While public company boards routinely encounter activist investors pressuring them to reset priorities and rethink their composition, this week sees familiar activist playbooks deployed on a whole new set of targets: elite universities. Billionaire hedge fund manager Bill Ackman, Apollo Global Management CEO Marc Rowan, and others are targeting the governing boards of some of the best known private universities in the US, seeking to influence decisions about institutional leadership and governance, as university leaders are scrutinized for their handling of antisemitism on college campuses. Under such pressure, the board of trustees at University of Pennsylvania apparently experienced a fracture before realigning and accepting the resignations of both its president and board chair. Harvard’s governing board has so far rejected the activists’ demands and backed its president. Apollo’s Rowan, meanwhile, continues to press the Penn board of trustees, asking it to consider whether it has the right structure and processes in place to govern the university. Regardless of whether more leaders succumb to activist efforts, it seems likely that universities will give greater consideration to their governance models and processes as they learn, just as corporate boards have, how to deal with activists.
In other news, Boeing gets serious about succession planning; boards focus on AI; executive compensation is increasingly tied to ESG gains; directors expect more board turnover in 2024; board members experience burnout; and the new year looks like a good time for boards to address needed composition changes.
In the Spotlight
Activist Investors Take Their Tactics to College
Bill Ackman has employed daily missives to the board in his campaign to oust heads of Harvard, Penn and MIT
“As rumors swirled last week that the University of Pennsylvania’s president was being pressured to resign, billionaire investor Bill Ackman tweeted ‘One down.’ Once it became official, the Harvard graduate turned his attention to the other two university presidents who struggled to condemn calling for the genocide of Jews when testifying before Congress last week. He wrote a letter to his alma mater’s governing board Sunday, reiterating his calls to remove Claudine Gay as president and fired off a tweet warning the Massachusetts Institute of Technology’s boards that if they didn’t take action, he could send them a missive next...Within days of Hamas’s Oct. 7 attack on Israel, Ackman became one of the most vociferous wealthy donors criticizing their alma maters’ handling of antisemitism, using tactics he honed as a shareholder activist—an investing strategy he no longer practices.” THE WALL STREET JOURNAL
An Inside Look at How Penn’s Board of Trustees Handled the Leadership Crisis
Under pressure from big donors including private equity leader Marc Rowan, Penn’s board of trustees fractured, with a dissident group eventually presiding and ousting the president
“The dissident trustees of the University of Pennsylvania’s board had decided to meet in secret over the weekend. They had spent months watching support for Penn’s president erode as pro-Palestinian students demonstrated on campus, donors threatened to withhold tens of millions of dollars, and the advisory board of Penn’s influential business school demanded that the university change its leadership. Through it all, the president, M. Elizabeth Magill, had kept the support of Scott L. Bok, the chairman of Penn’s board. But by Saturday, four days after her disastrous appearance on Capitol Hill, about two dozen trustees, more than half of the 48 voting members, came to a consensus: Ms. Magill had to go.” THE NEW YORK TIMES
Apollo Global Chief Urges Penn to Rethink Its Governance Model
The letter begins by questioning the very mission of Penn
“In an email to [University of Pennsylvania] trustees Tuesday morning titled ‘Moving Forward,’ Marc Rowan, CEO of private equity firm Apollo Global Management in New York, attached a list of 18 questions, some with five parts. Among the questions, he asked whether the school should look at eliminating some academic departments — though he didn’t name which — and examine ‘criteria for qualification for membership in the faculty,’ citing a provision in the charter that allows trustees to set general policies around admission to the faculty.” [Among a number of topics, the letter questions the university’s current model of an unelected Board of Trustees and asks whether appropriate governance policies are in place.] PHILADELPHIA INQUIRER
Why Harvard and Penn Took Different Paths With Their Presidents
After last week’s congressional hearing, Penn’s president is out, while Harvard’s remains
“As they sat together at a House Committee hearing in Washington last week, Harvard University President Claudine Gay and University of Pennsylvania President Liz Magill had a lot in common: both were relatively new, female presidents of wealthy, Ivy League universities. And both were under fire…They gave nearly identical, halting, answers in response to the question of whether calling for the genocide of Jews at their schools is protected speech. Both endured immediate calls for their removal from donors, alumni and students. Then their paths diverged. After the hearing, Penn trustees abandoned Magill, who resigned on Saturday. Harvard’s governing body considered the situation in silence for a few days. On Monday night, they handed her a vote of confidence” THE WALL STREET JOURNAL
From Boardspan this Week:
Preparing the Board for Activist Investors: A Proactive Defense Affords the Best Chance of Success
An organization’s management and board of directors should consider the following measures
