When the “Money” is on the Board

What are the ramifications for a corporate board when investor activists or investor-designating directors join?

Todd Kraznow, a member of several boards including Carbonite, noted (at the NACD conference last week in Boston) that whether or not you accept an activist on your board involves an evaluation by the directors as to whether that activist is bringing a different corporate direction which is fairly judged to be worthy of exploration. With an activist on the board, the acid test is whether that new board member actually is able to “perform” and not just ending up “yapping.” If the latter, that new director can be isolated, can be a problem and will not contribute.

Kraznow suggests that rather than seeing activists as the enemy, they should be treated and evaluated as shareholders with just another particular set of investment goals, like all other shareholder cohorts.

I am not convinced that most boards share this view; lawyers often are called upon to thwart the activist, not evaluate the activist’s ideas. And as for directors sitting by designation by investors or PE or VC firms, companies may know that this comes with the territory but are wary of disparate goals down the line and struggle to counter-balance and out-vote these directors to the extent the company has the leverage to negotiate the investment deal.

 


Leave a Reply

Your email address will not be published. Required fields are marked *