According to Carl Icahn, venture capital board members are fine for Carl Icahn in 2011 but not fine for eBay in 2014.
When Carl Icahn’s board nominees’ business activities created conflicts, Mr. Icahn has argued forcefully that a board should and could manage those conflicts if his nominees were elected by shareholders.
Contrary to Mr. Icahn’s theory today – that a venture capital director cannot be “trusted to objectively advise” a board if he or she has potential conflicts – Mr. Icahn, in 2011, provided the following information to shareholders of another company, Forest Laboratories, in response to questions raised about whether his director nominees were conflicted:
In defense of his own nominees: “Potential conflicts of interest are by no means rare, though, and seem to be especially frequent among technology and biotech companies. Each of those fields tends to be intensely technical by nature, and corporations involved in those areas often find that it is useful to have a board of directors with significant experience in those areas, which means that at least minor conflicts of interest often arise. In addition, these firms are frequently funded by venture capital; the venture capital firms invariably put their own directors on the boards; and those directors or their firms often have direct and material conflicts of interest because they usually fund/control potentially competitive corporations as well.” (1)
On his own nominees’ potential conflicts: “The biopharma industry has standard practices on how to deal with potential director conflicts regarding business development opportunities. Directors simply recuse themselves in the event of a vote or decision that may present a conflict. The benefit of drawing upon knowledge and experience from shared, collective service on multiple biopharma boards heavily outweighs the potential conflict in these rare situations which are easily managed through recusal.” (2)
Mr. Icahn also approved walling off directors as a sufficient way to address a conflict: “A general set of ‘best practices’ has evolved for dealing with [conflicts of interest],” and can “be dealt with by the methods used by thousands of other public and private corporations” and handled “with professionalism and very little fuss and bother… Given the ubiquity of such conflicts, as well as similar situations in which directors or senior management might have conflicting interests, a general set of ‘best practices’ has evolved for dealing with them. The first, and perhaps most important measure is that the existence of the potential conflict needs to be disclosed by the director to the board. Here, of course, that has already been done. Second, the directors should determine, on a case by case basis, whether they should wall themselves off from conflicted directors when making a decision with respect to a conflicted transaction.” (1)
“To the extent these potential conflicts of interest actually exist, they are routine matters with which corporate boards of directors normally deal and pose no significant issues.” (1)
“An appropriate conflicts and recusal policy similarly could ameliorate any information-sharing concerns that might theoretically arise from interlocking board members.” (1)
Why does Carl Icahn in 2014 think that Carl Icahn in 2011 was so obviously and blatantly engaged in terrible corporate governance?
(1) Mr. Icahn and his affiliates filed two opinions of legal counsel as supporting proxy materials in his proxy fight for Forest Laboratories:
Letter from Ashby & Geddes, Counsel to Icahn Capital LP, 8/7/2011
Letter from Arnold & Porter LLP, Antitrust Counsel to Icahn Capital LP, 8/7/2011
2) Open Letter from the Icahn Group to Forest Laboratories Shareholders, 4/7/ 2011
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