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.