Experts: Take-Two Coup a Governance Win
The shareholder uprising that threw out nearly the entire board of Take-Two
Interactive Software Inc. was a victory for investors who are fighting for new
leadership at troubled companies, corporate governance experts said Friday.
The upheaval at the publisher of "Grand Theft Auto" and other video
games culminated Thursday with the election of a new chairman, the appointment
of new directors and the ouster of the CEO.
Experts marveled at the swiftness of the coup, saying it reflects the growing
sense of cooperation among disgruntled shareholders looking to dispatch with
embattled corporate leaders.
Grievances with a public company's board are typically fought in drawn-out
proxy battles that can be costly and frustrating even for large shareholders.
But the Take-Two revolt took less than a month to pull off.
It started earlier this month when a group of large shareholders mounted a
public campaign to weed out directors they blamed for the company's financial
woes and ethical lapses. The final vote tally was revealed Thursday, shortly
after the game maker's annual meeting in New York.
"Institutional shareholders are much more aware now, and they're much
more organized -- they're not acting as lone wolves anymore," said Eleanor
Bloxham, president of The Value Alliance and Corporate Governance Alliance in
Westerville, Ohio. "And when a company has lost its way, like Take-Two
obviously has, they're willing to come together and make something happen."
A spate of corporate scandals has spurred investors to push for ways to make
it easier to replace board members, but such efforts don't always work out.
Earlier this month, for example, Hewlett-Packard Co. shareholders voted down
a proposal that would have changed the company's bylaws to allow investors to
nominate directors. The proposal was pitched as a way to ensure director accountability
after the boardroom spying fiasco involving former Chairwoman Patricia Dunn
and several senior HP employees.
HP opposed the changes, as did some of the company's biggest stockholders,
and the measure failed.
The situation at Take-Two also had unique characteristics:
- The investor group that spearheaded the revolt controls nearly half of
the company's shares. At most public companies, even large investors usually
control only a small fraction of shares.
- A former Take-Two executive carries the dubious distinction of being the
first chief executive to be convicted of backdating stock options. Ryan A.
Brant, the company's former chairman and CEO, pleaded guilty in February to
first-degree falsification of business records.
Still, the takeover sends a message to directors of other companies that their
jobs are in jeopardy if they lose sight of their commitment to shareholders,
said B. Espen Eckbo, the founding director of the Center for Corporate Governance
at the Tuck School of Business at Dartmouth College.
The company's underlying financial troubles have rankled investors and were
major reasons behind the push for a change at the top.
Despite having a lineup of top-selling games, Take-Two, one of the world's
biggest video game publishers, lost nearly $185 million last fiscal year while
rivals Activision Inc., THQ Inc. and top-selling Electronic Arts Inc. all managed
to post healthy profits.
"The pendulum is swinging in the U.S. toward more hiring and firing of
directors -- the board is being held to a higher standard as we go forward than
ever before," Eckbo said. "Boards are literally being re-educated
about what their jobs are."
Still, Take-Two's stock price rose more than 13 percent from last year until
The stock lost 96 cents, or more than 4.5 percent, to close at $20.14 in Friday
trading on the Nasdaq Stock Market on concerns that the new directors didn't
offer enough guidance on how they intend to turn the company around.
Michael Pachter, a research analyst at investment banking and brokerage firm
Wedbush Morgan Securities, said he was unimpressed with the appointment of an
acting CEO instead of a permanent one and the board's lack of clarity on how
to return the company to profitability.
"I thought they would have identified someone right away," he said.
"And I was a little surprised that they said they would have a strategy
in 3 to 6 months. It's probably unfair to expect that the dissident shareholder
group could pull something together this fast, have a strategy ready and move
on, but certainly that was the implication."