In recruiting a first class shareholder nominated slate of directors, on what must
an activist focus? Which are the pertinent issues to be addressed in this critical
Given the intense scrutiny brought to bear on individuals proposed by an activist
to be elected to the board of a target company, why would any qualified professional
agree be on such a slate?
The answer to that question lies in the basic tenets of good corporate governance.
Many would-be directors must be made to understand that from a fiduciary and legal
standpoint, board service carries a single mandate: enhance shareholder value!
Thus it becomes the task of the activist or its search consultant like myself, as
learned in some 30 proxy contests, to explain that not only is there nothing disreputable
about serving on a dissident slate, as is frequently believed, but instead it should
be viewed as a form of shareholder patriotism. Indeed when a board fails to act
in the best interests of shareholders, it then becomes their duty to take action.
Enlisting the support of dissident nominees in the name of shareholder value is
a formidable tool for promoting proper governance.
“It’s not about opposing the company;” I tell prospective dissident nominees, “it’s
about obtaining for the stockholders what they deserve.” To dispel the notion that
dissidents will be shunned by other companies, I cite the names of well-respected
directors who have been nominated in both contested and non-contested situations.
Despite that, the yield in the recruitment process is generally low. Thus it’s necessary
to contact many more candidates than would be required in an uncontested situation.
A “24/7” effort is required, particularly when, as is frequently the case, the activist’s
slate needs to be recruited, vetted, and lengthy D&O questionnaires completed all
within a narrow time frame… sometimes mere weeks.
Assuming its search consultant is sufficiently articulate to state the activist’s
case effectively, whom should it approach? What’s the profile of the ideal dissident
Rudimentary is that the slate be comprised largely of those with experience in and/or
knowledge of the target company’s industry. Additionally, board committees need
to be appropriately populated. For example, if one of the directors to be replaced
is the chair of the audit committee, then one nominee needs to be equally qualified.
It’s wise to choose alternate nominees in the event that subsequently someone opts
out or is unable to serve. Of course the recruiter must ensure that all nominees
are totally independent. Additionally, none should have served on the board of a
company which filed for Chapter 11 during his/her tenure or adopted a poison pill.
Overboarded types are to be avoided. In short, ISS and other proxy advisors should
have no reason to object to any member of the slate.
Dissident nominees must possess a fresh perspective, allowing them to analyze and
evaluate the company’s current strategy, see its flaws, recognize what action ought
be taken, and with resolve urge its implementation. That said, such directors must
neither swear blind allegiance to the activist (in itself improper fiduciary behavior)
nor be coopted by an entrenched extant board. The prospective nominee, therefore,
needs to be proactive, demonstrating the advocacy skills required in a boardroom
setting where he/she, in the case of a “short slate,” will be outnumbered or possibly
constitute a lone voice. Someone who wilts under pressure and succumbs to the will
of the incumbent directors, defeats the entire purpose of the activist’s initiative!
How to discern those skills? In the course of a personal interview, a perceptive
recruiter experienced in contested situations can do so. It’s best to glean further
insights by interviewing reliable and objective directors of other companies with
whom the prospective nominee has served. How did the nominee candidate act when
first elected? Did he/she “go along to get along?” How did that individual interface
with the CEO, lead director, or board chair? How prepared was the person for each
meeting? Did he espouse a point of view that differed from the majority, and was
he able to prove his point? Did the board ultimately adopt his position? In determining
the answers to these critical questions, the recruiter needs to be as much a skeptic
as the candidate being recommended.
Another important consideration in choosing a dissident slate is whether to select
those who have been previously nominated by activists and ideally elected to those
boards. Having a few of such types on the slate brings valuable experience to the
table. Too many may invite accusations that the slate is dominated by mercenaries.
Obviously recruiting high quality nominees who enjoy excellent reputations as boardroom
leaders is imperative. Board diversity in terms of ethnicity and gender ought to
be an objective. In a vigorously contested situation, the activist must rely upon
those with the availability to be effective. Moreover, when the news release and
proxy material are ultimately disseminated, the nominees’ biographies as well as
the reasons for nomination need to be viewed as impressive.
Should activists confine their nominees to those they know? In my judgment, no.
Having totally independent individuals on a slate enables the activist to represent
that its nominees aren’t beholden. When the slate is recruited by a search consultant,
an activist is insulated from such criticism.
Quoting an article I authored, which appeared in the American Bar Association’s
Business Law Today (1/99), “Perhaps the term ‘dissident director’ will yield to
governance guru Ira Millstein’s (Partner, Weil, Gotshal, & Manges) preferred term,
‘shareholder slate director,’ reflecting a more enlightened activist community…”
Mr. Seiden is President of Seiden Krieger Associates, Executive Search Consultants,
NY. He has recruited dissident directors in some 30 proxy contests.