The Right Way to Icahn-Proof Your Board

The magazine Corporate Board Member is scheduled to come out with an article in their January issue entitled "How to Icahn-proof your board," according to marketing materials the publication sent out.

Naturally I await this article with keen interest, particularly since I serve on a number of boards that apparently failed in this regard.

With the 2009 proxy season looming large and hedge funds gearing up for some serious board challenges, some board members may not want to wait to glean the nuggets of advice from the magazine's staff of august commentators.

So in the spirit of the holiday season, I offer my own unsolicited advice on how to Icahn-proof your board. I'll start with this nugget: don't give me reasons to come after your company to begin with.

The right way to achieve this, of course, is for shareholders to elect strong and independent-minded boards that have the knowledge and courage to demand answers from management they are charged with overseeing.

Such a board should be capable of exercising its oversight responsibility in appointing and oversee managers whose primary objective is to relentlessly develop and implement successful strategies, grow shareholder value and cut waste.

In addition, the board should regularly and constructively communicate with shareholders and view them as partners, not impediments.

Lastly, managers and board members should focus on their primary job of maximizing asset values and not feathering their own nests, and soaking up huge bonuses and perks in spite of lackluster and value-depleting performances.

If boards execute these strategies successfully, they will be Icahn-proof. There are many respected companies which practice these simple precepts. Not surprisingly, they rarely face challenges from activist investors like myself and dozens of others out there.

Sadly, I fear the magazine will offer another kind of advice: the wrong way to Icahn-proof your board.

In recent years, a whole cottage industry of corporate sycophants and panderers has grown up to advise boards on how to obstruct shareholders and fend off legitimate challenges from the true owners of companies -- the shareholders.

As more weak boards adopt these misguided tactics and policies, corporate America's competitiveness and entrepreneurial drive is eroded. This should be of major concern to anyone whose livelihood depends on a strong economy -- which includes virtually everyone.
This misguided advice is generally aimed at entrenching existing managements, no matter how poorly they perform. It is produced by law firms, public relations firms and corporate consultants, all of which look to curry favor with boards and win lucrative advisory contracts.
For example, the law firm Blank Rome recently offered advice on how to "lessen your company's vulnerability to a shareholder activist and prevent it from being a sitting duck this proxy season," according to a memo to its clients.

Blank Rome advised that boards should enact myriad technical amendments to a company's bylaws and certificates of incorporations "intended to shield the company from activist shareholders," according to the December memo.

Such advice is premised on the assumption that activist shareholders are forces that must be thwarted and obstructed, implying that passive shareholders that dutifully vote the management line are the "good" shareholders.

Nothing could be farther from the truth, of course.

In my view, it was passive and hands-off mutual fund shareholders and weak boards that allowed the outrageous messes that occurred in the last two years. During that period, we saw major stumbles or collapses at dozens of top-rated companies, including corporate pillars like AIG, Lehman Brothers, Bear Stearns, Citigroup, General Motors, IndyMac, Countrywide, dozens of regional banks and others.

Where were the boards at these companies? Were they asking the right questions and demanding answers? Or were they seduced by the siren songs of legions of consultants and lawyers as jetting off to lavish retreats, while the companies they were charged with overseeing got haplessly crushed on desolate and rocky shorelines?

I have formed United Shareholders of America to rout out lax and incompetent corporate governance.

After trillions of dollars in market value was obliterated needlessly by sheer corporate incompetence and mismanagement, it is urgently time for shareholders demand accountability from managements.

The way to successfully Icahn-proof a board -- by having it perform the way it is designed or get it out of the way and let others do the job. Our job as shareholders is to demand nothing less.

Join United Shareholders by signing up on my blog, the Icahn Report. It costs you nothing and our national weal depends on demanding action.

Comments

[Social Construct]

A werewolf in wolf's clothing.

[frantaylor]

I've worked for several privately-owned companies. They are the most stable and best-run places to work precisely because they do not have to answer to shareholders and board members. Their financing tends to be more stable because the owners are personally invested and they actually pay attention.

If you think all private companies are small mom-and-pops, look again. The ones I've worked for are among the larger companies in their fields.

Something to keep in mind when choosing your next job.

[veritasrules]

@WeTellTheTruth
Where are you getting this information? I don't think Carl owns Rite Aid. I think it's great that he is pointing out obvious flaws in our system. Excellent article, Carl.

[WeTellTheTruth]

Vrules - V1.......I assume your the same person.......sneaky

I got my information from "the Googel"..... perhaps you should do some research before you post.

[WeTellTheTruth]

Now the truth

Stock: Icahn Enterprises LP [IEP].... High $135 - Current $40.... DOWN approx 65% in the last year [Carl Icahn chairman and CEO]

Stock: Rite Aid [RAD] .... High $3.25 - Current $.35 [35 cents].... DOWN approx 90% in the last year
[you own 10 million shares as of last March]

It never fails to amaze the rest of us that the so called titans of wall street [Paulson, Bernake, Carl Icahn... to name a few] still continue to pass out advice as if they are smarter or know more than everyone else.

Your article is a transparent attempt at public relations and spin in order to shape the public's perception of you ahead of critical article about you. Your spin will not work .... there are too many informed citizens.

[Veritas 1]

I love it when people try to prove somebody else is an idiot by pointing at random stock prices over random periods of time and not prefacing them with the performance of similar companies. Yahoo tried to do the same thing with its propaganda leading up to the proxy contest that never happened. Considering that Icahn Enterprises has a retail and metals component, being down 65% doesn't seem overly atrocious. Rite Aid is just a bad company and was long before Icahn ever became involved with it. It is trading at $.35 because it is highly levered (300 M in equity to 6 B in debt) and as such is probably on the brink of bankruptcy in this environment.

