On Jan. 2, just before Starboard Value LP launched a director contest focused on “potential business combinations” and “capitalization,” Huntsman Corp. (HUN) announced it was appointing two new directors partly to replace three retiring incumbents.
The retiring directors — Nolan Archibald, 78; M. Anthony Burns, 79; and Robert Margetts, 75 — transitioned off the board at the company’s 2022 annual meeting.
Buried in the press release, the chemical products company said that it would no longer grant directors waivers to the company’s retirement policy, which requires board members to resign after their 75th birthday. (The company noted Jan. 11 that another director, Wayne Reaud, 74, would also retire at the 2022 annual meeting.) The retiring directors held their board positions for between 11 and 17 years.
Huntsman narrowly defeated Starboard in a closely fought director contest that went the distance March 25 — though had a couple of big investors shifted their votes, the result might have been different. The chemical company may not have faired so favorably had it not shaken up its board so significantly in anticipation of the contest.
Nevertheless, Huntsman is just one of dozens of corporations targeted annually by activist investors who are combining an M&A or operational change strategy with campaigns seeking to replace overtenured, older directors or executives. Many companies with aging directors and CEOs are often caught flatfooted, without strong succession plans for boards and executives.
Activists can produce strong campaigns if they convince institutional investors that their economic thesis makes sense at companies with governance vulnerabilities, one New York corporate governance attorney noted.
“With activists you will see an A and B story,” she said. “The A story is their economic thesis, and the B story is about long-tenured, older CEOs who have been there for 20 years or more, which raises questions about how independent they are.”
And there are lots of companies with overtenured or older directors and executives, many of which could be targeted next. According to relationship mapping service BoardEx, a sister company to The Deal, there were 156 CEOs 75 or older at U.S. publicly traded companies as of April 26, and of those, 58 were 80 or older. BoardEx data shows there were 3,310 nonexecutive directors 75 or older at U.S. corporations, and of those, 1,328 were 80 or older.
The attorney added that good corporations talk about board refreshment and C-suite succession planning together. “Companies are moving in the direction of being more proactive and paying more attention to succession planning and board evaluation processes,” she said.
An increasing number of corporate boards such as Huntsman’s have instituted age limits for directorship as a means of driving director changes. Spencer Stuart Inc., an executive search and consulting firm, noted in a 2021 report that about 70% of S&P 500 boards reported having a mandatory retirement age in 2021, the same as in 2020. It also said 51% of boards with age limits have a mandatory retirement age of 75, compared with 48% in 2020 and 20% a decade ago.
Nevertheless, some companies, such as Huntsman, will at times waive age limits, arguing the person’s skills and oversight are valuable. For example, Lee Enterprises Inc. (LEE) waived an age 70 restriction for two directors, Mary Junck, 74, and Herbert Moloney, 70, who were targeted by Alden Global Capital LLC in a “vote no” campaign tied to a hostile bid effort. The two were easily reelected even though the newspaper publisher’s governance guidelines said the age limit would be subject to waiver only in “extraordinary circumstances.”
The governance attorney said institutional investors often aren’t supportive of repeat waivers, adding they can attract activist investors. She added that some companies have dropped the age limit to 70 or 72 in order to drive board change. A small number of S&P 500 boards — 6% according to the 2021 Spencer Stuart report — have set up explicit term limits for nonexecutive directors, and those range from 10 to 20 years, with 73% of term limits set at 15 years.
“We’re starting to see companies try to be really clear about how they look at succession planning,” she said. “And companies with older, long-tenured boards and executives and no succession plan could be targeted.”
Many companies with both longtime executives and long-tenured directors can be targeted. Case in point: Centene Corp. (CNC) in December reached a settlement with Quentin Koffey’s Politan Capital Management LP to remove longtime CEO Michael Niedorff from his executive position and about half the company’s board in a deal that also called for an executive search firm to help find a new CEO.
Niedorff, who joined Centene as CEO in 1996 and led its massive growth, died four months later at age 79. As part of the deal with Politan, Centene moved to set an age cap of 75 for its board, and several directors over that age limit agreed to resign at various times — incumbents Robert Ditmore, 88; John R. Roberts, 80; and former Republican Wisconsin Gov. Tommy Thompson, 80, retired on Jan. 5 while Richard Gephardt, 81, a former Democratic House majority leader, will not stand for reelection in 2023.
Many corporations with controlling shareholders or dual-class share structures giving a founding family control of the vote have older, long-tenured directors and CEOs and may feel less compelled to improve governance, the governance attorney said.
As the poster child for problems with this structure, critics cite the late Sumner Redstone and his family-owned controlling stake in Viacom Inc. — whose successor this year was renamed Paramount Global (PARA) — as a dual-class structure run amok. An activist in 2015 and 2016 partially targeted Redstone, then 93 and the controlling shareholder, with a 99-page report.
Both Skechers USA Inc. (SKX) and Opko Health Inc. (OPK) have among the oldest CEOs, Robert Greenberg, 82, and Phillip Frost, 86, respectively, according to BoardEx data, and both have some level of insider control.
Skechers was targeted by occasional activist Tremblant Capital Group in December — the fund, which then held a 5.1% stake, attached a letter to a Schedule 13D filing urging the sneakers maker to eliminate its dual-class structure that gives insiders control, a move it argued would “reassure the market that Sketchers will continue to be run for shareholders best interest.” The New York-based firm also agitated to have founder Greenberg institute an aggressive buyback, initiate a dividend and host a capital markets event. (Tremblant, which did not return a call for comment, cut its stake to 2.8% later in December and apparently did not nominate any directors for consideration at Skechers’ May 26 annual meeting.)
Opko’s Frost owns about 33% of the diagnostics and pharmaceuticals company, giving him significant leverage if an activist ever sought to shake up the company’s board. Sian Capital LLC did target Opko in 2020, with the Anish Monga-led fund thus far unsuccessfully seeking a sale of the whole company or a divestiture of its diagnostics business or a monetization of royalty streams. Opko noted in December that one of its directors, Richard Lerner, passed away at age 83.
Shareholders are pushing out some older executives, though a significantly large mobilization of opposition is necessary. JBG Smith Properties (JBGS) last year removed Steven Roth, 81, from his chairman position at the Bethesda, Md.-based commercial REIT he helped create in 2017 after about 76% of participating shares voted not to reelect him. Roth remains chairman and CEO of Vornado Realty Trust (VNO).
Another company with an older CEO, Teledyne Technologies Inc. (TDY), joined The Deal’s Watch List of potential activist targets after an activist breakup campaign materialized at a similar defense-focused mini conglomerate — and a defense-focused investment banker suggested that it might make sense for some smaller conglomerates in the sector to spin off assets. Teledyne CEO Robert Mehrabian is 81, according to BoardEx.
But not all activist insurgencies seek to bring in younger directors and executives of course. In March 2017, for example, CSX Corp. (CSX) installed Hunter Harrison as CEO as part of a broader settlement with activist investor Mantle Ridge LP, but the railroad veteran died later that year at 73. More recently, Chris Larson, a minuscule CSX shareholder and employee, launched a campaign in April seeking to remove Mantle Ridge’s Paul Hilal from his CSX directorship partly over concerns with Hilal’s 2017 support for an $84 million payment to entice Harrison to join CSX as CEO.
Even so, expect more activist investor campaigns ahead to target overtenured, older boards and executive teams.