No, we still think the CEO should not serve as BoD Chair. (Actually, we think CEOs should not even serve on the BoD.) But now, more than before, we think investors should make it a priority.

 

A few months ago, we identified only two-and-a-half priorities for investors:

1. ❖eliminate poison pills
   

2. ❖destagger BoDs
   

3. ❖achieve proxy access (maybe).
   

We dismissed many others, including majority voting, pay disclosure, political contribution disclosure ... and separating the CEO and BoD Chair roles. Recent developments at Allergan made us think harder about that one.

 

As even my family knows by now, Pershing Square (PS) teamed up with Valeant to try to acquire Allergan. Allergan declined the offer, and refused to negotiate or even meet with Valeant and PS. This really aggravated Bill Ackman of PS, who this week wrote a pointed letter  expressing his views.

 

Ackman recounts how the BoD authorized only the CEO to speak with Allergan investors, including PS. The CEO met extensively with other large investors, and had 15 minutes for PS. The lead independent director declined PS' request to meet alone; Ackman writes:

 

I find it inappropriate that Allergan's lead independent director was unwilling to speak to a shareholder without management present. 

 

Ackman attributes the attitude toward Valeant and PS to "personal animus" founded on "a disabling conflict of interest that arises from the fact that [the CEO] will lose his leadership role at the company and likely his job as a result of the transaction." He worries that

 

 ...because [the CEO] stands between Allegan shareholders and the board, the independent directors are unable to hear directly from the company's owners about their interests and concerns. Furthermore, it is rare that a shareholder is willing to candidly share its views with a Chairman/CEO who will likely lose his job as a result of a proposed transaction.

 

Sure, if the Allergan CEO does not serve as BoD Chair, and not even on the BoD, the other directors might pull these same stunts - authorize a (non-director) CEO as the only representative to investors, and blindly stand behind that CEO.

 

But, it sure seems difficult for the other directors to evade investors, and to support the CEO regardless of investor sentiment, if they have to do so alone. If an independent director serves as BoD Chair, and the CEO isn't even on the BoD, then directors have no one to fear, other than angry shareholders.

 

Ok, so we have three-and-a-half priorities for 2014, but that's it.

 

For now.