Initially investing in small cap value companies, Starboard quickly gained a reputation in Silicon Valley as a corporate raider, targeting mostly technology companies including Agilysys Inc (AGYS.O: Quote, Profile, Research, Stock Buzz), Openwave Systems and Extreme Networks Inc (EXTR.O: Quote, Profile, Research, Stock Buzz) among several others.

But more recently the New York-based hedge fund has had an appetite for more diverse and larger companies, with its latest campaign focused on the world’s largest pork producer Smithfield Foods Inc (SFD.N: Quote, Profile, Research, Stock Buzz), in a move that could scupper China’s biggest takeover of an American company.

Consistent with its strategy – pushing for asset sales and spin offs to board and management shake-ups – the fund is pushing Smithfield to explore a breakup rather than go ahead with the planned $4.7 billion sale to Chinese meat company Shuanghui International.

The activist investor, now Smithfield’s biggest shareholder with a 5.7 percent stake, said Smithfield could be worth 29 percent to 64 percent more than the $34 per share offered by Shuanghui if it split up and shopped its hog production, pork and international units separately.

“Some activists have a massive repertoire of strategies they use, but Starboard likes to get companies back to what they’re good at, such as splitting off business divisions that are non core,” said Kerry Pogue, managing director at Activist Insight, a data provider that tracks activism.

Starboard, which was spun off from Cowen and Company’s asset management arm Ramius LLC in March 2011, is led by CEO Jeffrey Smith, who has become the face and name behind the fund’s multiple proxy contests. He was not available for comment.

A major focus is board representation. This year, Starboard launched seven proxy contests, of which six involved efforts to gain board seats. For example in March Starboard nominated six members, including former Home Depot CEO Robert Nardelli, for the 10-member Office Depot board.

The investor cited the lack of retail experience among current board members and stressed the need to reconstitute the board whether or not its proposed merger with smaller rival OfficeMax Inc (OMX.N: Quote, Profile, Research, Stock Buzz) takes place.

Its success stems largely from its concentrated portfolio, owning shares in 24 companies worth a total of $1.1 billion as of March 31, and its behind the scenes due diligence, said investment bankers and other activists.

Bankers with knowledge of Starboard’s strategy say the fund will speak to a host of sources before taking a position, including sector analysts, industry peers, proxy solicitors, litigators, regulators and deal makers.

Smith and his 12-member investment team, which includes former traders, research analysts and investment bankers, will also speak with management in advance of filing with regulators that it has bought 5 percent or more in a company, the sources said.

“Everybody thinks they do their work and they have a serious approach to their diligence and investing. They have a good reputation among activists,” said a shareholder activist that preferred anonymity.

An investment banker that requested anonymity because he has worked with Starboard said “Jeff Smith is one of the smarter guys that you will meet… and over the last couple of years Starboard has been the most active of all the activists.”

Smith began his career in the mergers and acquisitions department at Société Générale and is currently a member of the board of hair salon chain Regis Corp (RGS.N: Quote, Profile, Research, Stock Buzz). Although the fund has seen its share of success in recent years, it has also been met with challenges.

During its campaign last year against AOL, Starboard maintained that AOL Chief Executive Tim Armstrong and his management had failed with its strategy to double down on transforming itself into a media and entertainment powerhouse, citing AOL’s costly investment in its network of local news sites called Patch and losses at its display advertising business.

But the Internet company’s institutional shareholders did not agree. Instead of voting with Starboard’s proposed director candidates to AOL’s board last year, which included Smith, they decided to re-elect all of AOL’s director candidates during the annual shareholder meeting – an unusual defeat for an activist.

“Even if they technically lost AOL, they made a ton of money and got the company to do some stuff that was incredibly valuable,” the activist investor that preferred anonymity said, referring to AOL’s eventual patent sale which resulted in $1.1 billion returned to investors.

