Lawsuits take strange paths and the revelations in court yesterday that Sotheby’s directors share many of Dan Loeb’s concerns may have the effect of strengthening the current board’s position in the proxy fight. Which is funny because those concerned with corporate litigation like to tell directors not to take notes or write emails that will inevitably appear in discovery as they have here.
In the litigation, Third Point is trying to obtain a court order against Sotheby’s poison pill defense. Ironically, the emails obtained in discovery generally show engaged and concerned directors, which may help Sotheby’s case in court because judges tend to defer to board decisions where directors are analyzing the issues. But they won’t do much for Sotheby’s argument to shareholders in the proxy fight over the May 6 election of directors that Third Point is wrong.
For example, the emails show that the chair of the Sotheby’s finance committee believed the company has “an expense issue. We spend too much on people, travel entertainment, client relationships, etc.” Plus, he indicated that the Sotheby’s CEO’s strategy was “revenue and people at whatever the cost” and that the board “didn’t have the opportunity to debate it.”
One email was from a director (the lead independent director until December) who conceded “yes, the evidence is strong that company has a serious set of expense and comp issues and that the Board and is too comfortable, too chummy, and not doing its job.” He also said of Mr. Loeb that “on the substance he is far from all wrong.”
It would not be surprising to hear these comments in a board room, when directors are independent, critical thinkers and frank. Indeed, the emails were almost heartening in the kind of candid debate they revealed.