Miles Nadal, chairman and CEO of MDC Partners Inc., speaks at the Milken Institute Global Conference in Beverly Hills on April 29, 2014. Nadal has agreed to reimburse his company millions of dollars, the latest in a string of controversies linked to MDC's governance.Patrick T. Fallon/Bloomberg
One of Canada's most richly rewarded CEOs, Miles Nadal, is repaying millions of dollars to his company, Toronto-based advertising conglomerate MDC Partners Inc., as part of a wide-scale investigation by the U.S. Securities and Exchange Commission into its pay and accounting practices and trading in the company's securities.
MDC shares dropped by 28 per cent following the revelation late Monday.
MDC said in a regulatory filing that Mr. Nadal has "agreed to reimburse the company for perquisites and payments" totalling $8.6-million (U.S.) from 2009 through 2014. MDC said it had paid Mr. Nadal to cover, "among other things, travel and commutation expenses, charitable donations, medical expenses and certain expenses for which the information was incomplete."
Mr. Nadal, 57, a self-made entrepreneur who has likened himself to the underdog title character in the film Rudy, has made several high-profile donations to community organizations in his hometown of Toronto , including the Miles and Kelly Nadal Youth Centre, Leadership Sinai and the Miles Nadal Jewish Community Centre. Asked whether MDC had paid for these gifts, a spokeswoman declined comment, adding, "I can't say and I honestly don't know." Through the company, Mr. Nadal, who lives in the Bahamas, declined to comment.
This is the latest in a string of controversies linked to MDC's governance and the exorbitant pay for its chief executive and founder, who has never been shy about his opulent lifestyle (his former 80-foot yacht, Dare to Dream, even had its own website). Two directors left the board in the early 2000s after raising concerns about his pay, which typically amounted to millions of dollars each year even as the company posted wildly uneven results and poor returns as it switched in and out of strategies.
MDC has found greater success in recent years buying stakes in dozens of advertising agencies. Still, retired Liberal senator Michael Kirby, a member of the MDC board's compensation committee, acknowledged in 2012 "the board is sensitive" to concerns about the CEO's compensation, adding "I accept that" Mr. Nadal's pay is high after he earned $23.8-million in 2011.
Mr. Nadal's pay has remained buoyant as the company's stock has hit new highs in the past three years. His total compensation reached $16.8-million last year and $20.7-million in 2013, making him among the highest paid Canadian CEOs despite the fact his company earned $179-million in adjusted operating earnings on revenues of $1.2-billion last year. By contrast, BCE Inc. CEO George Cope earned $11.5-million (Canadian) last year, as BCE hauled in $21-billion in revenues and $8.3-billion in operating earnings.
While Mr. Nadal and fellow directors promised a decade ago to clean up the company's corporate governance record, changes announced by the company this week stemming from the SEC investigation suggest internal controls have gone wanting.
MDC said the board's audit committee "has adopted and implemented a series of remedial steps to improve and strengthen the company's internal controls and procedures regarding travel, entertainment and related steps" including "a new private aircaft usage policy." It has also hired two executives to oversee internal controls and compliance, including reviewing monthly expense reports. The company also said chief accounting officer Michael Sabatino was moved to a new role handling "special projects." His duties will be assumed by chief financial officer David Doft.
MDC said it incurred $5.8-million (U.S.) in legal and other expenses related to the SEC investigation in the first quarter, but expects to book a second-quarter gain equal to Mr. Nadal's repayment.
The company said in a statement it continues to "actively" co-operate with the SEC, adding it expects the situation will "have no impact on the integrity of our current or previously reported financial statements." MDC still expects to meet its financial guidance of at least $1.3-billion in revenue and adjusted operating earnings exceeding $195-million this year.