Proxy Contests, Shareholder Access and "Special Interest Directors"

One of the most vociferous arguments against shareholder access to the company's proxy statement under Rule 14a-8 was the prospect of "special interest" directors.  Put aside that the term lacks any real definition and that all directors have fiduciary obligations to all shareholders.  In fact, the argument was mostly a subterfuge for an objection based upon the perceived impact of a non-management designated director or directors in the boardroom.  In other words, the concern was less that the director would somehow represent "special interests" and more that a non-management director might disrupt the cozy and deferential decision making process that often occurs inside the boardroom.

But the main argument against this purported effect is that insurgent directors need to be elected by the remaining shareholders.  It is already the case that insurgents lose most contests.  To the extent they nominate unqualified persons or cronies, they will have a tougher time getting elected.  This means that the insurgent paying the costs of the contest is more likely to see the funds squandered.  As a result, the WSJ has a piece discussing the improvement in insurgent candidates.   

This brings up the proxy contest at Yahoo.  Carl Icahn, a takeover scourge from the 1980s, has taken a position in the company (he beneficially owns 4.2886% of Yahoo's  outstanding  shares) and has proposed a slate of dissident directors with the goal of electing a board more favorable to the merger with Microsoft.  Who are these directors?  According to the proxy statement filed by the insurgents, the nominees include, in addition to Carl Icahn:

LUCIAN A. BEBCHUK, William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School.

FRANK J. BIONDI, JR, former Chairman and Chief Executive Officer of Universal  Studios, Inc. and President and Chief Executive Officer of Viacom. 

JOHN H. CHAPPLE, former President, Chief  Executive Officer and Chairman of the Board of Nextel  Partners, and Executive Vice President of Operations for McCaw Cellular Communications and subsequently AT&T Wireless Services.   

MARK CUBAN, the majority and controlling owner of the National Basketball Association franchise, the Dallas Mavericks and co-founder of HDNet, an all high-definition television network on DIRECTV.  He also co-founded Broadcast.com in 1995 and served as its Chairman of the Board until it was sold to Yahoo in July of 1999. 
    
ADAM DELL, the Managing General Partner of Impact Venture Partners, a venture capital firm focused on information  technology investments.  

KEITH A. MEISTER, Principal Executive Officer and Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. 

EDWARD H. MEYER, the Chairman, Chief  Executive Officer and Chief Investment Officer of Ocean Road Advisors,  Inc., an  investment management company.  From 1970 to 2006, he served as Chairman, Chief Executive Officer and
President of Grey Global Group, Inc., a multi-billion dollar global advertising and marketing agency. 

BRIAN S. POSNER, a private investor and former Chief Executive Officer and co-Chief Investment Officer of ClearBridge Advisors LLC, an asset  management company based in New York with approximately $90 billion in assets and a wholly owned subsidiary of Legg Mason Inc. 

ROBERT K. SHAYE, the founder and Co-Chairman/Co-CEO of New Line Cinema. 

In other words, it is a highly experienced group of candidates and hardly a group that can be viewed as special interest candidates beholden to Carl Icahn.  On the other hand, it is a group likely to be more focused on the interests of shareholders and likely to give the Microsoft merger serious consideration.  If Icahn wins (either because he wins the vote or the existing board capitulates and accepts the Microsoft offer), it will be in part because of the appeal of the high quality of the board nominees.

The same is true with respect to shareholder access.  Merely facilitating shareholder nominees will not result in the election of "special interest directors."  Instead, the shareholder nominees will need to attract support from other owners.  To do so suggests the need to nominate high quality individuals who have broad appeal.  Certainly this is true with the Icahn slate.