Directors & Boards: Question of the Month

Home |

Subscriptions |

Articles Archive |

Current Issue |

Back Issues |

Shopping

Advertising |

List Rental |

Editorial Calendar |

Background |

Question of the Month

As a shareholder, how might you respond to a director’s “noisy exit” as in the XM Satellite Radio case?

“One noisy exit gives very little information and is insufficient for investment decisions (there might be personal reasons that are not known). It is, however, a warning to watch for other clues and to be ready for action!”

“It could be that the other board members are correct in their approach to the business. Hopefully, that is why we have members on the boards with differing points of view.”

“[Pierce Roberts Jr.] was a savvy long-term director. Absent a personal agenda, he was a possible warning bell, and even if nothing happens, I would expect the stock to drop, even briefly. I would review every subsequent filing for affirmation of his reasoning.”

“When a knowledgeable director leaves the board and indicates trouble, there probably is. Where there's smoke, there's usually fire.”

“If management cannot convince a board member, then their position may not be right, or they are too weak, or the board is too divided. In any event, there are too many other opportunities out there to stick around.”

“Given the egos on a board, the noise could as easily be ‘it's not being done my way’ from the perspective of a board member who has lost sight of their role. It could also be a real issue. One must always remember that there are six to eight other seasoned leaders on the board who do not have the same feeling as the ‘noisy’ board member.”

“Believe it or not, every board has idiots. So a noisy departure by one director is of little concern or significance. More than one, with a lot of noise, and it's time to pay attention.”

“It is very rare for a director to voice criticism of the company in his/her resignation letter. From the company's perspective, the individual is often encouraged to tone down the criticism. From the exiting director's perspective, the individual has to be careful not be labeled an ‘alarmist’ who can't stand the heat.”

“You would have to distinguish between directors who have always been mavericks on a board and those who seem sensible and reasonable.”

“It’s definitely a red flag, but it could be an egotistical director not getting his way or just conflicting with other directors personally. More likely, substantive issues are involved, and I would look to the background of the departing director before selling and keep a close eye on further developments.”