Article in today’s Washington Post
Sunrise Chief to Step Down as Chairman

Sunrise Senior Living chief executive Paul J. Klaassen is stepping down as chairman, one of several governance changes announced yesterday, two years after the company disclosed accounting irregularities and came under fire for management practices.
Sunrise, of McLean, also said it risked being delisted from the New York Stock Exchange after missing a Monday deadline to file its annual report for 2006. As recently as two weeks ago, Sunrise said it would make the deadline. Its shares fell more than 14 percent, to $19.59, a 52-week low.
The changes are in response to a series of setbacks for Sunrise, the nation’s largest senior-living provider. In May 2006, it announced an earnings restatement that could lower profit by more than $130 million. Management has since faced sharp criticism from activist shareholders, as well as Securities and Exchange Commission inquiries.
Sunrise announced in December that three senior executives left after a board committee investigating the restatement discovered “inappropriate accounting” practices. The committee, however, cleared top executives of allegations of insider trading and improper backdating of stock options.
The allegations were made by a $1.7 billion pension fund associated with the Service Employees International Union, which has criticized Sunrise’s board as insular.
Lynn Krominga, a lawyer who joined Sunrise’s board in September at the urging of a major shareholder, is taking over as non-executive chairman. She said in a statement that the board was “disappointed that the filing deadline was not met” but reaffirmed the board’s “commitment to building long-term value for stockholders.”
She said the governance changes were “designed to rigorously protect the interests of our stockholders, team members and residents.”
Sunrise also said Klaassen agreed to pay back his bonuses from 2003 to 2005. He also agreed not to accept bonuses for the past two years. Klaassen will remain on the board, along with his wife, Teresa, with whom he founded Sunrise with a single facility in Oakton in 1981.
The board directed management to revamp its ethics code and hire a chief compliance officer, among other steps. It also added two slots for independent directors and agreed to put the entire board up for election each year. In the past, the company had resisted such changes, with Klaassen saying they could interfere with “board stability.”
Nell Minow, editor of the Corporate Library, which provides research and analysis on corporate governance, praised the moves.
“What impressed me the most here is that . . . they were very, very specific in enumerating a focus of their efforts, and they made a commitment to adding two new independent directors,” Minow said.
Missing the NYSE deadline does not mean the company will be delisted. According to exchange regulations, Sunrise still has about seven weeks to file its 2006 annual report before being dropped. If it is delisted, its shares will trade over the counter.
“In a way, it was reassuring that they missed the filing deadline,” Minow said. “It shows how thorough their remedial actions are.”
Stephen Abrecht, the executive director of the SEIU pension fund and Sunrise’s leading critic, said he was appalled that the company missed the NYSE deadline and risked being delisted. “The company belatedly implemented certain of the governance changes that we and other shareholders have long been advocating, but the changes come too late to protect shareholders’ interests,” he said.
Klaassen said in a statement that throughout the company’s troubles, its business has continued to grow. “[O]ur development pipeline is active and we expect to continue to build senior living communities in domestic and international markets with favorable demographics and market demand,” he said.
But Ryan Daniels, an analyst with the firm William Blair, warned that even if the company has taken steps to improve its governance, it may face other challenges. In particular, Sunrise had begun to explore “strategic alternatives,” including putting itself up for sale, but that possibility may be diminished by current economic conditions
“[T]he housing, credit, and senior-living markets have experienced significant turmoil over the last several quarters — likely making a transaction harder to complete,” Daniels wrote in a research note yesterday. “This uncertainty — combined with a continued lack of progress in filing financial statements and now the pending delisting of the stock — makes us cautious on the shares.”