(Reporting by Nadia Damouni and Olivia Oran; Editing by Jilian Mincer, Martin Howell and Bernard Orr)

A number of high-profile industry executives have been identified as possible successors to the Dell founder, including: Cisco Systems Inc (CSCO.O: Quote, Profile, Research, Stock Buzz) director Michael Capellas, former IBM Corp (IBM.N: Quote, Profile, Research, Stock Buzz) services head Michael Daniels, Oracle Corp (ORCL.O: Quote, Profile, Research, Stock Buzz) President Mark Hurd and Hewlett-Packard Co (HPQ.N: Quote, Profile, Research, Stock Buzz) PC boss Todd Bradley, the sources said.

Icahn and Southeastern Asset Management have already approached several candidates, the sources said on condition of anonymity because the discussions were private. Capellas, Daniels and Hurd were not immediately available for comment. Bradley said in an email he had not been contacted.

A representative for Southeastern declined to comment. Icahn did not return calls for comment.

Icahn, Southeastern and company founder Michael Dell are locked in a battle over the future of the world’s No. 3 PC maker, a struggle precipitated by the swift decline of the global computer industry and the company’s failure to arrest sliding revenues.

Its billionaire founder and Dell executives have argued the company has little future in PCs and needs to transform itself into an IBM-like provider of full-spectrum enterprise services – a makeover best done as a private company. But major shareholders decry Dell’s offer as cheapening their stakes.

FAMILIAR LIST

Michael Dell and Silver Lake have proposed a $24.4 billion buyout of the personal computer maker. Meanwhile, Icahn and Southeastern Asset Management made a counter offer that would pay a $12-per-share special dividend and allow Dell shareholders to keep their shares.

Dell has set a special meeting of July 18 for shareholders to vote on the $13.65-per-share Dell-Silver Lake buyout.

Icahn and Southeastern have also put together a prospective board to replace all 12 of the current directors, though some analysts question the credentials of the proposed names, saying several lacked extensive turnaround or technology experience.

Some of Dell’s top investors have expressed support for Icahn over the past few months, including money manager T. Rowe Price Associates Inc and Yacktman Asset Management LP.

This week, Dell’s special buyout committee said Icahn is almost $4 billion short of the cash needed to fund his proposal for his proposed special dividend.

“We are going to vote against the Silver Lake deal,” said Don Yacktman, president of Yacktman Asset Management, whose fund owns 14.9 million shares of Dell.

“Southeastern and Icahn make a strong case to go the other way.”

(Additional reporting by Poornima Gupta in San Francisco; Editing by Edwin Chan and Ben Berkowitz)

A number of high-profile industry executives have been
identified as possible successors to the Dell founder,
including: Cisco Systems Inc (CSCO.O: Quote, Profile, Research) director Michael Capellas,
former IBM Corp (IBM.N: Quote, Profile, Research) services head Michael Daniels, Oracle
Corp (ORCL.O: Quote, Profile, Research) President Mark Hurd and Hewlett-Packard Co (HPQ.N: Quote, Profile, Research)
PC boss Todd Bradley, the sources said.

Icahn and Southeastern Asset Management have already
approached several candidates, the sources said on condition of
anonymity because the discussions were private. Capellas,
Daniels and Hurd were not immediately available for comment.
Bradley said in an email he had not been contacted.

A representative for Southeastern declined to comment. Icahn
did not return calls for comment.

Icahn, Southeastern and company founder Michael Dell are
locked in a battle over the future of the world’s No. 3 PC
maker, a struggle precipitated by the swift decline of the
global computer industry and the company’s failure to arrest
sliding revenues.

Its billionaire founder and Dell executives have argued the
company has little future in PCs and needs to transform itself
into an IBM-like provider of full-spectrum enterprise services –
a makeover best done as a private company. But major
shareholders decry Dell’s offer as cheapening their stakes.

FAMILIAR LIST

Michael Dell and Silver Lake have proposed a $24.4 billion
buyout of the personal computer maker. Meanwhile, Icahn and
Southeastern Asset Management made a counter offer that would
pay a $12-per-share special dividend and allow Dell shareholders
to keep their shares.

