Is Your BOD DOA?

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I fully expected the Friday morning Beltway traffic to be the most exciting part of my trip to McLean, Va., and SAIC's (NYSE: SAI  ) annual shareholder meeting. Instead, the meeting stole the show thanks to a trio of protestations geared at the re-election of one of SAIC's long-standing board members. The lesson for investors: You'd better know a little bit about the elected folks who serve as your voice in the boardroom of the companies you own.

Pleased to meet you, Mr. Kraemer
Harry Kraemer Jr. has served on the SAIC board of directors since 1997. Kraemer has spent time as a professor at the Kellogg School of Management at Northwestern University, as chairman and CEO of Baxter International (NYSE: BAX  ) , and as an executive partner of private equity firm Madison Dearborn Partners. He recently published a book, From Values to Action: The Four Principles of Values-Based Leadership, which outlines the importance of values and culture to corporate leadership. Kraemer sure seems like the type of guy you want on your board of directors.

Does Harry Kraemer support unemployment?
When the floor at the SAIC annual meeting opened for discussion regarding the election of directors, three parties expressed concern and disappointment with Kraemer's failure to protect the jobs of Californians. As it turns out, he serves on the board of VWR International, a private company headquartered in Pennsylvania that distributes scientific equipment and supplies. VWR has been a fixture in Brisbane, Calif., for 50 years, but it has recently decided to shutter operations there and build a new distribution in another city. Once that move happens, more than 100 blue-collar workers in Brisbane will lose their jobs, and the city will lose out on more than $2.1 million in tax revenue. Each of the three dissenters called into question Kraemer's values, integrity, and loyalty for supporting the move and failing to take responsibility for the lost jobs. Their implication was that Kraemer is not the type of guy that should have control over the fate of SAIC's 41,000 workers.

Do your homework
Each of the board members I spoke with had nothing but wonderful things to say about Kraemer. They vouched for his character and moral compass. In addition, Tom Young, non-executive chairman of SAIC's board, indicated that Kraemer's experience running a public company and knowledge of the health care industry are invaluable to SAIC and that he has done "an outstanding job." Furthermore, VWR's business requires it to constantly improve its supply chain, and it believes the move will improve its ability to conduct business. While there is plenty of controversy over whether VWR has done enough to appease its employees in Brisbane, there seems to be little disputing that the move will benefit the company in the long run.

Looking back on how Kraemer handled product failures as CEO of Baxter (he quickly implemented product recalls, shuttered a plant, and generally just "did the right thing"), I'm comfortable with his presence on SAIC's board and that he will steer SAIC in a positive direction to benefit the Un Portfolio's invested funds. In fact, I think his presence would have aided Toyota Motor in its 2009-2010 safety and product recall debacle.

In the end, I feel more strongly about the leadership and direction of SAIC having spent a little time digging into the backgrounds of its board members. While board constitution isn't worth basing an investment thesis around, it can add conviction to a well-formed view.

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Bryan Hinmon holds no financial position in any company mentioned above. The Motley Fool owns shares of SAIC. Motley Fool newsletter services have recommended buying shares of SAIC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On June 28, 2011, at 6:13 PM, MrChapel wrote:

    I find it entertaining to see these three parties dump on Mr. Kraemer for something that makes sense in a business environment. Maybe they should check and see what the reasons are that VWR Intl. decided to leave California.

    Could it have to do with the business unfriendly government? The mounting tax burden, the fact that the state, due to its policies is in the hole for billions upon billions (with even more mounting debt coming up) while it's tax base is dwindling due to its policies in taxation and regulation are some of the most important reasons that the flight of capital (businesses, skilled workers) are leaving the state.

    Mr. Kraemer has nothing to do with those things. I wonder if these parties will be going to the shareholder meetings of Lockheed, Raytheon and other companies who are moving either wholly or in part and attack the board for these moves.

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