On Sept. 18, legendary investor Carl Icahn made waves with an op-ed in the Wall Street Journal, calling Dell Inc.’s boardroom a “ridiculously dysfunctional system.” Icahn attempted to make the case that Dell was overreaching its power, changing the rules on shareholder voting right before the vote was due to take place.
However, some detractors say that Icahn’s editorial is simply sour grapes, considering that he was on the losing end of the Dell buyout war. Columnists such as the Wall Street Journal’s Ronald Barusch believe that Dell’s moves were actually aimed at more inclusive voting, and that “Dell is an example of effective shareholder democracy. Just not one in which Mr. Icahn got what he wanted.”
For most corporate counsel, the fight between Icahn and Dell isn’t important on its own. Instead, the takeaway is this: The fight over boardroom power is ongoing, and knowing how activists such as Icahn plan on challenging the company can be helpful for both in-house counsel as well as those looking to challenge the C-Suite.
In his case against Dell, Carl Icahn asserts, “When shareholders earlier this year objected to the vast wealth transfer and voted it down, the Dell board simply ignored these results and changed not only the voting rules but the voting dates, thus blocking alternatives and ensuring eventual victory.”
The voting rules to which Icahn refers is that Dell changed all absentee votes from an automatic “No” to simply uncounted. The company also changed the date of record—the date on which a shareholder needs to control stock to vote—from June 3, 2013, to Aug. 13, 2013, closer to the actual vote.
In both cases, Dell’s moves are protected by the courts. There are, as Icahn puts it, “A thicket of laws that protect the impregnability of boards and CEOs.” But corporate counsel should always work with the C-Suites to make sure that any pre-vote moves do indeed have legal standing. In-house counsel should also beware of any potential changes to these laws, especially if activists such as Icahn succeed in the war of public opinion.
Luckily for current C-Suites, not everybody is sold Icahn is correct. Barusch writes: “Mr. Icahn’s claim that in making these changes the Dell board was ‘blocking alternatives and ensuring eventual victory’ is absurd. The holders of a majority of the shares could have turned down the Michael Dell/Silver Lake buyout and killed the deal. The fact is Mr. Icahn was unable to persuade an overwhelming majority of Dell shareholders who voted to turn the deal down.”
Takeover fights are nothing new. In the past three years alone, InsideCounsel has covered takeovers of the non-profit Cato Institute, book retailer Barnes & Noble, phone giant T-Mobile, clothing retailer J-Crew and a host of others. But as long as shareholders like Icahn keep fighting against boardroom power, the rules and regulations governing takeovers will continue to change, and in-house counsel will continue to have a large job on their hands.