Dell has set a special meeting of July 18 for shareholders
to vote on the $13.65-per-share Dell-Silver Lake buyout.

Icahn and Southeastern have also put together a prospective
board to replace all 12 of the current directors, though some
analysts question the credentials of the proposed names, saying
several lacked extensive turnaround or technology experience.

Some of Dell’s top investors have expressed support for
Icahn over the past few months, including money manager T. Rowe
Price Associates Inc and Yacktman Asset Management LP.

This week, Dell’s special buyout committee said Icahn is
almost $4 billion short of the cash needed to fund his proposal
for his proposed special dividend [nL1N0EH0PZ].

“We are going to vote against the Silver Lake deal,” said
Don Yacktman, president of Yacktman Asset Management, whose fund
owns 14.9 million shares of Dell.

“Southeastern and Icahn make a strong case to go the other
way.”

(Additional reporting by Poornima Gupta in San Francisco;
Editing by Edwin Chan and Ben Berkowitz)

((Nadia.Damouni@thomsonreuters.com)(646-223-6356)(Reuters
Messaging: nadia.damouni.reuters.com@reuters.net))
Keywords: DELL ICAHN/CEO

(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

(Reuters) – Forest Laboratories Inc is trying to avert yet another bitter proxy battle with billionaire investor Carl Icahn ahead of its annual investor meeting this summer, according to two sources familiar with the situation.

Icahn, Forest’s second-largest shareholder, and the company have been in discussions over the course of the year and talks are ongoing to avoid a third proxy fight in as many years, the sources said.

There is, however, no guarantee of an amicable settlement, they said, and a mid-June deadline for filing a slate of alternative director candidates is fast approaching.

Neither Forest, which is searching for a successor to long-time Chief Executive Howard Solomon, nor Icahn could immediately be reached for comment.

Details of the discussions could not be learned. Icahn’s persistence underscores why in many boardrooms he is still regarded as one of the most feared activist investors.

He has been highly critical of Forest leadership in recent years, arguing that the company in which he holds an 11.5 percent stake has been badly managed and underperforms industry peers.

Icahn has criticized the U.S. drugmaker for being ill-prepared to generate future growth in the face of looming generic competition for two of its biggest selling products – the antidepressant Lexapro and the Alzheimer’s treatment Namenda – and for numerous warnings the company received from U.S. health regulators related to marketing practices of its drugs.

His campaign against the company has met with limited success. Last year’s proxy battle, for example, ended with just one of Icahn’s four nominees being elected to the board – Pierre Legault, the former chief financial officer of OSI Pharma.

Legault has since distanced himself from Icahn, telling people that he didn’t know the investor well and wasn’t “his guy”, one of the sources said.

Legault declined to comment.

Forest has also been taking steps that would blunt some of that criticism. The company has launched new products over the past two years. The company’s share price is up about 18 percent since last August, beating the 14 percent gain for the broader S&P 500 over that time period.

Icahn had also accused the Forest CEO of planning to install his son as his successor without a proper review of potential candidates for the top post.

That challenge may have been eclipsed by recent events. In May, Forest said Solomon would retire at the end of the year after more than 35 years of running the U.S. drugmaker. It said an independent committee from the board was evaluating internal and external candidates for the top job. Solomon was to remain chairman and would be a candidate to retain his seat on the board.

One potential CEO candidate could be Bausch & Lomb Chief Executive Brent Saunders, who is on Forest’s board. The sources said it was still too early in the CEO search process to know if he would be a candidate.

Saunders declined to comment.

Saunders, a highly regarded executive with turnaround expertise, is expected to leave the eye care maker following a transition period once its recently announced acquisition by Valeant Pharmaceuticals International is completed.

That could take place as early as this summer, a person familiar with the proceedings said, leaving the former Schering-Plough executive a sizeable window to help with the transition before Solomon steps down.

