A hedge fund has “amassed” 1% of CVS shares. ($700m). The company has agreed to add 4 new directors to its Board, for a total of 16.
Why does owning 1% of a company entitle someone to 25% of the company’s Board of Directors? I have seen this over and over, where a very small portion of ownership suddenly leads to a major overhaul of a corporation’s management.
If someone can explain this to me I’d appreciate it. Thanks.
There has been a shift in the economy and there will be major shifts in finance in the US.
The corporate governance has to change.
Doesn’t the board itself make this decision? I would assume there is a quid pro quo. What that amounts to is my question.
Pete
As I understand it, the Board wants to avoid a lengthy and expensive proxy fight. For example, the Peltz/Disney bru-ha-ha lasted over a year
DB2
Generally BOD is voted on by shareholders.
Yep - I think goofy’s question (somewhat rhetorical or more of a thought experiment) went to the percent of a board one gets to have based on share ownership.
Pete
What is missing is the context of the decision CVS shareholders made.
Things are very bad at CVS and Aetna.
It is possibly a preemptive fireside sale.
It doesn’t. In the case of CVS it appears the Glenview hedge fund was advocating for major changes, which probably resonated with major stockholders given the stock’s 34% decline this year.
I suspect this was an act of self-preservation by the Board. The CEO of CVS was recently dumped and it wouldn’t be a stretch to think that the Board of Directors would be next. A last ditch alternative is to add your enemies to the team.
It is like the Roman Empire finally admitting the Gauls as citizens or why despite recent events, increasing immigration will be the trend in the Western economies. Inclusivity is all about survival.
Improved Immigration: Japan’s Solution to Its Population Crisis.
But, the Prole shareholders can only vote on the people that were put forward by the Board. That is how Tandy got rid of Jesse Upchurch, when he criticized the performance of CEO John Roach: he was simply not nominated for reelection to the Board.
Steve
Or the existing Board didn’t feel like a proxy fight.
Steve
… because a proxy fight adds uncertainty and causes the value of the company to decline. Or at least they think it could cause it to decline.
Or maybe they are just lazy, and it was easier to cave to what was demanded?
Steve
Even worse, the board members could lose their jobs.
That’s exactly what I thought after reading this.
Let’s get real the existing board at CVS is worthless. The company is in terrible shape. The way some of you are talking they have some merit. You really think that?
It is not like that board does not know how worthless they are.