Activist Investors Should Taker the Lead on Board Diversity
(Bloomberg Gadfly) -- Activist investors have the power to get more women on corporate boards, should they choose to use it.
Elliott Management Corp. called this week for operational changes and a board overhaul at data-management software company Commvault Systems Inc. In a letter to the board, Elliott partner Jesse Cohn and portfolio manager Jason Genrich had many criticisms of a management strategy that's led to the erosion of Commvault's profitability and share price, but one point in particular stood out: the lack of diversity among directors of the $3 billion company. All but one Commvault board member is a man, and the sole woman was added only in February.
Two of the four candidates Elliott is nominating to Commvault's board are women: Martha Bejar and Wendy Lane. The hedge fund has nominated women to boards before, but this is the first time I've seen Elliott, or for that matter any prominent male corporate activist, directly call a company out for having too many male directors. Ides Capital, co-founded by Dianne McKeever, a former Barington Capital Group partner and one of the few female activist investors, has sought to draw attention to diversity issues and successfully pushed for change at Boingo Wireless Inc.
Elliott's commentary comes in the context of a broader critique of Commvault corporate governance practices that are behind the times, including a staggered board and an average director tenure of almost 14 years. But it matters that a lack of women is now being put on par with those long-standing investor complaints.
The average S&P 500 company fills about 80 percent of its director seats with men, while only 5 percent have a female CEO, according to data compiled by Bloomberg. Institutional holders are starting to become more vocal about why that's problematic, not just culturally but financially. And if activist investors hope to win them to their cause, it's wise to care and talk about these issues, too.
Earlier this year, BlackRock Inc. updated its proxy voting guidelines to include an expectation for diverse boards that have at least two women and sent letters to the some 300 members of the Russell 1000 that fell short. It is perhaps not a coincidence that BlackRock is one of the largest Commvault investors with a nearly 10 percent stake.
Regardless, the greater attention being devoted to questions of diversity and female representation is welcome. A Bloomberg News analysis published in March 2016 found that five of the biggest U.S. activist funds had sought at least 174 board positions since the beginning of 2011 and landed 108, yet nominated women just seven times. A 2017 study by the Investor Responsibility Research Center Institute and Institutional Shareholder Services found that companies were less likely to have at least one woman director after an activist campaign than they were before. If more activist investors want to follow Elliott in being vocal about trying to change that pattern, all the better.
But to get real change, it matters who the female nominees are. Unfortunately, activists (and companies for that matter) turn to a lot of the same names again and again. Consider the two female board candidates that Elliott is nominating at Commvault. Bejar is already on at least two public company boards including Mitel Networks Corp., in which Elliott holds a large stake. Mitel attempted to acquire Polycom Inc. (where Bejar was previously a director) at Elliott's urging in 2016. Lane has been on eight public company boards, according to Elliott's letter, and currently serves at MSCI Inc., where she was appointed as part of an agreement with activist ValueAct Capital.
Other popular ones are Veronica Hagen, who was on Bill Ackman's slate at Automatic Data Processing Inc. and one of Broadcom's initial candidates in its attempt to wrest control of Qualcomm Inc.'s board. Betsy Atkins was nominated by Ackman's Pershing Square to the board of Allergan. She was also put on the board of Darden Restaurants Inc. by Starboard Value LP and made a director at Cognizant Technology Solutions Corp. after pressure by Elliott.
That's not to say these women aren't qualified. And plenty of men are also repeat players on activist slates and sit on a significant number of boards. But if we really want to improve the gender ratio, we need a bigger pool of female candidates. That kind of change starts with a willingness on the part of both activists and companies to take a risk on a woman with limited board experience. There are some signs this is happening. CDK Global Inc. added Eileen Martinson to its board as part of a pact with Elliott in 2016. That was the most significant public company board appointment for the former Sparta Systems Inc. CEO. YY Lee, Commvault's sole female board member, is also a fresh face. There should be more.
Talk about diversity is nice, but there needs to be more follow through to prove its not just tokenism.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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