Small Business Hawaii

When president and chief executive officer of City Bank Ron Migita spoke out for the first time about the hostile takeover attempt of parent company CB Bankshares by Central Pacific Financial Corporation, he accused his competitor of “disrupting the harmonious relationship” between the two banks. “I can assure you, this is not how we do business in Hawaii,” he said at an April 2003, press conference. “For someone like me, born and raised in Hawaii, we work on a cooperative basis. It’s not our culture to be hostile or strong-arm.”

This curt statement by Migita was a warning of the wrath to be unleashed by Hawaii’s old boy Democrats in power for 40 years, on Central Pacific’s Chairman, CEO and President Clint Arnoldus, who they portray as an outsider.

Unfortunately, Migita was right. Arnoldus, who took over Central Pacific Financial and Central Pacific Bank two years ago, did not understand the way business often is conducted in the 50th state. Migita, whose company, the fourth largest bank in Hawaii with $1.2 billion in deposits in 22 City Bank branches, is using all of its political clout to fend off what should be a debate over profit.

Central Pacific, the third-largest bank in Hawaii with $1.7 billion in deposits in its 25 branches, would control $2.9 billion or 14 percent of all state deposits should it be successful in acquiring CB Bankshares, the parent company of City Bank, for cash and stock currently valued at $300 million. Rather than sticking to finances however, directors of CB Bankshares are waging a strategic campaign of media and masterful political strategy that could not only thwart the takeover, but undermine all publicly traded companies in Hawaii by severely diluting the power of shareholders.

The problem is most Hawaii media and politicians see nothing unusual about the exceptional tactics by CB Bankshares to spoil the takeover attempt. In fact, they view Central Pacific Bank as the big bad business primarily because of a public relations campaign by CB Bankshares that portrays City Bank employees as victims and customers as getting a bad deal. CB Bankshares also has brazenly used prominent politicians on their payroll to slow the hostile takeover attempt — House Speaker Calvin Say, D-Kalihi, is a compensated City Bank trustee, and Senate Ways and Means Chair Brian Taniguchi, D-Manoa, is a City Bank attorney. Although they deny it, these powerful Democrat lawmakers and their allies are using their clout to forward legislation that helps CB Bankshares directors and hurts all of Hawaii’s publicly traded corporations.

SB 2435 and HB 2552 eliminate any obligation of the board to call a special meeting of shareholders to vote on a proposed acquisition of controlling interests in Hawaii public corporation. The state Department of Commerce and Consumer Affairs, whose Securities Commissioner Ryan Ushijima testified in opposition, says the legislation only allows for one takeover proposal to be entertained within any given 36-month period. “This interferes with what generally happens in the market because many takeover bids often involve the subsequent offering of higher prices to get enough shareholders to buy in,” Ushijima said. “The law deprives the opportunity for shareholders to consider these subsequent bids and represents a dramatic governmental intervention in otherwise commonplace corporate takeover proceedings.”

Especially intriguing to many observers is the way the CB Bankshares directors are fighting this battle. At least three of the CB Bankshares board members including Say are board members of the Daihonzan Chozen-Ji/International Zen Dojo, a Zen Buddhist temple in the remote valley of Kalihi. Surrounded by a dense emerald forest, steep plush mountains, and fronted by black Buddhist statues on a vast plot of pebbles of the same color, some of Hawaii’s most influential Democrats congregate at the Dojo. Here high-ranking Democrat politicians and well-known political strategists practice a combination of meditation, martial arts and political strategy. Democrats allowed to visit the grounds say loyal followers view themselves as Asian warriors - CB Bankshares is a current battle.

Ironically Hawaii’s publicly traded corporations potentially at risk have so far been unwilling to get involved. The governor’s cabinet and some Republican lawmakers have stood alone in opposition at the Legislature. Republican Gov. Linda Lingle is opposed to interfering with the hostile takeover attempt, despite CB Bankshares’ public relations campaign enthusiastically encouraging its customers and employees to ask her to take action.

To expect any different from Governor Lingle would be to assume that she would break her promise to voters made when she was elected governor in 2002 as the first Republican in 40 years. What she set out to accomplish is significant — boost business and economy, rid the State government of its notorious corruption and waste, and restore the public trust. Business in Hawaii has traditionally had to overcome the fourth highest overall tax burden, 17,000 pages of rules and regulations, burdensome mandates, and a necessity to “pay to play” with politicians for government contracts. As the Small Business Survival Index documents, Hawaii is the most hostile place to operate a business in America.

State Financial Institutions Commissioner Nick Griffin announced last week he will not disapprove of the proposed acquisition, despite the more than 100 City Bank supporters who testified in opposition at a December 2003 hearing. His decision comes after the Federal Reserve Board gave its blessing. Now the fate of the two banks will be made by shareholders of both companies and the courts, unless the CB Bankshares’ directors are successful in stopping the merger with this legislation.

Shareholders on both sides say there will be more turmoil should the legislation pass, including lawsuits against the CB Bankshares directors and lawmakers and shareholders pulling capital from Hawaii’s publicly traded corporations, and be a major step backward in the governor’s plan to “open Hawaii for business.”

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