The story of how the Dell special committee decided to accept Silver Lake’s and Michael Dell’s $13.65 per share cash offer, as portrayed by the Dell preliminary proxy statement filed Friday, is one of a conscientious group of independent directors doing their best after Mr. Dell had told them he wanted to take the company private.
It did not turn out to be a story where the independent directors were looking to hit a home run for shareholders by getting a generous cash out price. Rather it is one of how as these directors did their work they became concerned — perhaps even scared — by the strategic direction of the company and the performance of its management team.
And that raises a simple question: Where were Dell’s other directors were in the quarters and even years before the special committee engaged in this process?
The special committee’s concerns about Dell’s management appeared early on in the process. A leading problem seems to have been the committee’s loss of confidence in management’s ability to adequately forecast future results. As the proxy statement put it:
“While the [management forecast was] potentially useful to help negotiate a higher price from bidders, it was not particularly helpful in assisting the Special Committee in evaluating the Company’s alternatives to a sale transaction because of the Special Committee’s belief that some of the assumptions underlying the projections were overly optimistic and given management’s repeated difficulty in accurately predicting the Company’s performance”
Indeed, among the factors the committee considered in approving the deal was the fact that for the past seven quarters with one exception Dell’s revenue had missed management forecasts and consensus analyst estimates.
It's an interesting example of what I suspect is an intractable problem of corporate governance. Most of what directors do on a day to day basis consists of the on-going process of oversight rather than making discrete decisions. Getting a group of outside directors to mobilize for intervention, however, is inevitably much easier when they are asked to respond to a discrete event--especially a potential crisis or major transaction--than when they are simply watching management do its job dat to day.