June 7, 2018

Bring Back the Staggered Board?

Here’s the intro from this blog by Cleary’s Neil Whoriskey (see John’s latest blog for more on the staggered board debate):

Beyond the cacophonous din of voices calling for companies to serve a “social purpose,” adopt a variety of governance proposals, achieve quarterly performance targets, and listen to (and indeed even “think like”) activists, there is now, most promisingly, a call from genuine long-term shareholders for public companies to articulate and pursue a long-term strategy.

This latest shareholder demand directly supports the achievement of traditional corporate purposes, and seems, more than any other shareholder demand of the last decade, the most likely to increase shareholder value. Yet in current circumstances, where all corporate defenses have been stripped in the name of “good governance,” boards and management have been given zero space in which to formulate and implement a long-term strategy. Indeed, the very fact that shareholders must demand corporations focus on long-term strategy demonstrates just how effectively the governance movement has been co-opted by market forces to serve the interests of short-term activists and traders to the detriment of long-term investors.

It is time for long-term investors to recognize that aspects of the good governance movement have in fact come at significant cost to their own investors, to be perhaps a bit more wary of partnerships with activists, and to actively create the conditions that will allow boards and management to focus on the long-term. Exhortations are not enough. The first step should be to bring back staggered boards.

Broc Romanek