I Own These Shares, Kids. Suck It Up.

Author:
Publish date:

You know how you totally want a chief executive to own shares of the company he’s running? Because it aligns his incentives with those of the ordinary shareholder and because it shows he has “some skin in the game” and because it shows “confidence in the company.”
Yeah, but you know what? Sometimes you might not want his incentives aligned all that much. This morning news broke that Darwin Deason, the chief executive of Affiliated Computer Services, was backing a takeover bid from Cerberus Capital Management. Since Deason owns 40% of the company, it’s pretty much a lock that whoever he backs to run the company will end up running the company.
Deason has said that “a robust process is in the best interests of ACS, its public shareholders and the transaction” but doubts are already being raised about fair or “robust” a process can be that begins with an announcement that the CEO and holder of 40% of the stock has already signed an agreement—complete with a lock-up—and said that he believes the company will sign an agreement—with an undisclosed break-up fee—with a buyer?
Maybe not that robust. So what are Deason’s duties here? They're not as clear cut as you might think. Remember all that talk about "incentivizing" CEOs to think like shareholders? Well, this is one way they do that: by selling. You see, in his role as chief executive Deason clearly owes a duty to the board of directors and the shareholders. But these duties do not completely erase his own rights as a shareholder to sell his shares and cut deals with buyers.
It’s like the story of that girl who nurses the snake and gets bit. As she dies, Deason says to her, “Look, bitch, you knew I owned forty-percent of this company when you picked me up.”

Survival of the Fittest at Affiliated Computer?
[Deal Journal]

Related