The W$J offers a fascinating account of the fight in GM's boardroom between director Jerry York, who was appointed to the board to represent the interests of 9.9% GM shareholder Kirk Kerkorian, and the rest of the board who supported GM CEO Rich Wagonner's decision to terminate negotiations over a possible alliance between Renault-Nissan and GM. As a corporate governance and car guy, I'm no fan of GM management. But I never thought the Renault-Nissan alliance made much sense, given that GM's chief problem is gold-plated union contracts that impose huge legacy health care costs on GM.
In any case, I was struck by this comment in the article:
Mr. York ... began thinking he should quit the board because he concluded he couldn't have influence there. Moreover, he thought he could be more effective as Mr. Kerkorian's representative without legal constraints as a director. When Mr. York advised Mr. Kerkorian during the Chrysler saga, he remained an outsider.
Why? Remember when the SEC was considering a proposal to allow shareholders direct access to the company's proxy statement to nominate directors? In my article A Comment on the SEC Shareholder Access Proposal, I argued that:
If adopted, the short list proposal would significantly increase the prospect of a divided board of directors. As with all minority representation schemes, such as cumulative voting or codetermination, the resulting divisions within the board of directors will significantly reduce the board’s effectiveness.
Granted, some firms might benefit from the presence of skeptical outsider viewpoints. It is well-accepted, however, that cumulative voting tends to promote adversarial relations between the majority and the minority representative. The likelihood that cumulative voting will result in affectional conflict rather than cognitive conflict thus leaves one doubtful as to whether firms actually benefit from minority board blocks.
I take the GM fight as evidence I was right.