(Reporting by Bill Berkrot and Nadia Damouni; Editing by Paritosh Bansal and Andrew Hay)

(Reuters) – The sudden exit of Procter & Gamble Co’s (PG.N: Quote, Profile, Research, Stock Buzz) Bob McDonald as chief executive and the return of former CEO A.G. Lafley in his place has raised questions about the vigilance of one of America’s highest-profile corporate boards.

On paper at least, P&G, the maker of a myriad of household products such as Crest toothpaste and Tide detergent, has one of the strongest boards in the world with CEOs from six other companies among its 12 members, including three from companies in the Dow Jones industrial average. The CEOs include Boeing Co’s (BA.N: Quote, Profile, Research, Stock Buzz) James McNerney, Hewlett-Packard Co’s (HPQ.N: Quote, Profile, Research, Stock Buzz) Meg Whitman, American Express Co (AXP.N: Quote, Profile, Research, Stock Buzz) CEO Kenneth Chenault, and Macy’s Inc CEO (M.N: Quote, Profile, Research, Stock Buzz) Terry Lundgren.

P&G in its annual proxy statement to shareholders last year described the board as “highly qualified and each Director brings a diversity of skills and experiences.” It said all of the directors – who also include Archer Daniels Midland Co (ADM.N: Quote, Profile, Research, Stock Buzz) CEO Patricia Woertz, Frontier Communications Corp (FTR.O: Quote, Profile, Research, Stock Buzz) CEO Maggie Wilderotter and former Mexico President Ernesto Zedillo – qualify as possessing “extraordinary leadership qualities and are able to identify and develop leadership qualities in others.”

But some investors and corporate governance experts say that having so many powerful directors could also be a weakness because serving CEOs are under a lot of pressure in their own jobs and therefore cannot commit much time to being a director of another company.

They also suggest that major P&G investors, such as Warren Buffett’s Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz)(which had a P&G stake of about 2 percent at the end of March), and activist hedge fund investor Bill Ackman’s Pershing Square Capital Management (with around 1 percent), would also have more at stake than the CEOs, who only have modest P&G shareholdings.

While boards in corporate America are often dominated by current and retired executives, many also have investors represented – Coca-Cola Co (KO.N: Quote, Profile, Research, Stock Buzz), for example, has Buffett’s son Howard Buffett on its board (Berkshire has a 9 percent stake).

The lack of big investors on the board is a concern, said Frank Feather, chairman of Toronto-based corporate strategy consulting company Geodevco. There should be some directors who own significant amounts of shares that were not paid for or issued to them by the company. “Directors should have skin in the game,” he said.

Added Urmi Ashar, who founded the Pittsburgh chapter of the National Association of Corporate Directors and teaches governance at Carnegie Mellon University: “The heavyweight board of P&G packed with CEOs is a definite red flag and it leaves one wondering how much time they have to dedicate to the challenges at P&G.”

Whitman, for example, has been trying to engineer a turnaround at HP, following a failed acquisition by her predecessor and amid a struggling personal computer market. Meanwhile, McNerney has faced a crisis at Boeing after overheating batteries grounded its new Dreamliner aircraft since January, with flights only now resuming.

Still, their attendance record – and that of other directors – for P&G board meetings last year was strong. And several of the CEOs, including Whitman and Lundgren, weren’t on the board when McDonald was appointed in June 2009. Also giving a CEO a reasonable period – just under four years in McDonald’s case – to produce results would be pretty standard at most major companies unless the share price was imploding.

All the board members contacted for this article either declined to comment or were not available, including McNerney, who holds the title of presiding director at P&G. The presiding director, among other things, oversees director meetings when management is not present. A P&G spokesman declined to comment.

Even Ackman, who had been pushing for McDonald to be replaced, in October described the board as “one of the best” in America. He declined to comment for this article.