"Regardless of a company’s success or confidence in its strategy, management, and board, there are few situations public companies face that are more daunting than an unsolicited approach by an activist investor. And with activist activity continuing to rise—we have seen a record number of companies targeted by activists, a record number of activist campaigns launched, a record number of board seats won, and a rising bench of first-time activists—all companies need to be prepared. The increasingly sophisticated and complex manner in which activists target companies requires dedicated focus and a cohesive strategy by a company’s management and its board long before an activist comes knocking.” K2 INTELLIGENCE via BOARDSPAN |
Across the Board
Boeing Picks a Front-Runner To Potentially Succeed CEO
Stephanie Pope promoted to operating chief, making her the likely successor to CEO David Calhoun
“Boeing is elevating Stephanie Pope to become its No. 2 executive, setting her up as the heir apparent to Chief Executive David Calhoun as the plane maker prepares for its next leadership transition. Pope, who heads Boeing’s services arm, was promoted to chief operating officer and will start in the newly created role on Jan. 1, the company said Monday. The Wall Street Journal reported Sunday that the three-decade Boeing veteran beat out other top executives for the role. Boeing is making the change as Calhoun nears his retirement age, which was extended in 2021, and the company is in a more stable position, with some regulatory matters behind it and a rising stock price.” THE WALL STREET JOURNAL
EY Is Laying Off U.S. Partners Amid Tough Economic Conditions
Professional services firms shrink teams as demand for consulting ebbs
“Ernst & Young is laying off dozens of partners across all U.S. businesses, a deeper round of partner cuts than usual as the Big Four accounting firm faces slowing demand for certain services and seeks to cut costs following its failed plan to break up the firm. The cuts are largely concentrated on the advisory side of the U.S. operation…Consulting demand tends to weaken or surge depending on the economy, whereas audit is a generally steady business line because of the reporting requirements for public companies. As consulting contributes to a growing share of these firms’ revenues compared with audit, the overall professional-services industry has grown more cyclical.” THE WALL STREET JOURNAL
Executive Pay Increasingly Linked to ESG Metrics
Establishing effective ESG compensation metrics requires a robust sustainability management program
“Compensation programs traditionally were designed to encourage higher earnings, business growth, and stock price performance, and only a fraction of companies incorporated environmental or social considerations in their executive pay program. However, market expectations have evolved in recent years, reflecting the growing integration of environmental and social considerations into investment as well as business decisions. An overwhelming majority of investors and non-investor respondents to Institutional Shareholder Services’ 2021 Global Benchmark Policy Survey agreed that non-financial Environmental, Social, and Governance (ESG)-related metrics should be incorporated into executive compensation.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Building a Culture of AI Governance: Board’s Role in Organizational Change
Understanding the AI Imperative
“Organizations are at a critical juncture where the integration of advanced technologies demands a proactive and informed approach to governance. Board members, many of whom are non-technical professionals, find themselves navigating uncharted territory as they steer their organizations through the transformative power of AI. To effectively build a culture of AI governance, board leaders must play a strategic role in fostering organizational change, ensuring ethical practices, and embracing a mindset of continuous adaptation.” THE WALL STREET JOURNAL
CEOs and Directors Eager to Replace Board Members in 2024
An assessment can help identify needed changes in the boardroom
“A new study of corporate executives and directors finds 45% want someone on the board replaced. And that change imperative is top of mind for most board members...Change isn’t just necessary in the boardroom, the study found. The strain on power grids amidst extreme weather conditions this year is increasing pressure for companies to accelerate net-zero timelines. Social conditions are finding their way into business conversations. And the threat of AI’s impact on the business world is making leaders and boards reexamine their business plans, often much earlier than they’d planned to.” NASDAQ
Increased Complexity, New Demands Leading to Director “Exhaustion”
“Board burnout” has real consequences. Should you be concerned?
“For many board members, an end-of-year holiday break can’t come soon enough. ‘Exhaustion’ is the word that Dan Kaplan, senior client partner for the CHRO practice at Korn Ferry, who also advises boards, says he’s hearing ‘everywhere.’ Where once it was mostly senior leadership teams who remarked that work had become an endless marathon, it’s now corporate directors who are just as likely to feel strained. Board members say that meetings are longer, the prep work is heavier, and business calls between meetings are more frequent. Board burnout is so real that even the high achievers who gravitate toward board jobs are starting to question whether they can continue.” FORTUNE
Analysis: Director Qualities Prioritized in Board Composition
The standard prototype of a board director still prevails, but other attributes make a strong showing
“As the end of 2023 approaches, and with that, new year’s resolutions, corporate leadership may take some time to reflect on how to make a brighter, better, and more robust board of directors in 2024. Several corporate boards took some hits this year for their board composition, including Tesla Inc. for its audit committee chair, and Walt Disney Co. for its board seat battle. Now is a better time than ever to take a step back to evaluate a company’s board composition and to consider certain elements, such as director independence, board term limits, committee expertise, or director diversity demographics.” BLOOMBERG LAW
|
|
