If you’re a public company director looking to put a real crimp in your future career prospects, it looks like adopting a poison pill is a pretty good way to do it. In a recent Business Law Prof blog, Akron U’s Stefan Padfield flagged a new study that says directors who vote to adopt a poison pill pay a significant price. Here’s the abstract:
We examine the labor market consequences for directors who adopt poison pills. Directors who become associated with pill adoption experience significant decreases in vote margins and increases in termination rates across all their directorships. They also experience a decrease in the likelihood of new board appointments. Firms have positive abnormal stock price reactions when pill-associated directors die or depart their boards, compared to zero abnormal returns for other directors.
Further tests indicate that these adverse consequences accrue primarily to directors involved in the adoption of pills at seasoned firms and not at young firms. We conclude that directors who become associated with poison pill adoption suffer a decrease in the value of their services, and that the director labor market thus plays an important role in firms’ governance.
The study suggests that the absence of any adverse effect on directors who put pills in place at emerging companies may reflect the market’s perception that takeover defenses are positive for young firms and negative for more seasoned ones.
-John Jenkins, TheCorporateCounsel.net October 16, 2019