[WeTellTheTruth]

"down 65% doesn"t seem overly atrocious".......?

I agree....... It's just plain atrocious.

[Ladyrantsalot]

HuffPo prizes Carl Icahn's sensitive feelings over the principle of free speech and refuses to post my previously submitted criticism of Carl Icahn. I urge all of you to turn to a "radical" news source, the _Wall Street Journal_ , where one is still free to question the motivations of today's billionaires. See the Aug. 1, 2008 article, "Why Carl Icahn is Bad for Investors." Carl Icahn acts in the interests of the hedge funds, not average investors.

[Veritas 1]

Carl may not be the champion of shareholders he claims to be, however i give him credit for his interest and passion in addressing many of the problems of our system. While he may be "bad for investors," most management teams are worse. An abundance of takeovers and raids is not the solution, but something needs to be done to bring accountability back to managers and power back to shareholders. As it is, the 2 handicap CEO is just too prevalent.

[Ladyrantsalot]

I agree that there are real problems in corporate governance, but please don't buy into Carl Icahn's self-representation as someone who is advancing the interests of average shareholders. He advances the interests of a particular kind of investor: extremely wealthy groups who force boards to restructure companies in ways that bring a short term increase in the price of a share but undermine the long term vitality of the company. By that time, of course, these "investors" have sold their shares and are long gone. Boards are responsible for the long term viability of their companies; corporate raiders are not.

[satyriasis]

The WSJ believes Sarbanes-Oxley and the Community Reinvestment Act are the cause of the current economic collapse. They have zero credibility. Even if you dislike Icahn at least he is addressing an important issue; shareholder activism.

[satyriasis]

Good piece. We need stronger shareholder activists like you taking the fight to management.

[WIpatriot]

"I'll start with this nugget: don't give me reasons to come after your company to begin with."

That's the first thing I thought when I read the title of this article.
EXACTLY.

[KrystynM]

Thank you Huffington Post

[KrystynM]

ok, third times a charm right? Lets see if a post where I agree with Mr Icahn will appear

[KrystynM]

The only issue I see with this article is the glaring oversight of the employee. I find it very unpalatable when people like me are disposed of, at the hands of an Icahn Board, in order to cut costs and "waste" when it was my work keeping the doomed ship afloat, while my manager and top executives were pillaging and padding their own nests.

When someone like Icahn comes in and "turns around" a company, this is exactly what happens. The higher ups never get their come uppance. I get it for them.

[ReasonIsMyReligion]

Huzzah.

[frantaylor]

It is not the corporation's job to ensure that the employee has a job. That's the government's job. If the government does its job well, no one need worry about losing their job because there will be another one waiting for them somewhere else. The government must do its part by fostering a business environment where everyone can get a job.

[KrystynM]

Wait, so the corporation has no responsibility to the very folks who make it successful? But the gov't does? No, thats not right. Come on now. This type of thinking leaves workers out in the cold.

[Donkeykick]

Krystyn: I agree with you. It always seems that companies care more about higher ups than the people that show up to that business and makes it breathe and circulate blood -- thus keeping the body going.

When will CEOS learn that the heart is as just important as the brain?

[StopBadSurfing]

Boards are full of people who fail to represent the interests of the people they are there to represent...the shareholder. If you think it's bad at public companies, where executive hubris reigns, comp committees dole out endless options, then reprice those options when things go badly (where can the shareholder do THAT?), and generally help themselves to the piggybank, you should see VC backed private companies. Good luck, Carl, draining this part of the swamp. We're not far from armed rebellion, if this doesn't turn around soon and the corporations, politicians and bankers finish swindling what's left of the public's money.

[frantaylor]

The whole VC thing collapsed years ago, there is _no_ VC money to be found anywhere, I don't know what you are talking about.

Those VC backed private companies went bankrupt very quickly because they never made any money. There were no shareholders to fool so they couldn't get away with much. I have worked for them too and they were all rotten to the core, and they all went out of business very quickly. This is the system functioning correctly. There are other things to worry about. This is not the public's money, this is foolish investing.

[ld]

Excellent points in this article. My image of you has shifted.

Regardless, it's nice to have your voice in this forum.

[Counterglow]

You forgot promotion of short-term, scorched earth profit-taking at the expense of the long-term interests of the company. Too many investors couldn't care less what happens five years down the line. They'll have grabbed the cash and moved on.

[frantaylor]

When he says "grow shareholder value", what do you think he means by that?

[Counterglow]

I think he means the company is worth more this quarter than last. Next year? Who cares.

[tailgateshirts]

Only if more companies followed this route and you got Jerry Lang out of Yahoo sooner......

[ReasonIsMyReligion]

I would love to read what Mr. Icahn would recommend to the next TWA. Not in terms of before he buys in, but once he has and even after he sells.

My broader point: One of the things wrong with America is the complete absence of corporate responsibilty for corporate workers -- and their pensions.

If your house is more sold in pieces, with a lien on the foundation, than intact, Carl's your man. Sleeping arrangements? You're on your own.

http://www.businessweek.com/2001/01_04/b3716094.htm
http://www.pbgc.gov/media/news-archive/news-releases/2000/pr01-11.html
http://www.corporatecampaign.org/twaicahn.htm

[ReasonIsMyReligion]

Oops... "WORTH more sold in pieces"

[pcplz]

Totally agree!