Smithfield Foods, Inc., 09/16/2009 follow-on offering. Here is a something you don’t see often. A Smithfield Foods (Smithfield, VA) director resigned because he disagreed with the $300 million follow-on offering that the company completed in September. The press release and filing stated that “he did not believe that an offering of this magnitude was necessary at this time…” We are not talking about some junior, crackpot director. This was Paul Fribourg, the chairman and CEO of Continental Grain Co, one of the world’s largest private agribusinesses and a less than 10% investor in Smithfield. Now you know that Morgan Stanley, Goldman Sachs, Barclays and J.P. Morgan who co-led this tasty and rare public offering morsel were none too happy with this director’s publicly voiced opinion. No matter. The Wall Street engine may be belching and gasping, but it managed to digest this offering successfully.
The bigger issue that this director’s resignation reminds us of is the prevalence of weak, rubber-stamp boards in publicly-held companies. GM was castigated in the press and in DC for this. Washington has been driving major banks to add experienced financial directors as opposed to figurehead politicians and other lightweights. If you have ever served on or worked with a board, you know the CEO-director dynamic. Most, if not all, board members owe their existence and stock options to the CEO. It is hard to cross him. But a second dynamic is also at work—the consensus dynamic. You are either with us or against us. If you have ever been the contrarian on a board, you know how that can lead to exile and isolation. Your effectiveness falls off the table as the next decisions come up for consideration. We need a “tell all” source to know what happened in the Smithfield case. We make no judgment as to the appropriateness of the Smithfield funding. We just note that it rare to see a director act upon his convictions.
