Posts Tagged ‘Proxy fights’

After the proxy fight (and before)

April 4, 2011

The April 2011 Harvard Business Review is “The Failure Issue” – with lots of good stories and lessons. In one, former Blockbuster CEO John Antioco  talks about his run-in with activist investor Carl Icahn – and Icahn responds (both available here).

Two different views emerge, as you might guess, from the corporate raider who calls Blockbuster “the worst investment I ever made” and the video-store CEO whose eject button got pushed. Blockbuster is still being sorted out in bankruptcy.

Proxy fights are appropriate for HBR‘s Failure Issue because, usually, a proxy fight is itself a sign of some failure in the business (speaking of a real battle for control, as opposed to those political proxy proposals arguing for societal reforms).

Antioco and Icahn’s comments on dealing with each other – especially early on – may provide some wisdom for investor relations people. We all face the possibility of some future encounter with an activist investor. Antioco begins:

When my assistant came into my office in early 2005 and told me that Carl Icahn was on the phone, it was a complete surprise. I knew, of course, that Icahn was an “activist shareholder,” but I had no idea why he might be calling. Icahn told me he’d bought nearly 10 million shares of Blockbuster … I didn’t know what kind of play he saw in Blockbuster.

Icahn’s response article offers a raison d’etre for activist investors, which also hints at what was in the background when he placed that call to Blockbuster:

The fact that I can make so much money as an activist investor [Forbes estimates Icahn’s net worth at $11 billion] shows that something’s wrong with governance in most of corporate America. There’s no accountability for CEOs. There are good CEOs and good boards, but too many directors don’t care. Activist investors provide some accountability and can be important catalysts for change.

As Antioco tells the story, Blockbuster was troubled by the shift from videotapes to DVDs, the rise of online rental firm Netflix and the prospect of eventually watching movies online. His turnaround strategy involved spending $400 million to change Blockbuster’s business model – and that was an invitation to an activist investor.

Icahn and two other independents won election to the board in 2005. Before getting to what might have led to a more amicable solution, here is how Antioco describes dealing with activists once they’re in the boardroom:

Having contentious directors was a nightmare; as management, we spent much of our time justifying everything we did. One of them had a bunch of ideas, such as putting greeting cards in the stores, carrying adult movies, and making a deal with Barnes & Noble to add a book section. Mostly, though, they questioned our strategy …

Ah, the strategy. A few years later, Icahn is willing to admit that Antioco’s strategy was at least partly OK and he was doing a good job implementing it. But …

The biggest issue was his excessive compensation package. Investors were outraged that he’d get $50 million if there was a change of control. That was the nail in his coffin.

And so it went: contentious. In December 2006, management was due big bonuses because Blockbuster’s results were better – but pay was still an issue. The board asked Antioco to step out of a meeting, then slashed his bonus. Things got worse, until Icahn and Antioco hashed out a deal for the CEO to leave in June 2007.

In 2010, still struggling, Blockbuster filed Chapter 11. Failure all the way around.

Before that point, before the contentious board meetings and before the proxy fight – maybe even before Carl Icahn’s call to John Antioco – you have to wonder if astute management and an alert board might have taken actions to avoid failure.

Sure, it’s a game of “What if …” In this case, Antioco wonders if he should have met with Icahn earlier to communicate – to lay out his strategy – before the fight began. Icahn might have bought in, or decided to sell his stock and go away. Icahn wonders if the board should have let the ’06 bonuses go through, avoided a blowup and kept management focused on a strategy that seemed to be working.

Before the battle lines even formed, maybe management could have recognized the fierce competitive challenges and come up with solutions that didn’t involve betting $400 million of shareholders’ money on a couple of risky ideas. The best way to avoid activist shareholders, after all, is for management to be the activist.

What’s your take on avoiding that nasty phone call and a subsequent proxy fight?

© 2011 Johnson Strategic Communications Inc.

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Politics & proxy proposals

January 22, 2010

Update: Activists announce Feb. 4 that they are organizing for proxy fights and lobbying efforts to oppose corporate political involvement. The effort is under the rubric of ShareOwners.org.

The ink is barely dry on the US Supreme Court decision to allow corporations to spend money on political ads, but one likely consequence is that activist shareholders will gain fresh momentum for a wave of proxy proposals seeking to limit or prohibit political spending by public companies.

While political junkies are dithering about how corporate money might sway the 2010 elections, corporations and investor relations professionals should realize that the Jan. 21 Citizens United decision presages a different kind of elections: more shareholder proposals on political activity and spending.

Leading the charge on this issue since 2003, a Washington advocacy group called the Center for Political Accountability has worked with labor unions, religious groups and others to file proxy proposals – more than 60 in 2008 and again in 2009. These generally would require semi-annual reports describing political contributions and who makes the decisions – posted on company websites – along with special oversight by boards of directors of political efforts.

Within hours, the Center for Political Accountability announced the Supreme Court ruling makes it “more critical” to press corporations for change on this issue. The advocacy group negotiates for self-policing by companies it targets, and it says more than 65 companies have adopted disclosure and board supervision.

