Six Years Later, The Problem at HP is Still the Board

The HP board in 2012 is just as dysfunctional as it was in 2006.  Here's a reflection of how bad they were back then.

Read the full Forbes post

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Chesapeake's Reputation Takes Another Hit

As if the current state of the nat gas industry wasn't bad enough (as Jim Cramer pointed out yesterday), Chesapeake's (CHK) reputation just took another hit with the revelation of CEO Aubrey McClendon's pay package approved by his cozy board of directors.

The pay deal was struck between McClendon and the board in December. Here's a summary of what McClendon receives: a one-time bonus of $75 million, an annual base salary of just under $1 million, $32.7 million in stock grants and the company's shareholders also generously forked out $12.1 million to McClendon to take some no doubt lovely art work off his hands. (Why trouble yourself with going down to the nearest Oklahoma City pawn shop when your board of directors will give you a more than fair market price for your personal effects?)

Keep in mind that Chesapeakes's stock dropped 75% last year after being a star in the first six months and -- two months before this lavish pay package was approved -- Aubrey was forced to sell 31.5 million shares of Chesapeake in October (or almost $700 million worth of stock at the time) due to margin calls.

The optics for Chesapeake are terrible. It suggests the board was doing McClendon a favor after he got margined out of his Chesapeake stake. Shareholders are furious -- rightly so. It says this company is run like a small family-owned business rather than a major public company, which it used to be.

You would've given pause to buy Chesapeake after reading Jim's piece yesterday. Now, you have no reason to buy.

Position: None.

Originally published in RealMoney.com on 4/28/2009 1:10 PM EDT

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No Response from Motorola's Board to "Plan B" for Les Miserables Shareholders

It's been slightly over a week, since I forwarded the finalized copy of our investor group's "Plan B" for Motorola to the Non-Executive Members of Motorola's Board.

A month ago, when I sent the initial draft copy of the plan to the company before releasing it publicly, I received an email back from Dean Lindroth 3.5 days later. Mr. Lindroth is the new head of Motorola Investor Relations. At the time, he thanked our group for our input.

He said:

"We value inputs from all of our shareholders and appreciate your feedback. I will share your input with the Board Secretary and the management team."

This time, no response.

Late Friday, I called Mr. Lindroth. Although I didn't reach him directly, I left a voice mail for him. I told him that our group consisted of 126 members, owning about 600,000 Motorola shares - including many current Motorola employees. I conveyed that we wished to meet face-to-face or by phone with the Non-Executive Members of the Board at their earliest convenience to discuss the contents of the proposed plan and possible next steps. I suggested that I thought we could find a positive solution for the company, its employees, and its shareholders through such constructive dialogue.

Instead, we've had no dialogue.

Since we've launched our "Plan B" campaign for Motorola, the company has only implemented one of our previously suggested actions: hiring a new head for the Mobile Devices Business (someone who we were not satisfied with).

What are the consequences of this board and corporate inaction to shareholder concerns?

From July 9th through today, Motorola's stock price has dropped 8.13%. Think it's a general market swoon? Think again. The S&P has dropped by 4.5%. And Nokia? Well, they had a blowout quarter, taking advantage of Motorola's weakness globally. Nokia's stock is up over 3% since July 9th.

Since the May Stockholder's Meeting, the attitude from the Board and Senior Leadership Team towards shareholders' legitimate questions has suggested: "The status quo is fine. We're figuring things out. Let them eat cake."

We're here to say that the status quo is not acceptable. We're not willing to sit back and watch this company underperform the market for another month. Enough is enough. It's time to storm the Bastille of Schaumburg.

I've spoken with a large majority of Motorola's top ten institutional holders since we went public with our campaign. Most are sympathetic to our calls for change. Whether they formally join up with us or not, no Motorola shareholder can be happy with the current state of this great American institution.

