Monday, June 08, 2009

Influence Peddling in Dell's Boardroom?

Dell (DELL-$12.08) struggles with another year of disappointing computer sales and a 63 percent drop in profits, and there is little scrutiny in the business press on the outlandish perquisites ($2,100 notebook computers and hundreds spent on technical support on how to use the PCs!) and egregious compensation (cash retainers and stock options worth up to $500,000 per annum) rewarded by the board to its members [save for the usual, first-rate disclosures by Michelle Leder’s site].

The pundits tell us less-informed folks that the board pay packages are justified because during these dire times directors are faced with even greater workloads and responsibilities.
Might the settlement of compensation have more to do with board members’ interests being aligned closer to those of top executives, however, than the amount and type of remuneration necessary to attract and retain talented directors?

The governing ethical principle at Dell is that “the interests of the stockholders are best served by having a substantial number of objective, independent representatives on the board,” according to the
2009 proxy filing. For this purpose, a director is considered to be “independent” if the collective members affirmatively determine that the director does not have any direct or indirect material relationship with Dell that may impair, or appear to impair, the director’s ability to make independent judgments. In a related decision, the NYSE and NASDAQ Exchanges expanded the definition of director independence in 2008 to include immediate family members, too, none of who could have received more than $120,000 in direct compensation (or related-transactions) during any twelve-months during the prior three years.

On the basis of the standards set forth above, Dell stated in its regulatory filing that only two of the 12 board members were not independent: Michael Dell and Donald Carty, best-known as the erstwhile chairman of American Airlines (until his retirement in 2003) and also a former Vice Chairman and chief financial officer of the PC Maker (from January 2007 – June 2008).

Independent Directors Unable—or Unwilling—to Make Independent Decisions:

  1. James W. Breyer, 47, joined the board in April 2009, and is currently a partner with the venture capital firm Accel Partners (located in Palo Alto, California). Dell and Michael Dell have a history of making investments as limited partners in several Internet-related ventures with Accel Partners.
  2. Director Sallie L. Krawcheck, 44, served as the chairman of Citi Global Wealth Management until January 2009. During Fiscal 2009, Dell was both a customer of and a supplier to Citi Global. Among other institutions of national prominence, Krawcheck serves on the board of Carnegie Hall and the University of North Carolina. [Like all Dell board members, observe a web of outside common interests.]
  3. Thomas W. Luce, III, a director from November 1991 – present, currently serves as chief executive of the National Math and Science Initiative Inc. (NMSI), a not-for-profit organization dedicated to expanding programs that have a proven positive impact on math and science education. The Michael and Susan Dell Foundation donated $1.5 million to NMSI in Fiscal 2009.

To list the activities of the other seven (alleged) independent directors would just serve as an exercise in overkill—not one member is involved in a charity or business where interests do not collide. Irrespective of what the company says, the ancient Greek lyric poet Pindar best captured the essence of “influence” on decision-making at Dell when he wrote: “even wisdom yields to self-interest.”

Dell was displaced as the top U.S. PC maker for the first time since 1999, according to research firm IDC, falling behind Hewlett-Packard in its first-quarter 2009. Given the board is failing shareholders—including Michael Dell (who still owns 11.83% of the company)—here’s a suggestion: the decisions of the existing board are obviously self-serving and of little value to stockholders and your own family’s financial well-being [Mr. Dell]. Throw the bums out and bring into the boardroom some college [geek] dropouts—like yourself—who actually know how to use a computer. It would certainly be less expensive and might actually yield some positive gains to the company’s bottom-line!

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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