October 06, 2006
GM and Shareholder Activism
Posted by Lisa Fairfax

It appears that Kirk Kerkorian’s attempts to generate an alliance between GM, Nissan and Renault have failed since GM’s chairman announced on Wednesday that talks between the companies had ended. From a corporate governance standpoint, this failure may be a positive development because it suggests that the board sought to comply with its fiduciary obligation to analyze the proposed alliance in terms of its impact on the entire corporation as opposed to giving in to the wishes of a single shareholder. Indeed, the board vote to end the talks was unanimous, meaning that even board members with close ties to Kerkorian decided to vote against the proposed alliance.

Ultimately, shareholder activism such as that generated by Kerkorian creates a challenge for boards that have to determine if what is perceived to be in the best interests of the activist shareholder is also in the best interests of the shareholders as a class and the corporate enterprise. And board members must make such a decision in the face of intense pressure as well as the threat of losing their seats. In this case, it seems that all of the GM board members were able to carry out their responsibilities, even in the face of strong pressure from a major shareholder.

Interestingly, Gerald Meyers, the former chairman of American Motors Corp., suggested that even shareholders with close ties to Kerkorian may have had little choice but to go along with the decision of the rest of the board so that they could signal to the board their trustworthiness, thereby remaining in the loop and ensuring that they could continue to pass along key information to Kerkorian. Then too, it may be that the very public nature of Kerkorian’s efforts meant that the board had no choice but to honor its fiduciary responsibilities. Indeed, if the board had gone along with the alliance, there would have been lingering suspicion that it had done so only to appease a single shareholder. Nevertheless, it is a fair interpretation to suggest that the board made an effort to examine the merits of the transaction and faithfully carry out its responsibility to all of its shareholders.

Of course I could be putting too positive a spin on the boards’ actions and motivations. Indeed, the boards’ decision could stem from their resentment regarding being pressured to engage in the talks in the first place. . .

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