One representative from a very large holder of Motorola's stock told me:

"It will be very interesting to see how they respond to the points of your plan. They're obviously well thought-out and seem to make sense. If they just meet with you to be able to say they met with you, that will say something. In these situations, it's not just what the Board and Company say to a critic, it's how they respond. That will be very telling."

Indeed. To this point, we haven't even received the courtesy of a going-through-the-motions meeting so that they can say they've met with us and heard our points (and respectfully disagree).

I'm not happy with this non-response - and no other Motorola shareholder should be. If a shareholder cannot raise serious and credible concerns about the way a company is being run after a lengthy and painful downturn, when is the right time? Are we only supposed to speak up at the Annual Meeting and then bite our tongues for 12 months? Are we supposed to be patient and trust in the Board and Management with blind faith?

I love this company - and I know most of our supporters do too. One Motorola employee supporting our group said it best a few weeks ago in a comment on the draft plan:

"Dissent is the highest form of patriotism."

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Memo to Yahoo’s Board: Fire Semel

This is taken from this morning's edition of Matt Marshall's VentureBeat:

Recent troubles have engulfed Yahoo! with the sharp earnings miss relative to Google, delays on the Panama advertising platform roll-out, slowing growth rates, and low-level VP Brad Garlinghouse’s now infamous “Peanut Butter Manifesto” leaked to Kevin Delaney and Page One of the Wall Street Journal and highly critical of Yahoo!’s management. TechCrunch now says that Michael Marquez is leaving and Xie Wen left their China group last week.

Criticism has taken many forms. Some are saying that nothing is wrong at Yahoo! except for better monetizing its traffic, and others that Yahoo! needs to more dramatically upgrade the quality of its search and embrace "de-portalization" of itself. However, most of the criticism in the wake of the leak has been directed at Chairman and CEO Terry Semel. It really should be directed at Yahoo’s Board, which -- to this point -- has escaped any mention in press coverage of the tech giant.

Boards serve many functions but their most basic job is to hire and fire the CEO. It’s time for Yahoo!’s Board to fulfill its responsibility to its shareholders, users, and employees by firing Terry Semel and hiring someone else to get the company back on its footing.

In April 2001, Yahoo!’s Board hired Terry Semel. After the go-go days of the late ‘90s and a relaxed culture under its first CEO, Tim Koogle, the Board chose a 24-year Hollywood power broker. Semel was to bring marketing and focus to the company and inimitable connections with the old media content providers that could be harnessed by Yahoo! He has overseen a dramatic turnaround in Yahoo!’s stock price from $4.05 at its nadir to $26.50 today.

Yet, chronic complaints about ‘silos’ of competing groups after many acquisitions, lack of vision for where the company is going, some acquisition hits (e.g., Flickr, del.icio.us) but many misses (e.g., DialPad) and several notable bridesmaid non-moves (e.g., not doing deals with Facebook, MySpace, YouTube, or AOL), and general unease from within the ranks about where Yahoo! is going suggest that Terry Semel’s best days at Yahoo! are behind him. The company needs fresh eyes at the helm to avoid Yahoo! languishing only to be ignominiously acquired by a Microsoft or merged with an eBay down the road. Yahoo!’s shareholders, users, and employees deserve better and the Board should do its part.

Here is a short-list of what Yahoo’s Board needs to do now:

1. Fire Terry Semel. He’s lost his credibility to lead and he’s approaching 64 after 5 years in the job. There was a time for Tim Koogle to go, now is the time for Terry to go.

2. Hire a Credible Successor. Yahoo! employees and shareholders need to believe in this person. He/she must be able to clearly articulate a vision for where the company is going, fix the internal inefficiencies which exist, and drive a culture that ensures personal accountability. I recently suggested Susan Decker fits the bill. Vishesh Kumar of TheStreet.com has speculated to me that Jerry Yang might make a good fit. There are also many able external candidates.

