Following a particularly bruising proxy fight this past May, in which dissident infoUSA (NASDAQ:IUSA) shareholder Dolphin Limited Partnership unsuccessfully attempted to elect three independent board directors in the place of the CEO and two close associates, the company announced that it had created a "lead independent director" position to coordinate the activities of its independent directors.
That may seem like a peace offering to shareholders who nearly ousted the three company directors, who were reelected with only 52% of the votes. That slim victory was presumably achieved with help from CEO Vinod Gupta, who owns 40% of the company's outstanding shares, according to CapitalIQ. But the company then turned around and slapped those shareholders by appointing a director who has exceptionally close ties to the company, and who strains both credulity and the definition of "independent."
infoUSA nominated a "lead independent director" who has had very close ties to the company since at least 2000. Bill Fairfield, who runs a venture capital firm, currently serves on infoUSA's board, but has also previously served as chairman of the board of infoUSA's subsidiary, businessCreditUSA.com. Moreover, he serves as a trustee of the University of Nebraska Foundation, along with the infoUSA CEO.
Interestingly, when infoUSA announced the appointment of Fairfield to the board this past November, it neglected to mention his prior affiliation with the company. It also neglected to mention it in its director biographies included in the proxy materials. And while I was able to find plenty of mention of the company cutting back investment in businessCreditUSA.com in its financial reports, it never mentioned when -- or if -- Fairfield ever stopped serving as that firm's chairman.
According to the Nasdaq (NASDAQ:NDAQ), an independent director is not an employee of the company or its affiliates, or hasn't been one for three years; has no immediate family member employed as an executive officer of the company for the past three years; and has not had a direct business relationship with the company. Both Nasdaq and the New York Stock Exchange require that a majority of a company's directors be independent.
While's there's much to be said for independent directors in general, there is also something to be said for opposing their appointment. It's often assumed that independent directors who don't know much about the business will be better able to voice an opinion when they finds things amiss, because they're beholden to no one. But because they know so little about the business, such directors are often forced to rely upon the chief executive or other affiliated directors to fully understand its workings. Furthermore, they spend very little time actually working on the independent company's business -- maybe a couple of weeks each year -- which makes the prospect that they'll actually uncover wrongdoing, let alone report it, remote.
Dissident shareholder Dolphin raised many pertinent questions during its proxy fight over the way infoUSA was being run, despite its ultimate failure to oust the incumbent directors. Dolphin even questioned the appointment of Bill Fairfield to the board, criticizing his "independent" labeling despite his close and long-standing ties to the CEO.
There are plenty of companies whose directors are both strong and independent. Pfizer (NYSE:PFE) has long been recognized for the strength and quality of its corporate governance in this regard, and Becton Dickinson (NYSE:BDX) recently added a 12th director to its board, 11 of whom are independent.
Independent directors don't always live up to their image as corporate saviors, but those who are willing to speak up can be worth many times their paychecks. However, if infoUSA is going to nominate someone to serve as its "lead independent director," he at least ought to be able to live up to that billing.
Get all the info with these related Foolish articles:
- Advance Info on infoUSA
- Foolish Forecast: infoUSA's Parade
- infoUSA's Board Develops Backbone
- Foolish Forecast: Inspecting infoUSA
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
