Unfortunately for Sotheby's, the problem with running a public company is that your corporate spats are, well, public. The CtW Investment Group, an advisor to many union-sponsored pension funds (affiliated with the still-locked-out Sotheby's art handlers) sent out a public notice to shareholders via a Securities and Exchange Commission filing last Thursday, accusing the Sotheby's board of cronyism and a structure that has changed little since the company was privately controlled by the Taubman family, which ended disastrously (including fines and jailtime) a decade ago after a price-fixing scandal with rival auction house Christie's. The filing notes that four of the last six boardmembers elected were nominated by CEO William Ruprecht, an executive that the board is in charge of overseeing, according to Sotheby's own internal guidelines.

As a specific step, CtW urges stockholders to vote against the re-election of three incumbent Sotheby's boardmembers, Michael I. Sovern, Allen Questrom, and Diana Taylor, at the auction house's annual shareholders meeting on May 8. These three figures are on the board's "nominating committee," in charge of naming potential new candidates for the body. CtW also advocates using an independent search firm to nominate candidates in the future, to avoid the appearance of impropriety given by the current structure. The filing states:

As for the specific damage that is alleged to have been incurred by the current structure, CtW's filing cites the failure of the Sotheby's board to expell James Murdoch, who served as a member until stepping down last month, after the News Corp exec became fatally entangled in the News of the World hacking scandal. CtW itself began calling for Murdoch to be expelled from the body last October. The SEC filing alleges that this sluggishness in dealing with a problem is evidence of "a flawed nomination process that fails to identify and recruit credible, outside directors."

But are Sotheby's corporate practices really that abnormal? Boards of directors are generally populated by the upper echelons of business professionals, and finding people with the right expertise who aren't friendly with other board members and executives can be difficult. As for the practice of CEOs suggesting candidates, "it happens frequently, but it doesn't mean it is desirable," Bruce Kogut, the director of the Sanford C. Bernstein Center for Leadership and Ethics at Columbia Business School, told ARTINFO. While the current structure of the Sotheby's board may not be good practice, it is common enough throughout the corporate world and does not meet the definition of conflict of interest (which would in most cases legally require someone to resign from the board).

The thrust of CtW's argument, however, is that such practices might well reflect poorly on the auction house's business, which in turn hurts shareholders. The investment group's document concludes that because of Sotheby's public nature and $2.5-billion market capitalization, "we [CtW] believe that it needs to be overseen by critical mass of outside directors recruited in an objective, independent manner."

While the filing specifically targets several current members of the board, including James Murdoch's former childhood friend John Angelo and former director Steven B. Dodge — who was just nominated to replace Murdoch (he previously served from 2004-2007) — its main purpose is to urge shareholders not to re-elect the three incumbents who serve on the nominating committee. In Taylor's case, the concern listed is that she was "recommended by [the] CEO"; in Sovern's, it is that he has served on the board for 12 years, since the auction house was private. As for Questrom, it is less clear from the filing what the specific issue is in his case.

The filing also notes that the last four directors appointed to the board — Taylor, Angelo, restaurateur Daniel Meyer, and corporate lawyer Marsha Simms — "were all initially recommended for consideration by the CEO," which is essentially the clubby way that things worked when the company was private and controlled by the Taubman family. 

Sotheby's declined to comment on the matter.