March 11, 2016
Shareholder activism has pushed board assessment and refreshment to the forefront in the 2016 proxy season. With proxy access becoming a hot-button issue, more and more companies are voluntarily offering this option to shareholders.
When board election contests are not resolved amicably, they often result in proxy fights, where shareholders and companies actively disagree over the composition of the board. Proxy fights take various forms, and the case of United Continental Holdings in the news this week brings together several common shareholder concerns.
Miffed at what they perceive to be declining performance in comparison to its peers—indeed, United found itself consistently in the bottom half of The Wall Street Journal’s annual U.S. airlines rankings — PAR Capital Management and Altimeter Capital Management are planning to bring six new directors to the slate on United Continental’s upcoming board election. Notably, the activists have proposed Gordon Bethune, former chairman and CEO of Continental Airlines, as the chairman candidate on their slate—who has graciously accepted the challenge.
The proxy fighters, including Bethune, allege that the current board does not have sufficient industry experience. This is not an unusual request, and according to Equilar, nearly 60% of companies include industry experience in their board skills matrices—a visual representation of their directors’ experience. Industry is the second most commonly cited skill set among these companies, behind finance.
However, the scenario is unusual in the sense that United added three new board members just days earlier, and two of the new board members have been executives at airlines. Four of the six directors nominated by the activists have travel industry experience.
Another element complicating this situation is that United’s current board comprises 100% outsider directors, an attribute shared by just three other S&P 500 boards, according to MSCI. Over the past few years, companies and their shareholders have moved toward more unaffiliated directorships, with “outside” directors now accounting for 86% of all boards, increasing from just under 83% a few years ago, Equilar data found. Given the concern regarding sufficient industry experience, perhaps shareholders will see Bethune’s inside knowledge of the history and the company as the right mix to lead it forward. Though Bethune is technically an outsider at this point, he ran Continental until 2004, and has a direct tie to many of the company’s current leaders. If this eventually comes to a shareholder vote, it will be interesting to see the results given the confluence of competing trends here.
Changes in governance discourse are continually pushing companies to refresh director experience to reflect the needs of the company as well as shareholder interests—whether that be to meet the demands of modern technological advancements or to better represent their customer or employee bases. Stay tuned throughout proxy season as we cover up-to-date trends on a day-to-day basis.
For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at email@example.com.