Since shareholder activism may be Plan B for labor unions and liberal groups seeking to curb corporate money that might fund election efforts, I’m guessing we’ll see a lot more proxy proposals.

Of course, Plan C might be for Congress or the Securities and Exchange Commission to get into the act by requiring some form of disclosure or oversight of corporate political giving. Stay tuned.

© 2010 Johnson Strategic Communications Inc.

Oh, good (for now anyway)

October 2, 2009

One regulatory reform proposal has slowed down a bit, at least for now: The Securities and Exchange Commission doesn’t plan to vote until early 2010 on a “proxy access” rule, which would help shareholder activists nominate slates for corporate boards, The Wall Street Journal reports today.

Delay of an SEC vote from autumn to January or February means companies wouldn’t have to contend with direct proxy access in the spring 2010 proxy season, the WSJ notes. That would offer a breather for corporate staffs – and maybe some embattled corporate boards – amid a wave of potential new regulation.

Proposed in May, the SEC proxy access rule (if passed) would give shareholders a “right” to have their board nominees listed in a company’s proxy materials -empowering dissidents who might otherwise be shut out. To qualify for submitting board candidates, shareholders would need to hold a minimum of 1% of the shares for larger firms; 3% for mid-sized companies; and 5% for small firms.

SEC Chairman Mary Schapiro favors the proposal, citing the financial crisis as evidence that boards need more accountability.

Business groups like the National Investor Relations Institute oppose the idea. President & CEO Jeff Morgan said in NIRI’s comment letter to the SEC:

Possible side effects of a federal proxy access rule include increased costs to public companies to ensure valid nominations are included on the proxy, an increased influence of activists with narrow economic interests that run counter to that of long-term shareholders, a continued reduction of individual investors’ proxy voting influence and the possibility for decreased board effectiveness.

Morgan favors company-initiated changes in the proxy process, tailored to the varied interests and circumstances of individual companies. (See Morgan’s comments on a range of regulatory issues in his President’s Blog at the NIRI website, or a quick summary in this IR Café post. Broc Romanek gives an overview of comment letters on proxy access in a post at TheCorporateCounsel.net.)

“Proxy access” hasn’t gone away – just slipped a notch in the Washington timetable.

My own opinion: Handing more power to hedge funds, social activists or union pension funds isn’t really a good “fix” for corporate blunders or misdeeds. Activists follow their own political or economic agendas – not necessarily in the best interest of shareholders. Companies that destroy shareholder value, in my opinion, are punished in the market. And their CEOs and boards often share in the downfall.

What’s your opinion? And have you or your top management spoken out?

Quote, unquote – Proxy EXcess

August 26, 2009

Discussion of the Securities and Exchange Commission‘s proposed new “proxy access” rule, aimed at giving activist shareholders an easier shot at electing members or slates to boards of directors, can get pretty arcane.

So I was glad to see, in today’s Wall Street Journal, a good primer on 14a-11 and a succinct and quotable quote that, to me, sums up the proposed change. Says lawyer John Finley of the New York firm Simpson Thacher & Bartlett:

It’s the biggest change relating to corporate governance ever proposed by the SEC. Period. It gives activists the ultimate vehicle to express dissatisfaction with a board, the ability to replace board members at the company’s expense.

Business lobbying against the change is ramping up toward the post-Labor Day push. That, of course, is when politicians return to Washington and harvest season begins for the crop of governmental mischief planted earlier in the year.

Maybe we could rename this particular proposal “Proxy Excess.”

Someone should’ve said no

July 6, 2009

Well, there’s knowing your shareholders – and then there’s going way too far.

The German magazine Der Spiegel reports today that the country’s largest bank, Deutsche Bank, hired private investigators to look into members of its management and supervisory boards – and a pesky shareholder.

To be sure, the bank was investigating information leaks it saw as threatening – but it seems obvious someone should have said “No.” Now, the bank faces reputational damage, scrutiny of top executives’ roles – and possible legal action.

A 2001 case involved a union representative on the company’s supervisory board, suspected of leaking earnings info to the press. In 2006, the bank investigated contacts between management board members and German media mogul Leo Kirch, who was tangling with the bank legally. Among the targets, Spiegel says:

The bank also had external helpers investigate a shareholder believed to have links with Kirch – Michael Bohndorf, a lawyer who resides on the island of Ibiza. The investigators compiled detailed reports on his movements and even looked into whether he had any personal weaknesses: alcohol, gambling, women? One insider reports that the agency resorted to hiring women to test him.

For years, Bohndorf has been annoying Deutsche Bank by asking dozens of questions at annual shareholder meetings and taking legal action if his questions aren’t answered. The bank has already informed Bohndorf of the spying operation and apologized for it.

Two other German companies, Deutsche Telekom and Deutsche Bahn, face spying scandals. American firms have fallen into this trap in the past.

When the company is in the heat of battle – litigation, proxy fight, M&A contest – a mood of paranoia can take over in the executive suite. But when it comes to violating the law – or doing something that will look stupid in The New York Times or Der Spiegel – someone on staff should be saying “No. Don’t go there.”

The sanity check, sometimes, might even come from investor relations.