Today’s boards act like they are vested with divine rights, activist investor Carl Icahn wrote on Wednesday.

Carl Icahn

In an editorial The Wall Street Journal published Wednesday, Carl Icahn wonders whether voting rights really apply to public corporations.

Divine rights of boards: Carl Icahn

Icahn feels shareholders can vote but the board can just ignore them, citing the ‘business judgment rule’ backed by state laws and courts. Drawing parallel to the middle ages, the activist investor notes feudal lords asserted the ‘divine right’ of royalty to justify their lordly positions while plundering the peasants. He feels today’s boards act as if they are vested with similar divine powers.

He lamented how management can legally issue a flood of new stock to dilute shareholders’ stakes of 10 to 15 percent in a company’s stock. He questioned boards ignoring shareholder votes and leaving incompetent crony directors and CEOs in place.

Dell shareholders approve go-private deal

Last week, Dell Inc. (NASDAQ:DELL)’s founder Michael Dell and his partner Silver Lake have finally received the approval of shareholders for their leveraged buyout offer. This appears to put an end to months of drama which erupted when Carl Icahn attempted to challenge to go-private deal. Carl Icahn wasn’t happy with the buyout offer and repeatedly said that it undervalued the PC maker.

Dell, an example of a dysfunctional system

In his editorial, Carl Icahn terms Dell Inc. (NASDAQ:DELL) as just one recent example of a ridiculously dysfunctional system. He feels Dell lacks strategic foresight as the board for years has presided over the loss of tens of billions of dollars in market value at the hands of its CEO Michael Dell. He criticized Dell board for freezing out shareholders and allowed Michael Dell to buy the company at a bargain price using shareholders’ own cash.

Defends Activist Model

Carl Icahn feels it is practically self-evident that if the system of corporate governance in American business was improved, shareholders would greatly benefit. He highlighted how over the years his company attained great success by religiously following the activist model. In the editorial, he points out how Icahn Enterprises delivered 1,116 percent return compared to only 49 percent delivered by S & P 500 since January 1, 2000.

However, he feels there are only a few consistently successful activists, as the activist strategies are fraught with challenges.

Carl Icahn believes by holding boards and CEOs accountable and replacing them when necessary will improve the economy, make companies more competitive, increase employment besides enhancing shareholder value.