Vodafone boardroom battles

July 24, 2007

Vodafone approaches its AGM as a very modern company. And not only for its high-technology product base. The resolutions under discussion on Tuesday 24th July 2007 reveal the new kinds of pressure from activist shareholders who are making additional demands on corporate leadership.

You have to look below the surface of corporate announcements to detect the dramas of business. Take the notice of Vodafone’s AGM, for example. In the ritualized language of corporate meetings, twenty five resolutions have been presented as recommendations from the board. These will almost certainly be passed (unless there are even darker schemes afoot to destabilize the company’s leadership) rebels. There follows other recommendations which give a glimpse of the pressures being exerted by this new breed of corporate activist. These are the particularly interesting proposals. They give a clear indication of the pressure brought to bear on any company which has attracted the attentions of this new kind of activist. The issue is very much a matter of control.

A nice example is the resolution on Verizon Wireless. The company holds a 45% share in Verizon. The activists would like more dynamic involvement of Vodafone in Verizon, and suggest various initiatives.

The company rejects the proposals robustly, indicating that such moves would be complex, risky and undesirable.

Verizon Wireless (Resolution 26)
Resolution 26, if approved, would require your Company to put proposals to shareholders to alter the capital structure of the Company by the issue of a special class of shares of the Company the return on which would be dependent on the performance of Verizon Wireless (“tracking shares”) or shares in a new holding company
Maximizing the value of this shareholding is a key element of the Company’s current strategy and one that is kept under constant review. As part of these reviews, the Company has considered a number of alternative structures, including tracking shares and spin off options [leading to the conclusion that] the structures proposed would not deliver to shareholders effectively the current value of the Verizon Wireless shareholding and could potentially significantly undermine the directors’ ability to maximize the value of the shareholding in the future

Power without responsibility

It is tempting to recall the old saying about power without responsibility. This is too simplistic. The activists would argue that they are looking after their financial interests. Their actions are leading to far greater alertness on the part of corporate leaders to the interests of their shareholders. The moves are, to go back to a chess metaphor, to some extent a threat which influences the course of the game, even if it is not directly successful.

The fate of Vodafone

The outcome of today’s AGM will not settle the fate of Vodafone. It will, however, indicate the developments in a company that has seen its fair share of boardroom strife as it transformed itself into a global telecommunications operation under Sir Christopher Gent and Lord McLaurin. Its takeover of Mannesmann was eventually seen as too generous, calling for revision of its corporate worth. Now Vodafone’s dynamic and controversial CEO Arun Sarin takes on the challenges of running the company. There have already been criticisms of directors’ remuneration packages. He is not facing an easy ride.


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