Two directors have resigned at 1st Constitution Bancorp as part of a dispute over corporate governance at the Cranbury, N.J., company.

John Costas and Frank Walsh stepped down last week, with each raising concerns about how the $948 million-asset company is being run.

"The board has failed to meet two of its most important obligations; setting strategy and putting the interests of shareholders before those of individual board members and management," Costas said in a letter to Charles Crow 3rd that was included in a recent regulatory filing.

"The governance of the bank has not been conducted within the confines of our board but rather in private meetings between you and the bank's CEO," Costas claimed in his letter. "Repeated requests for holding company meetings to set strategy and focus on governance improvements have been ignored, rendering the holding company board completely ineffectual."

Costas, who owns about 5.4% of 1st Constitution's stock and had been a director for six years, also claimed that the company had ignored several recommendations from Kafafian Group, a consulting firm hired last fall, including a need for a "board-developed strategy" and improved director input on agendas. He said the consultant also flagged the company for a lack of independent executive sessions.

"As one of the largest shareholders of the bank, I ask that both you and the board take immediate action to remedy these governance shortcomings," Costas wrote to Crow.

"I am resigning as a result of my frustration … regarding the governance practices of the company and the bank," Walsh, who had been on the board for more than 20 years, said in his letter to Crow. "As we have discussed in detail in the presence of the bank board, you have repeatedly demonstrated a lack of independence as board chairman and have put the agenda of management ahead of fellow directors and shareholders.

The company, meanwhile, said in a press release Wednesday that it the dispute was tied to its decision to follow the consultant's recommendation to expand the size of the corporate board and merge the boards of the company and the bank.

"The board believes that the positions of the resigning directors, particularly regarding the board placing interests of management and individual board members before shareholder interests and the independence of the chairman of the board, were unfounded," the release said.

The board elected five new directors: James Aaron, a lawyer; Lynne Cannon, chief executive at Princeton Management Development Institute; Antonio Cruz, a retired lawyer; Roy Tartaglia, president of the real estate investment firm TAI-PAN; and Edwin Pisani, an advisory services managing partner for Ernst & Young's financial services office.

Pisani who was also appointed chairman of the 1st Constitution's audit committee.

Robert Mangano, 1st Constitution's president and chief executive, said in an interview that both boards have always featured independent directors.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.