Shareholders: The Gadfly Becomes a Raptor
January 8, 2007 | Filed Under Private Equity, Governance
Last week we noted how governance expectations are changing with the resignation of Home Depot CEO Robert Nardelli. A prime reason was the growing pressure from an institutional shareholder who wouldn’t take no for an answer.
Now we see a further example of how things are changing. AP’s Rachel Beck reports that the gadfly-like Evelyn Davis may be supplanted by a more potentially raptor-like species. The example given is one Ken Bertsch:
Last month, he was named an executive director and head of corporate governance at Morgan Stanley Investment Management, which has $448 billion in assets under management. His move may signal the mutual funds managed by the investment firm are planning a more aggressive stance on governance issues - a big change given that mutual funds almost always passively allow management to govern the way they want.
That’s probably 448 million reasons why a phone call from Mr. Bertsch gets returned promptly.
To a significant extent, many public companies have enjoyed an almost free pass when it comes to shareholder input over the years. Mutual funds have been involved to some extent; maybe now they will get more active in corporate performance and governance matters. Why? Competition for investors from private equity and hedge funds may be part of the answer.
These newer money managers are not as patient, because their investors expect high returns for the significant fees and upside participation opportunities that these funds enjoy.
All this is a reminder to public company managers that they are stewards, not owners.
This increasing pressure may also tempt more companies to go private, as this New York Times article illustrates today. It also notes that we ought not to feel too sorry for Mr. Nardelli. His phone is already ringing from private equity headhunters.
And for visual types out there; here’s a view of what it looks like when a Raptor is locked on to your company (thanks to Lockheed Martin).
Urge to Merge Reality Check
January 5, 2007 | Filed Under Law Firm Trends, In the News
While the Drinker Biddle/Gardner Carton law firm merger closed Wednesday; Dewey Ballantine and Orrick called off their nuptials yesterday. The papers are all over it: The Recorder, New York Times and Wall Street Journal (paper and Law Blog).
Many reasons are given; the WSJ Law Blog has part of the firms’ joint statement (which interestingly is not on either firm’s web site): “No one issue led us to this point, and each firm leaves this process with great respect for the leaders and partners of the other.”
Certainly a central fact is this, as reported by The Recorder:
More than 10 partners left Dewey since news of merger talks surfaced in October, including two highly regarded and high-grossing M&A lawyers, Jack Bodner and Michael Aiello. Dewey’s M&A practice was one of Orrick’s primary targets in the deal that had been expected to close this month.
Why does a GC or in-house counsel care? Look at the quote immediately above: Orrick had targeted Dewey’s M&A practice. Are Dewey M&A partners firm assets? Maybe, but apparently not fixtures. They can move overnight.
And what about Dewey’s clients, including the highly coveted M&A or private equity work? Are they also firm assets? Do they think they will get better service from a larger, rebranded firm?
Some law firm mergers are sound and strategic. Many are defensive, and may be a sign of weakness.
Law firm clients care because ultimately they are picking up the tab. Without being invited to the party.
A UK View of Law Firm Liquidity
January 4, 2007 | Filed Under Law Firm Trends, In the News
Happy New Year to UK law firms from accounting firm BDO Stoy Hayward courtesy of thelawyer.com: 15 per cent of law firms may go out of business as banks tighten credit.
BDO partner David Miles makes it sounds so civilized:
Whilst banks are still keen to lend to the right firms, they now realise they need to be more discerning in their lending decisions. As a result, we believe at least 1,500 law firms will need to merge or be wound up over the next few years.
Certainly the raft of law firm mergers announced in 2006 are somewhat driven by a desire to improve finances and ultimately liquidity. So does this portend more mergers in 2007? No so fast, says Mr. Miles:
However, we would urge any distressed law firm not to be too rash and jump at the first opportunity of a merger. Quick defensive mergers could lead to lasting regrets long after the ink on the contract has dried.
Speaking of mergers, the Drinker Biddle/Gardner Carton merger was completed yesterday. The new firm website is here; they did not use my idea for a logo (at bottom of page), although the tilted box is carton-like, I guess.
Home Depot CEO Hangs Up Apron
January 3, 2007 | Filed Under Governance, In the News
Home Depot CEO Robert Nardelli resigned this morning.
CEOs come and go, but this turn of events is notable because of the lack of a compliance cloud, such as allegations of options backdating. (That issue was examined by Home Depot, but the time period of concern pre-dated Mr. Nardelli’s tenure.)
But Mr. Nardelli had come under scrutiny in governance circles, such as in this op-ed piece in Directorship that talked of the need for Mr. Nardelli to consider a pay cut:
The background is that Nardelli was under pressure from unions and other activist shareholders over his $200 million-plus pay package at a time when the company’s stock had not performed well. Sensing the imminent attack at the annual shareholder meeting, Nardelli discouraged other directors from attending, and they did not come. He ran roughshod over activists in a tightly controlled meeting, and the rest, as they say, is history.
Some of the pressure on Mr. Nardelli was exerted by Relational Investors, which holds 13 million HD shares and sought to meet with Mr. Nardelli. That request was refused. Relational then communicated a desire to have a special committee of the board established to examine the strategic direction of the company.
Somehow when I think of “activist shareholders,” I think of one of the first, Evelyn Y. Davis:
That may be easier for board members to ignore. However, when an “activist shareholder” has 13 million shares rather than 13, it’s probably time to listen.
Update: The WSJ Law Blog notes that new CEO Frank Blake is a highly-credentialed lawyer. (But please Mr. Lattman, giving Mr. Blake the dog-tag in the headline is beneath you.) And also good coverage by the NY Times; as well as an interview with Mr. Nardelli where he talked about the ill-fated 2006 shareholders meeting (apparently less than an hour).
Two Cheers for HR
January 2, 2007 | Filed Under Law Firm Trends, Legal Resources
Law firm associates as human resources?
The Chicago Tribune notes that some law firms are giving HR a second look. Kirkland & Ellis has even hired former Andersen partner Gary Beu in this role.
Still, it’s not an easy slot to fill. There’s the ongoing focus on diversity, and the tension involved in balancing the two realities of high starting pay and workload:
— Attrition is on the rise among young lawyers, known as associates, some of whom make as much as $145,000 their first year out of law school. A 2005 survey found that one out of five associates leave U.S. law firms every year, the highest rate ever documented by the Association for Legal Career Professionals.
— Associate dissatisfaction is nothing new. They always have complained about long hours, boring assignments and poor treatment by partners.
Hmm… High pay and long hours. Perhaps a connection?
Still, it’s encouraging to see law firms placing experienced executives in a role targeted at developing the key asset: people.
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