Given how cynically some companies use the prefix “long-term” when seeking to defend their track records (e.g., some permutation of “Even though our operating results and stock price performance have been unsatisfactory, our company and its board of directors remain focused on delivering long-term value”), it would be helpful to understand how these companies actually define “long-term” and whether such definition takes into consideration the time that has already been spent by the companies’ directors in their quest to deliver long-term value. More often than not, when an activist shows up, a company conveniently ignores that its board has usually been in place for quite some time, and that the directors on such boards have been (richly) compensated along the way. Indeed, many directors have been on the board for a period of time already approaching the “long-term” according to most conventional definitions, unless one defines “long-term” using a geologic time scale.
According to the 2022 U.S. Spencer Stuart Board Index, the average tenure of a director on the board of an S&P 500 company was approximately 7.8 years and the average annual total compensation of such board member was about $316,000 (Note: This is for attending an average of about eight board meetings a year, making the phrase “Nice work if you can get it” somewhat apt when describing public company board service.) Keeping this average compensation flat would suggest that a hypothetical director serving an average tenure of 7.8 years would receive almost $2.5 million in aggregate compensation over such tenure. Contrast this with the stock price performance of companies that have typically drawn the attention of shareholder activists. Activists often invest in companies whose stock price has underperformed and there have been numerous situations where shareholders of public companies targeted by activists have witnessed significant underperformance over many years before an activist has shown up, while the directors of such companies have reaped rich rewards along the way.
Support authors and subscribe to content
This is premium stuff. Subscribe to read the entire article.