CHICAGO (CN) - Tootsie Roll's 91-year-old CEO runs a "secret empire" with a handpicked, aging board, sharing so little financial information that stock analysts won't even cover the company anymore, a shareholder claims in court.
Cadillac Partners sued Tootsie Roll Industries and five of its corporate officers in a derivative complaint in Cook County Court.
Cadillac Partners claims Tootsie Roll CEO Melvin Gordon, 93, and his wife Ellen Gordon, 81, the president, together own 46.8 percent of the company's common stock and 82.2 percent of its Class B stock.
They also control the elections to the Tootsie Roll Board, the youngest of whom is 66 years old, according to the complaint.
"Tootsie Roll's Board, under the control of the Gordons, has caused substantial harm to the company," the complaint states. "In this regard, an August 22, 2012 article in The Wall Street Journal entitled 'Tootsie's Secret Empire' indicates that securities analysts do not cover the company because it is too difficult to get financial information and that this lack of coverage has caused the company's stock to trade at a lower price than it otherwise would."
The Journal article, quoted in the complaint, said: "The 116-year-old company, run by one of America's oldest CEOs, has become increasingly secretive over the years, severing nearly all of its connections to the outside world. Tootsie Roll shuns journalists, refuses to hold quarterly earnings calls, and issues crookedly scanned PDFs for its earnings releases. The last securities industry analyst to maintain coverage of the company stopped last year because it was too hard to get information.
"'I think the only way you can get a tour is by jumping over the fence and sneaking in,' said the last analyst to attempt the task, Elliot Schlang of Cleveland firm Great Lakes Review.'"
Melvin Gordon has run Tootsie Roll for 50 years, according to the Journal.
He and his wife received total compensation of $7.6 million last year, plus $1.2 million for a company plane, and $10,000 a month for their Chicago apartment, the Journal reported, as quoted in the complaint.
After reading this article, Cadillac Partners says it asked to inspect the company's books, and that "after reviewing the documents produced by Tootsie Roll in response to plaintiff's books and records request (which included all board minutes where the above was discussed), it is clear that the Board has made no effort to investigate or consider the consequences of management's failure to share company information, and communicate, with securities analysts. ... Indeed, the Board minutes produced demonstrate that notwithstanding The Wall Street Journal article, the Board has not so much as considered whether management's failure to share company information with analysts or to have a succession plan has had a negative effect on the company's stock price. ...
"Additionally, the heavily redacted Board minutes produced by the company failed to demonstrate that Tootsie Roll does in fact have a succession plan, which is prudent due to the fact that the company's CEO, Mr. Gordon, is 93 years old, Tootsie Roll's President and Chief Operating Officer, Mrs. Gordon, is 81 years old, and the youngest of the company's directors is 66 years old."
Besides its namesake candy, Tootsie Roll also produces Charms Blow Pops, Sugar Daddy caramels, Charleston Chews, Junior Mints, Dubble Bubble chewing gun, and Dots gumdrops.
Cadillac Partners seeks damages for breach of fiduciary duties, and a court order demanding that Tootsie Roll create a succession plan and meet with analysts.
It is represented by Leland Shalgos.
Also named as defendants are Tootsie Roll Directors Richard P. Bergeman, 75; Barre A. Seibert, 71; and Lana Jane Lewis-Brent, 66.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.