The challenge for both sides now is to win over shareholders. Typically, the biggest investors reserve judgment until late in the campaign, often after third-party proxy advisers weigh in. Those advisers have recently supported many activists seeking minority board representation, on the theory that shareholder voices in the boardroom are unlikely to hurt.
Robert Gentry, principal at San Francisco-based investment adviser Stewart & Patten Co., said his firm has held DuPont shares for decades and generally backs management. However, he said, “dissenting viewpoints on the board could actually be a healthy thing.”
Maybe, but it's not that simple. Short slate proxy contests such as the one Peltz has launched, if successful, result in a board comprised of a majority of prior incumbents and a minority representing the dissident shareholder. The effect thus resembles a board elected via cumulative voting. And that is not necessarily a good thing:
On the one hand, cumulative voting may bring a desirable diversity of viewpoints into the boardroom. On the other hand, board cohesiveness likely suffers. Whether cumulative voting is desirable for a given firm will therefore vary. Firms whose top management team requires advice from diverse sources might benefit from cumulative voting, although the high probability of adversarial relations between that team and minority shareholder interests suggests that board representation of the latter likely would prove unavailing in this regard. Firms requiring skeptical outsider viewpoints to prevent groupthink likewise might benefit from cumulative voting. Again, however, the likelihood that cumulative voting results in affectional conflict rather than cognitive conflict leaves one doubtful as to whether those benefits will be realized.