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Carl Icahn on CEOs and Boards of Directors

February 04, 2010 | About:
Karl

Karl

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This article highlights the 2008 Commencement speech by Carl Icahn at Drexel University in 2008. The focus is on management in the United States and it's inability to compete. Icahn also says that boards of directors, for the most part, are just as bad. Unions are also a problem, but it is a minor problem. Carl Icahn is an activist investor who in the past has forced Time Warner Inc (ticker: TWX) to reinvent its board of directors to be more independent. He also has control of two seats at Biogen Idec Inc (ticker: BIIB) and is currently waging a proxy fight to get control over 3 more seats. Icahn has recently been a buyer of Genzyme Corporation (ticker: GENZ) and Forest Laboratories Inc (ticker: FRX).

Summary

One of the major problems in the US is management and their ability to compete. With exceptions, the US has terrible management and the Boards are equally bad. He no longer needs Saturday Night Live to get a laugh, he just needs to show up for board meetings.

There is a symbiotic relationship between boards and CEOs. As a result, there is no way to hold any of these people accountable today unless people like Icahn show up and behave as activist investors. There is no democracy. Investors need to go through contortions to challenge the leadership of companies.

He goes on to describe how a CEO goes elected. Even calling it anti-Darwinian. To explain this, he uses a fraternity president as an example. Not that all of them are bad people. The point is, he is typically the guy that is always there. Always willing to shoot some pool or have a drink. Comfort you when your girlfriend breaks up with you, or doesn't show up. You wonder when he ever studies since all his time doing other activities. But when it comes time to vote for the fraternity president, he is the one that everyone votes for. This guy then goes into the world of business. A highly likeable guy. Not to bright. Also a good political guy. He doesn't make waves and understands that he shouldn't make waves. He is not a threat to the guy above him. Never has ideas but is just there. This is how things work today and it is hurting the competitive spirit of many corporations.

Assume that this guy becomes the CEO. The boards don't care. The first thing the board members do at board meetings is look at their pay check. The board members typically stay quiet in regards to any explanation that the CEO may give in regards to the bad things that are happening. Then conversation moves onto where dinner will be that night. What people are doing later, etc.

This is why we have all these derivative problems today. The people running the companies don't know what they are doing. They simply don't know better.

And this is all a self feeding, anti-Darwinian problem. The CEO puts someone below him that is slightly dumber than he is. This is simply in order to prevent the CEO from being challenged often (if ever). Some day the CEO steps down and is replaced with the person below him, who repeats the process, putting someone below him that is slightly dumber than he is. By repeating this process, companies might all be run by morons one day.

Thankfully, there are exceptions. Icahn asks that CEOs be innovative and to go against the trend. Try something new. Pound your fist on the table. Put your ideas out there, even if it may cost you your job. In the end, have your own imagination and think for yourself! This is what America needs.



Also, be sure to check out The Icahn Report web site.

Recent Icahn purchases

Icahn has been recently been buying Genzyme Corporation (ticker: GENZ) and Forest Laboratories Inc (ticker: FRX). Icahn owns 1,000,000 shares of Forest Labs which represents about 1% of Icahns holdings. Icahn owns 1,450,800 shares of Forest Labs which represents about 2.4% of Icahns holdings.

Forest Laboratories, Inc. (ticker: FRX) and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products which require a physician's prescription, as well as non-prescription pharmaceutical products sold over-the-counter. Forest's most important United States products consist of branded ethical drug specialties marketed directly, or to physicians by the company's Forest Pharmaceuticals, Forest Therapeutics and Forest Specialty Sales sales forces. Forest Laboratories Inc. has a market cap of $8.75 billion; its shares were traded at around $29 with a P/E ratio of 8.4 and P/S ratio of 2.3. Forest Laboratories Inc. had an annual average earning growth of 30.7% over the past 10 years. GuruFocus rated Forest Laboratories Inc. the business predictability rank of 2-star.

Genzyme Corporation (ticker: GENZ) is a global biotechnology company dedicated to making a major positive impact on the lives of people with serious diseases. The company's broad product portfolio is focused on rare genetic disorders, renal disease, and osteoarthritis, and includes an industry-leading array of diagnostic products and services. Genzyme's commitment to innovation continues today with research into novel approaches to cancer, heart disease, and other areas of unmet medical need. Genzyme Corp. has a market cap of $14.36 billion; its shares were traded at around $54.11 with a P/E ratio of 19.1 and P/S ratio of 3.1. Genzyme Corp. had an annual average earning growth of 20.2% over the past 10 years. GuruFocus rated Genzyme Corp. the business predictability rank of 4-star.

Disclosure: The author of this article does not hold Forest Labs, Genzyme, Yahoo or Time Warner. As always, do your own due diligence.

For those that made it this far, here is a bonus. Icahn doing some standup comedy, yes comedy. The date is not known, but it occurs at Caroline's Comedy Club in Manhattan and he talks about taking over US Steel. It appears to be a roast of Leon Black.



  • CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
  • Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
  • Double Buys:: Companies that both Gurus and Insiders are buying
  • Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.

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About the author:

Karl
Karl is currently a software engineer in Connecticut with a bachelors of science in electrical engineering from Clarkson University. He has been investing since 2001 and interested in value investing since 2005. Karl is continually striving to learn more about investment.

Rating: 3.9/5 (11 votes)

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