Corporate Governance

Historians will marvel at why the press won?t write more about the egregious abuses and mismanagement at corporate boards in America and the Wall Street Journal article of July 22 is a good example of this abdication.

The article states that I often exert an "outsized influence" as a board member, implying that this is somehow reckless and counter to the best interests of stockholders.

In fact, just the opposite is true. Major shareholders, particularly those who serve on boards, should actively question decisions a company makes and not simply be a rubber stamp for corporate managements, as all too many are.

Many business journalists don?t seem to get this important point and I have never understood why, particularly in this post-Enron-Adelphia-WorldCom era. In my view, much of the nation?s business press fails in this important role. Disturbingly, many in the press don?t seem to care. 

Are they intimidated by legions of public relations executives who spend shareholder money to defend bad managers and bad management decisions? Are they worried their access to management will dry up if they give too much ink to corporate critics? Are they beholden to the corporate interests of their parent companies, the media conglomerates? Or is it just easier to toe the company line?

The article quotes one unnamed executive at a company I targeted as saying I am more successful at investing than ?strategizing or managing? and executing moves that will "close the value gap."

Again, this misses an important point: I have never claimed to be a great manager, even though I run a very successful investment fund group that employs dozens of professionals. 

My job is not to micromanage the companies in which I invest, but to choose the right managers who can effectively design and execute a successful strategy and hold these managers accountable if they do not perform. This is what I have attempted to do at the companies I own outright and others in which I invest.  As many of you know, especially with the companies I control, these companies have turned out to be extremely successful and financially rewarding for all stockholders. 

All these companies have one thing in common: they were underperformers whose share price or asset value didn?t reflect their true value. Usually this is due to poor management. 

The fact that the manager quoted in this article chooses to remain unnamed is telling: why would this person call attention to an inability to strategize, manage or close the value gap at his or her own company?

The article cites Blockbuster as an example of how I may approach Yahoo as a board member. But instead of pointing out the successes at Blockbuster as a result of my own and others? efforts, (or even talking to the company), it casts my management style in a negative light. 

I launched a successful proxy fight for board seats on Blockbuster at a time when the company was demonstrably failing ? not only losing money but also losing customers to competitors like Netflix and video-on-demand. There was no reason why a competent management team could not change strategy to address these new business challenges. Since joining the board three years ago, I actively engaged management to reverse these disturbing trends. The results have been extremely promising. The article points out that some managers left, but why is this a bad thing as the article seems to suggest? If the horse can?t win, why put it in a race?   

At my urging a new top management team was brought in. The new management headed by CEO Jim Keyes, has saved approximately $100 million in operating costs over the past year, a laudable result. But this salient fact was left out of the article. It is interesting that the Wall Street Journal never even bothered to call Mr. Keyes.

In addition, I stopped the Blockbuster purchase of MovieLink, which was approved by management to be purchased for over $50 million. Just four months later, Blockbuster bought the same company for only $5 million.  Again, the newspaper didn?t point this out. 

Keyes joined just after Blockbuster posted a 2007 second quarter operating loss of $29.8 million. This year, the picture has dramatically changed, with the company produced adjusted EBITDA of $114.5 million in the first quarter and has guided that it expects 2008 adjusted EBITDA of $290 million to $310 million. The numbers speak for themselves. 

There are a number of major cost-saving moves that I initiated, including leading a campaign to block a $50 million-plus severance payment for the former CEO, which was really outrageous. But where is the outrage on the part of the media on this? 

There are many examples of this "pay for failure" mentality that pervades American business. One need look no further than Merrill Lynch or Home Depot for examples of this egregious trend. It is eroding our nation's economic hegemony and everyone ? not just stockholders ? should be up in arms to try to change this.

My agenda is simply this: I look to hold managements accountable. I don't micromanage or question every decision they make. I look to install the right manager and ensure they meet goals, whether I am on a board or simply a stockholder. There are too many boards who fail in this critical responsibility.

It was heartening that the Journal called me a genius at investing, but the truth is, many companies are so badly managed that it doesn?t take a genius to make money by going into them and cleaning them up.

Through my involvement in failing or lackluster companies over the years, shareholders have fared extremely well. These facts speak for themselves.

Not all of my investments work out, but my record demonstrates that shareholder activism is a viable ? and essential ? strategy. I applaud those who undertake it, providing it is done intelligently and not recklessly or irresponsibly. 

It will be a good day for the American media when activism at faltering companies is applauded and not misunderstood or cast in a negative light - as it all too often is.