SHARE PRICE LAGGING RIVALS

It is still unclear what finally triggered McDonald’s retirement, which was announced late last Thursday, and P&G has declined to answer questions. The company disappointed investors last month when it said that earnings in the current quarter would be lower than Wall Street expected but on Friday P&G Chief Financial Officer Jon Moeller told analysts on a brief call that the CEO change would not lead to a strategy change and was “not indicative of any kind of bigger problem or financial issue.

Still, its share price did underperform between the time McDonald was appointed in June 2009 and the announcement of his departure. Its shares have risen about 50 percent in that time but that is less than the gains achieved by major consumer products rivals over the same span: Unilever Plc’s (ULVR.L: Quote, Profile, Research, Stock Buzz) (UNc.AS: Quote, Profile, Research, Stock Buzz) shares are up 85-93 percent depending on which listing is cited, Colgate-Palmolive Co (CL.N: Quote, Profile, Research, Stock Buzz) up 74 percent and Clorox Co (CLX.N: Quote, Profile, Research, Stock Buzz) gained 60 percent. The Standard & Poor’s 500 .SPX advanced 75 percent in that period.

The debate over the suitability of outside CEOs for boards dates back decades, but reviews on their effectiveness are mixed. A 2011 review of research by Stanford University academics found that while in theory CEOs should bring the leadership qualities and expertise that boards need, no research had found they are in fact better board members.

Some investors also questioned why the P&G board had to turn to a retired CEO to return to the helm, and didn’t have a more robust CEO succession policy in place. Bringing back Lafley “highlights poor succession planning by the board,” said Jason Tauber, a research analyst with the Large Cap Disciplined Growth team at Neuberger Berman, which holds 8.7 million P&G shares.

DEPLETED RANKS

One of the problems was that a previously deep bench in management ranks at P&G has been depleted since McDonald became CEO in 2009.

When a new CEO takes over, some departures of other top executives are often inevitable as they go elsewhere to fulfill their ambitions of running a company but in P&G’s case the losses were perhaps more significant. They included razor business leader Chip Bergh, who left to take over Levi Strauss & Co LEVST.UL in 2011, and vice chairman Ed Shirley, who became CEO at Bacardi Ltd BACLTD.UL in 2012.

When he announced McDonald had been named to the top job in 2009, McNerney described him as “the most broadly and globally experienced CEO in P&G history” and said he got the position after “a rigorous, disciplined and multi-year succession process led by the Board.”

The decision to bring back Lafley was applauded by investors who pushed P&G’s share price up 4 percent on Friday, though they slipped back slightly on Tuesday to close at $80.86. The stock rose initially because Lafley was seen as a known quantity, investors said.

However, some of the company’s current problems started to come to light towards the end of his time as CEO, some analysts said. Lafley left P&G with a bloated organization after leading several acquisitions, most notably the $57 billion purchase of Gillette in 2005, and P&G also was widely seen as slow in expanding in fast-growing emerging markets and introducing products to appeal to more frugal consumers in developed markets.

Ashar said it was striking P&G would turn back to Lafley, the architect of many past successes but also a force behind McDonald’s installation. “What it tells me is that the current ‘All Star’ board of P&G really has delegated the responsibility of sense-making back to Lafley.”

(Reporting By Ross Kerber in Boston, Nadia Damouni in New York and Jessica Wohl in Chicago; Editing by Martin Howell and Tim Dobbyn)

On paper at least, P&G, the maker of a myriad of household
products such as Crest toothpaste and Tide detergent, has one of
the strongest boards in the world with CEOs from six other
companies among its 12 members, including three from companies
in the Dow Jones industrial average. The CEOs include Boeing
Co’s James McNerney, Hewlett-Packard Co’s Meg
Whitman, American Express Co CEO Kenneth Chenault, and
Macy’s Inc CEO Terry Lundgren.

P&G in its annual proxy statement to shareholders last
year described the board as “highly qualified and each Director
brings a diversity of skills and experiences.” It said all of
the directors – who also include Archer Daniels Midland Co
CEO Patricia Woertz, Frontier Communications Corp
CEO Maggie Wilderotter and former Mexico President
Ernesto Zedillo – qualify as possessing “extraordinary
leadership qualities and are able to identify and develop
leadership qualities in others.”

