacancies, with the intent of electing all of those new directors by mid-April.
In a financial filing after the meeting, the Virginia Beach-based tax prep firm said that Szajnoga resigned February 23, as did Rich Artese, chief information officer.
Former franchisee, now CEO
Ossenfort, the new CEO at Liberty, said she was "disappointed" in Longfield’s letter. "I mean, I can’t think of a team more qualified than myself and the new COO and CSO, to come in with 47 years of combined experience that we have" as some of the top Liberty Tax operators in the country, she said. "I’m not sure what his basis for that comment was." (See a story about Ossenfort’s plans for Liberty on page 9.)
Said Martha O’Gorman, chief marketing officer: "What it boils down to is, we need people in our C suite that understand what it takes" for a franchisee to be successful. "Our franchisees are very positive about these changes for a number of reasons," chief among them "that they need somebody that they can talk to and understand their issues."
‘Tone at the top’
How could Hewitt be fired as CEO in the first place? Last December, an SEC filing said KPMG, Liberty’s independent auditor, had resigned due to "concerns around internal controls over financial reporting as it relates to the integrity and tone at the top" set by Hewitt.
"Tone at the top" is putting it blandly. According to The Virginia-Pilot, Hewitt was fired in September "after complaints to human resources prompted an outside investigation of Hewitt’s behavior around the office, including several claims he was heard having sex in his office, likely had romantic relationships with employees he treated preferentially and put his personal interests above the company," the newspaper said.
He was known to travel heavily to visit offices where the New York Yankees were playing, and charges at a racetrack were showing up on the corporate credit card, the newspaper said.
Skadden Arps, the law firm Liberty Tax hired to look into the allegations, gave a report on its review of the situation on September 5. O’Gorman said she did not see the report because she is not on the board, adding the report was made available to the audit committee, which has five members, "and one of the five people leaked that to the newspaper. I would have to say not one of those allegations was ever really proven, because no one has come forward, and you would think that in the environment we’re in right now, that one person would have come forward."
O’Gorman has been with Hewitt since "the beginning," leaving her former firm, Jackson Hewitt, when Hewitt was forced out in 1996 and starting Liberty Tax in 1997.
Recent events have taken their toll. "Traumatic is a good word to use, and I think we’ve all suffered because of this," O’Gorman said. "John at this juncture is really exploring other opportunities, but because of what was happening here, and the franchisees were being hurt by some of the decisions that were being made, he decided that he couldn’t let that happen, because he’s very much dedicated to the franchisees and revered."
The roots of Hewitt’s current battle to hang onto Liberty date back to 1996, when he lost control of Jackson Hewitt in what he called his billion-dollar mistake. "My billion-dollar lesson is to keep control of your dream and don’t let anyone take it away from you," he wrote in Inc.com in March of last year. At Liberty Tax, where he controls all the Class B shares—a potent weapon, indeed—he’s holding on to power with everything he’s got.
Beth Ewen is editor-in-chief of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to email@example.com.