How much time should a corporate board get to address shareholder complaints involving operations, revenue generation, corporate governance and other matters? When you are dealing with activist investor Starboard Value, it appears the time limit is one year.
This week, Starboard moved to oust the entire GCP Applied Technologies board of directors by announcing a slate of nine director candidates to replace everyone on the board except the two independent directors it placed on the board last year. Just last March, Starboard said in a statement that they had reached a “constructive agreement” with GCP, and looked forward to “continuing our productive dialogue” in helping to improve company performance. The statement also said Starboard supported GCP’s public announcements “to drive operating performance and to explore strategic alternatives.” But just 10 months later Starboard has determined it can’t work with the GCP board.
Perhaps the key issue here is that the two parties appear to have differed in their understanding of the degree of urgency for change. As is the case with many investor-board squabbles, investors want instant and dramatic change while boards prefer a stay the course approach. Starboard had offered a full slate of directors to replace the GCP board last year, but then, compromised by adding two directors. That might have been a sign that there was little enthusiasm for working with this board in spite of what was said in public statements. By moving to oust the entire board, Starboard may be sending a more critical message regarding its views on the responsibility of a board to address issues that are critical to a company’s performance.
In an environment where companies are being urged to pay more attention to the needs of all stakeholders, boards should be aware that response time to stakeholder concerns is going to receive greater scrutiny. Starboard’s action raises several questions, among them:
• How much time is enough time for a board to make substantial change that affects operations, revenue generation and corporate governance?
• What should be the appropriate response to a board that is non-responsive to stakeholder concerns?
The answers to those questions will be unique to each corporate board’s situation, but once a board is made aware of a stakeholder’s concern, the clock starts ticking. Boards should be sensitive to the fact that no response or a slow response will carry weight with investors. Boards don’t have to acquiesce to all stakeholder demands, but they do have to make it clear that stakeholder concerns have been heard and that they have solid, well articulated reasons for dealing with the situation in whatever manner they decide.
Since responsiveness is in the eye of the beholder, boards may need to gauge what level of responsiveness is appropriate for each stakeholder group. Boards should also begin discussing its procedures for responding to key stakeholder concerns such as company performance and governance issues or equal pay and workplace issues raised by workers in recent years.
While it is unusual to oust an entire board, Starboard has done it before. In 2014 Starboard successfully removed the entire board of Darden Restaurants. While removing an entire board will likely remain rare, the idea that boards should be held accountable for the amount of time they take to respond to stakeholder concerns will likely grow. That may mean more directors being challenged for their board seats and more shareholder resolutions filed by shareholders and more lawsuits intended to force board action on sensitive issues.