But some investors and corporate governance experts say that
having so many powerful directors could also be a weakness
because serving CEOs are under a lot of pressure in their own
jobs and therefore cannot commit much time to being a director
of another company.

They also suggest that major P&G investors, such as Warren
Buffett’s Berkshire Hathaway Inc (which had a P&G stake
of about 2 percent at the end of March), and activist hedge fund
investor Bill Ackman’s Pershing Square Capital Management (with
around 1 percent), would also have more at stake than the CEOs,
who only have modest P&G shareholdings.

While boards in corporate America are often dominated by
current and retired executives, many also have investors
represented – Coca-Cola Co, for example, has Buffett’s
son Howard Buffett on its board (Berkshire has a 9 percent
stake).

The lack of big investors on the board is a concern, said
Frank Feather, chairman of Toronto-based corporate strategy
consulting company Geodevco. There should be some directors who
own significant amounts of shares that were not paid for or
issued to them by the company. “Directors should have skin in
the game,” he said.

Added Urmi Ashar, who founded the Pittsburgh chapter of the
National Association of Corporate Directors and teaches
governance at Carnegie Mellon University: “The heavyweight board
of P&G packed with CEOs is a definite red flag and it leaves one
wondering how much time they have to dedicate to the challenges
at P&G.”

Whitman, for example, has been trying to engineer a
turnaround at HP, following a failed acquisition by her
predecessor and amid a struggling personal computer market.
Meanwhile, McNerney has faced a crisis at Boeing after
overheating batteries grounded its new Dreamliner aircraft since
January, with flights only now resuming.

Still, their attendance record – and that of other directors
- for P&G board meetings last year was strong. And several of
the CEOs, including Whitman and Lundgren, weren’t on the board
when McDonald was appointed in June 2009. Also giving a CEO a
reasonable period – just under four years in McDonald’s case -
to produce results would be pretty standard at most major
companies unless the share price was imploding.

All the board members contacted for this article either
declined to comment or were not available, including McNerney,
who holds the title of presiding director at P&G. The presiding
director, among other things, oversees director meetings when
management is not present. A P&G spokesman declined to comment.

Even Ackman, who had been pushing for McDonald to be
replaced, in October described the board as “one of the best” in
America. He declined to comment for this article.

SHARE PRICE LAGGING RIVALS

It is still unclear what finally triggered McDonald’s
retirement, which was announced late last Thursday, and P&G has
declined to answer questions. The company disappointed investors
last month when it said that earnings in the current quarter
would be lower than Wall Street expected but on Friday P&G Chief
Financial Officer Jon Moeller told analysts on a brief call that
the CEO change would not lead to a strategy change and was “not
indicative of any kind of bigger problem or financial issue.”

Still, its share price did underperform between the time
McDonald was appointed in June 2009 and the announcement of his
departure. Its shares have risen about 50 percent in that time
but that is less than the gains achieved by major consumer
products rivals over the same span: Unilever Plc’s
shares are up 85-93 percent depending on which listing
is cited, Colgate-Palmolive Co up 74 percent and Clorox
Co gained 60 percent. The Standard & Poor’s 500
advanced 75 percent in that period.

The debate over the suitability of outside CEOs for boards
dates back decades, but reviews on their effectiveness are
mixed. A 2011 review of research by Stanford University
academics found that while in theory CEOs should bring the
leadership qualities and expertise that boards need, no research
had found they are in fact better board members.

Some investors also questioned why the P&G board had to turn
to a retired CEO to return to the helm, and didn’t have a more
robust CEO succession policy in place. Bringing back Lafley
“highlights poor succession planning by the board,” said Jason
Tauber, a research analyst with the Large Cap Disciplined Growth
team at Neuberger Berman, which holds 8.7 million P&G shares.

