Self-made corporate billionaires are a rare breed, and I think we can all agree that they deserve respect for their acumen and tenacity. What they don’t deserve, if they’ve accepted shareholder money through the capital markets, is unfettered control of their businesses. Public companies cannot treat corporate governance best practices as a nuisance, or worse, a hindrance – especially when the company’s interests may be at odds with those of its billionaire founder.
I bring you this public service announcement because I’m agog at newly emerged details of the goings-on at Dish Network, the publicly traded satellite television company whose shares and voting power remain firmly in the control of chairman and co-founder Charlie Ergen. I’ve written before about a shareholder derivative suit in Las Vegas state court that accuses Ergen and his friends on the Dish board of compromising the interests of minority shareholders in the company’s $2.2 billion stalking-horse bid for LightSquared, the bankrupt wireless communications company. Ergen is LightSquared’s biggest creditor; through personal investment vehicles, he acquired about $1 billion in LightSquared debt, unbeknownst to LightSquared, which on Friday sued him and Dish for secretly attempting to gain control of the bankrupt company. Dish minority shareholders in the Las Vegas suit contend that through his LightSquared investment, Ergen personally will reap windfall profits if Dish’s bid for LightSquared succeeds.
Last month, you may recall, Clark County judge Elizabeth Gonzalez granted expedited discovery to the Dish shareholders, who are trying to bar Ergen from any continuing role in Dish bidding for LightSquared. On Thursday, shareholder lawyers at Bernstein Litowitz Berger & Grossmann and Cotton, Driggs, Walch, Holley, Woloson & Thompson filed a public version of a supplemental brief disclosing what that discovery revealed.
If the brief is to be believed – and I should say here that a Dish representative says it is not, calling the filing “reckless” and “based upon numerous factual inaccuracies” – then the story of Dish’s bid for LightSquared is a rare tale of overt bullying by a controlling shareholder and abject acquiescence by his loyalists on the board of a public company. In that regard, Dish is a corporate governance failure, a company that has displayed what former Securities and Exchange Commission chair Harvey Pitt, in a declaration filed by Dish shareholders, called an “egregious…disdain” for corporate governance procedures. But at the same time the new brief documents how Dish’s two independent directors resisted pressure from Ergen and the rest of the board. One of them, former Liberty Media executive Gary Howard, eventually resigned, when it became clear that the rest of the board was not concerned about Ergen’s potential conflict. The other one, software developer and former Janus Capital CFO Steve Goodbarn, continues to sit on Dish’s board.
Ergen and Dish (and their lawyers at Willkie Farr & Gallagher and Sullivan & Cromwell) have argued since the beginning of this whole LightSquared ado that there is no conflict between Ergen’s interests and those of Dish’s minority shareholders, and it’s certainly true that all Dish shareholders will benefit if the company’s bid for LightSquared is successful. The new shareholder filing, however, shows that Dish’s independent directors had a more nuanced view than Ergen of the relationship between him and Dish’s other shareholders. That’s precisely why corporate governance conventions call for independent directors to evaluate transactions and stand up for the interests of minority shareholders. So, in a perverse way, the Dish story is also an affirmation of good corporate governance practices – a case study of an independent committee attempting to execute its duty to all shareholders.