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Controlled Companies' Overtenured Directors Avoid Activists, M&A

Published: April 4th, 2023
Many overtenured directors reside at companies with dual-class shares, giving insiders control of the vote in a clubby atmosphere.

Until recently, Saga Communications (SGA) was one of over 300 U.S. corporations with dual-class share voting structures on a Council of Institutional Investors, or CII, list of companies giving insiders, often founders, control of the vote.

In August, however, the radio broadcaster’s founder and CEO, Ed Christian, passed away, triggering a conversion of his equity from supervoting shares to common stock and ending the company’s insider control of the vote and, consequently, the board.

Activist investors and even a bidder were immediately drawn to the radio broadcaster. The Tisch family fund, TowerView LLC, quickly filed an activist 13D report, noting it may have talks with directors and senior management about the path ahead. In December, Dallas firm Hoak Public Equities LP reported a 6.9% position and said it could consider an “extraordinary corporate transaction” with Saga — the same month the broadcaster said it rejected an unsolicited offer from an undisclosed rival, Connoisseur Media LLC, according to one source.

Saga appears to be in an activist and M&A crosshairs now but until recently was mostly left alone because of its dual-class status. Activists typically won’t target dual-class share structure companies because they know that even if a majority of shares are opposed to the CEO’s strategy and the company’s shares are underperforming, they still can’t elect dissident directors to drive the change they seek.

Without activist pressure, many dual-class companies have directors with lengthy tenures and clubby atmospheres, with boards that are unlikely to provide effective oversight of CEO-founders. Board members that otherwise could be targeted by an activist, particularly at underperforming companies or corporations receiving acquisition interest, often remain for lengthy periods of time.

“Directors [at dual-class companies] don’t have to deal with the kind of pressure a company with a single class of shares has to worry about,” said Waheed Hassan, founder of ZMH Advisors, a data-driven ESG and governance adviser. “In many cases the average age of the overall board may not be that high, but several directors could have overly long tenures.”

Interested investors may take interest in Saga’s board, which has at least two independent directors left over from the company’s dual-class insider controlled period — Clarke Brown Jr., 83, and Gary Stevens, 84, who have been directors for 19 and 28 years, respectively.

The structure at Saga and elsewhere has helped C-suites remain in place and discouraged pressure tactics intended to drive auctions or breakups. Governance experts typically suggest that corporate boards should start to replace directors after they have served 10 years, and some companies set up term limits to remove board members after a period of time, such as 12 years, for example.

And while Saga has two overtenured directors, a wide range of other dual-class companies have many long-tenured board members, some of whom might otherwise have become targets had insiders, or founders, not controlled the vote and board.

Editor’s note: The original, full version of this article on dual-class companies with overtenured directors was published earlier on The Deal’s premium subscription website. For access, log in to or use the form below to request a free trial.

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