Proxy Contests and Shareholder Slates

(page 2 of 2)

If you have been asked to stand for election to the board on a shareholder slate, however, you also need to do your due diligence on the fund that's putting your name forward. Review the disclosure form filed with the SEC when the fund registered as an investment adviser.

Ask to see any audits or reviews of the firm conducted by the SEC, if there have been any. You want to have a commitment from the fund that it will be completely transparent about all its activities in the proxy contest so you know exactly what's transpiring. You also need to understand the fund's investment time horizon: How long has it held stock in the company, and how long does it plan to hold the stock going forward? Will it be 12 months or three years? That can make a big difference.

What's the most important issue for a prospective candidate to discuss with the nominating shareholder?

Your independence. You may have been nominated by a particular shareholder, but once elected to the board, your fiduciary duty is to ALL shareholders. You need to be comfortable that this is well-understood and that there is no expectation that you will be reporting back to the shareholder or providing it with confidential information from board discussions.

Is there any stigma attached to people who serve as shareholder nominees for a board?

Some people worry that serving as a board member in a proxy contest may diminish opportunities to be nominated to other boards in the more traditional way—by a nominating committee. They fear that after having served on a shareholder slate, they may be viewed as a troublemaker.

Personally, I think this is an antiquated view, even though I have heard it expressed recently. There are some outstanding people who have put their names on shareholder slates. What investors want are the best possible candidates serving on the boards of the companies they have in their portfolios.

What advice would you give someone who enters the boardroom as a director nominated by a shareholder?

Enter that boardroom with complete professionalism and respect. Demonstrate very clearly that you understand your responsibility as a board member is to ALL shareholders, not just the shareholder who nominated you. It's also important to have a sense of both urgency and patience. You are typically going onto that board as a shareholder nominee because there are performance problems with the company. That drives a sense of urgency to ensure that these problems get addressed. However, you also need to have the patience to foster collaboration with the rest of the board or you won't be able to achieve the changes that are necessary to serve the interests of all shareholders and improve the company's value.

Business Exchange

Track and share business topics across the Web.