3. Install a new “Presiding Director.” It’s admirable that Yahoo! took the step of creating the role of “Presiding Director” to constructively challenge its CEO and ensure sufficient debate on the Board. However, if I was Robert A. Kotick, the current “Presiding Director” who is also the full-time Chairman and CEO at Activision – brought in by Semel 2 years after Semel’s appointment and 20 years Semel’s junior – I would find it difficult to speak out in Board meetings against Semel. There is a natural deference to "the one who brought you to the dance." A new approach is needed in this important role.

4. Demand that all Yahoo! Directors buy meaningful amounts of YHOO stock. Yahoo! requires all its executives to buy and hold 3000 shares of stock, and it suggests its Directors own 12,000 shares of stock. Yet, as mentioned in an earlier post, these can be as a result of generous stock options or grants from Yahoo! At the moment, all outside directors are well above 12,000, thanks to these options. The problem with grants and options is that they are treated as "found money." Our research shows that companies where the outside Directors dig into their own pockets -- putting "skin in the game" -- and purchase meaningful amounts of stock enjoy significant returns compared to their industry returns in subsequent years.

5. 10-Year Term Limits for Yahoo! Directors. It’s inevitable that even the best Directors become a little stale in the saddle after a certain amount of time. You simply can’t continue to see the company with fresh eyes. The best Boards rotate in new talent in an orderly way. In the case of Yahoo!, two of its ten Directors just celebrated their tenth anniversary on the Board: Eric Hippeau and Arthur Kern. Yahoo! defends this in their governance policies by saying: "While term limits could help insure that there are fresh ideas and viewpoints available to the Board, they hold the disadvantage of losing the contribution of directors who over time have developed increasing insight into the Company and its operations and therefore provide an increasing contribution to the Board as a whole." Yet, several respected scholars have found definitive evidence that tenure leads to an increased commitment to past decisions and a lack of willingness to try new approaches. Besides, Yahoo!'s board can always ask Messrs. Hippeau and Kern to come back from time to time as consultants to the board, so they can tap into their insight, if necessary. While they have served the company well, it’s time for some new blood.

6. Ask all Yahoo! Executives not to serve on other Non-Internet Boards. Although it symbolizes how well she is thought of by F500 companies, Yahoo! shareholders, employees, and users do not directly benefit from Susan Decker spending time each quarter as a Director for Costco and now Intel. Her professional time should be 100% focused on Yahoo!’s problems and solutions -- not on reviewing the quarterly board packages for Costco and Intel. One response to this suggestion might be that serving on these boards is good for Ms. Decker, as it exposes her to new ideas and practices that she can bring back to Yahoo!, making her less insular. I respectfully disagree. In this post-SOX world, serving as a Director is a major time commitment and there are many able non-executives to fill the need. There are also many other ways that Susan Decker can stay abreast of new trends and practices in her current role without being a Director elsewhere, guarding against a closed-minded view of the world. There is also evidence in this study that executives serving on boards of other companies (like Costco) that are outside the "computer" industry are bad for the home company's stock price.

It’s been over two weeks since the “Peanut Butter Manifesto” appeared in print for all to read. To this point, the Board and Yahoo! have remained silent on it. The Board needs to move swiftly to replace Terry Semel with someone else who can go through the necessary and difficult work of breaking down the internal silos that exist at Yahoo! and drive it through its next stage of growth. This is not a quick-fix. The new CEO will need time to facilitate this make-over.

However, Yahoo’s Board has two choices: (1) proactively move to get someone in place to do this necessary work or (2) wait for the many willing activist hedge funds (like Bill Ackman at Pershing Square, Bruce Sherman at Private Capital, Ralph Whitworth at Relational, Eric Knight at Knight Vinke, Eric Rosenfeld of Crescendo Partners, Barry Rosenstein at Jana, or Carl Ichan) to accumulate positions in Yahoo!’s stock above a certain threshold when they will dictate their terms to Yahoo! and change its Board composition themselves.

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