shareholder activism

Boards, Career Advice

So you want to join a board: Advice to help you prepare

 If you want to join a board, you are not alone. Some people want to find a board in the middle of their career because they like the idea of learning about board life, or for the status of it; some people are looking for board work towards the end of their career because they want to stay engaged and give back. Either way it’s a common, serious interest for many people.
But what does it take – how do you prepare yourself to be qualified?

First off, determine why you want it – and be able to articulate that. Are you looking for income or interest? Be clear about this because there is a huge difference between the two. Non-profit boards typically don’t pay, in fact they expect you to give money. For-profit private company boards may pay cash, or they may only pay in stock (which may, or may not, ever be worth anything) and for-profit public company boards pay, but the pay varies widely depending on the size, industry and country of the company.

Once you can clearly state what you want and why, the next step is for you to determine what value you are going to bring – what is your value proposition? What experience do you bring, how will you be helpful, why should a board want you on it? I had never done this formally until a few weeks ago when I was on a panel and the moderator asked us panelists to write down our value propositions. This is what I came up with (late at night in a hotel room!):

As someone who has 20 years as a high tech CEO, has been through an IPO and many M&A deals  and who is very technical, I bring experience in what it takes to create the strategy, execution plans and leadership teams necessary to drive growth. As a compensation committee chair on two public boards I team with the CEO to create the right incentives to execute the operational plans and create shareholder value. I tend to be the voice in the room focused on strategy and the needs of the leadership team in a rapidly changing world.

Try writing yours – what would you say?

Another way to approach this is to inventory your skills. Make a list of what you’re good at – what makes you unique. This is your experience – what types of jobs you’ve had – PLUS what is it about your intellect and personality that will be helpful? Are you good under pressure, are you energized by solving hard problems, are you good at negotiation, are you natural coach, do you have strong P&L management experience? These are skills that are often not on your resume, but when a recruiter asks you what you would bring to a board it’s good to be able to confidently state the top 3 or 4 skills that you would bring.

The next challenge is that while  you may feel you are ready to contribute on a board, many boards will not want to hire someone with no previous experience. This is one of the top objections that prevents boards diversifying – boards tend to hire people they know, who are like them, who have served on boards before. It’s less work than hiring someone who is different and needs training. But as the trend towards building more diverse boards continues, nomination committees are coming to terms with hiring board members without previous experience.

One of the ways you can prepare yourself is to go and take training. I am a member of the volunteer faculty at a two day intensive training course – the NextGen Directors Academy – designed to take a small group of diverse, aspiring future board members through the nuts and bolts of being on a board. We cover the basic responsibilities, what each committee is responsible for, what your institutional investors care about and case studies of boards who got off track with activists. It’s an interactive, peer to peer format, and there are no stupid questions. There are several courses around like this, but not all have deep, intense content so make sure you talk with previous attendees before you sign up.

Another way you can prepare is to make sure you have the business basics covered. Most of the top business schools run executive training classes, from a few days to several weeks, ranging from general management preparation to specialized skills like cyber security. Once you have inventoried your own skills and experience, think about whether you have a gap you need to fill with some training, or whether you want to develop a skill that is currently in high demand for board members.

One of the ephemeral requirements of many boards is “fit”. Boards are expected to be collegiate, to get along, to voice difference but in the end come together on decisions. (I could write a tome on whether this is healthy for the shareholders or not, but not here). If you want to get onto a company board, but have no experience to point to, try joining a non-profit board first. Pick one that is a decent size (>$500k a year in budget), that has a real board that meets 2-4 times a year and that is run by an experienced chairperson. Reading the prep materials, listening to the management team, sitting in the meetings contributing to the discussion in a balanced, collegiate way will bring you confidence and experience that you can then refer to when you discuss your first for-profit board.

Make sure you have the time to be an effective board member. Being on a board carries status with it, it sounds important, and it may pay well. And many boards have 4-5 meetings a year so it doesn’t sound like much. But actually board work can take a huge amount of time. On a regular basis you need to put the time aside to read, to prepare and to attend the meetings. But in addition you will have countless phone calls and phone meetings outside of the regular meetings. You will need to meet with the CEO and members of the executive team and if the board needs to find a new CEO (for whatever reason) expect to spend days and days, over a series of months, meeting candidates and discussing them with the other board members. So before you pour time into preparing yourself to sit on a board make sure your day job allows you enough time to truly contribute.

And finally, don’t be shy. If you want to get on a board say so. Tell everyone you talk with about boards that you are, yourself, looking for a board seat. Network with recruiters who specialize, and stay in touch with them so you are current in their minds. Talk to people who are already on boards. Finding the right board is a pretty random process and so getting the word out will help the right board find you.


Why shareholder activists are now the long term holders

Activists have been on the rise over the last few years and it depends who you ask whether they are agents of the devil or the good guys just driving boards to create higher returns.

Some activists are now very high profile as the whole area of shareholder activism grows. You’ve got the attention getters like Dan Loeb of Third Point. His signature is pithy, hyper critical public letters to boards eviscerating management and often demanding a change, as he did at Yahoo. You’ve got the old salts like Carl Icahn who invests his own money and has been at the aggressive game of taking on companies for 30 years. And because the technique and approach is growing you’ve got any number of small firms getting into the game.

Activists are basically trying to accelerate a return from an investment strategy by engaging (forcing) the company into a discussion of what they should be doing that they are not doing. Replace the CEO, spin off a division, shut down a piece of the business, buy back stock – whatever the strategy is that they think management and the board are not doing but should be doing. They can be tough to take because the best ones do extensive research, they are experienced smart investors, and they are probably right more often than they are wrong. The board and management may even know it and agree, but the activist is forcing the timing of the discussion.

And because they are often driving for a different use of capital (such as buying back stock or selling the company rather than investing in more speculative, long term R&D) and they are typically aggressive (in your face) and gutsy (they buy at least 5% of the company’s stock), and they are trying to make things happen on a faster timeline (than is natural for management) they have a reputation of being short timers.

But when you look at the data of who’s holding the stock that is not necessarily the case.

I had the pleasure of being on a panel titled Shareholder Activism: The Good, The Bad or Just Ugly at Stanford Law School last week. The panel was moderated by David Berger who is a litigator at WSGR, and the other two panelists with me were Steven Davidoff Solomon who is a professor of law at U C Berkeley and writes a column for the New York Times and Jesse Cohn from Elliott Management. Jesse is another very high profile activist known for disrupting companies like Riverbed, EMC and Citrix – and it was fascinating to listen to his side of the world and how he views companies and their boards.

The panel was held by SVDX and so the general content is not to be discussed outside the room – but a fact came up that challenged everyone’s assumption that activists are operating on a short time frame. The fact is that the average hold time of Elliott’s positions is 2.5 years. It takes time to get into a company, and to drive the change they want. But, in contrast, the average holding period for a mutual fund is now 270 days. 270 days! That means most mutual funds are holding a stock for less than a year, and quite a bit less time than the activist who is trying to get the company to take action.

Also, once the activist holds more than 5% it is public knowledge – they have to file their position and typically when they do they are open about what they think needs to change. So while they may disagree with the company on strategy, at that point their financial objective is the same as management – increase the value of the stock.

There’s no question the rise of activism increases the stakes for boards and management, and it has good and bad actors, and good and bad strategies. But it’s no more short term than your granny’s mutual fund is, and it’s here to stay.

Image: http://joeystipek.tumblr.com/