DEPLETED RANKS

One of the problems was that a previously deep bench in
management ranks at P&G has been depleted since McDonald became
CEO in 2009.

When a new CEO takes over, some departures of other top
executives are often inevitable as they go elsewhere to fulfill
their ambitions of running a company but in P&G’s case the
losses were perhaps more significant. They included razor
business leader Chip Bergh, who left to take over Levi Strauss &
Co in 2011, and vice chairman Ed Shirley, who became
CEO at Bacardi Ltd in 2012.

When he announced McDonald had been named to the top job in
2009, McNerney described him as “the most broadly and globally
experienced CEO in P&G history” and said he got the position
after “a rigorous, disciplined and multi-year succession process
led by the Board.”

The decision to bring back Lafley was applauded by investors
who pushed P&G’s share price up 4 percent on Friday, though they
slipped back slightly on Tuesday to close at $80.86. The stock
rose initially because Lafley was seen as a known quantity,
investors said.

However, some of the company’s current problems started to
come to light towards the end of his time as CEO, some analysts
said. Lafley left P&G with a bloated organization after leading
several acquisitions, most notably the $57 billion purchase of
Gillette in 2005, and P&G also was widely seen as slow in
expanding in fast-growing emerging markets and introducing
products to appeal to more frugal consumers in developed
markets.

Ashar said it was striking P&G would turn back to Lafley,
the architect of many past successes but also a force behind
McDonald’s installation. “What it tells me is that the current
‘All Star’ board of P&G really has delegated the responsibility
of sense-making back to Lafley.”

(Reporting By Ross Kerber in Boston, Nadia Damouni in New York
and Jessica Wohl in Chicago; Editing by Martin Howell and Tim
Dobbyn)

AIG, which is already regulated by the U.S. Federal Reserve,
expects more oversight if it is declared a “systemically
important financial institution,” or SIFI. The designation is
widely expected after the U.S. Financial Stability Oversight
Council told the company in October that it may do so.

AIG’s board is looking at candidates who have run regulated
financial institutions as well as former regulators, according
to the sources. There is no specific time frame or deadline for
a new director to be named, the sources said. The names of
potential candidates could not be learned.

AIG spokesman Matt Gallagher declined to comment on
Wednesday.

AIG has been reshaping its board since repaying the
government’s crisis-era bailout. The search for a director with
regulatory experience highlights how major financial
institutions now feel even more pressure to manage their
relationships with regulators.

Earlier this month, AIG shareholders elected two new
directors to the board with insurance experience: William
Jurgensen, former CEO of Nationwide Insurance, and Theresa
Stone, a former insurance executive.

The board’s regulatory, compliance and public policy
committee, is chaired by Douglas Steenland, the former CEO of
Northwest Airlines Corp and includes Jurgensen and Henry Miller,
a restructuring expert. The committee’s duties include reviewing
AIG’s relations with regulators and governmental agencies.

The search for a new director would also help the board
identify candidates as board members retire or leave for other
reasons, according to the sources.

Long-time director Morris Offit retired from the board this
month at the insurer’s annual meeting. Arthur Martinez, the
former chief executive of Sears, Roebuck and Co, is 73 and now
the oldest member of the board, according to an AIG regulatory
filing in April. The board’s retirement age is 75.

AIG was rescued during the financial crisis by the U.S.
government, which pledged $182 billion in taxpayer funds to prop
up the insurer. Under its outspoken chief executive, Robert
Benmosche, the insurer has since engineered a turnaround, and
ended the last vestiges of the bailout in March.

(Reuters) – For years, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) Chairman and CEO Jamie Dimon and other executives have hand-picked new directors, in a practice that is now unusual for a major U.S. bank.

The JPMorgan board’s governance committee, responsible for hiring new members, relies almost entirely on referrals from management to find director nominees, according to two sources familiar with the bank’s practices and a review of bank regulatory filings. All of the other 10 largest U.S. banks say they use executive search firms, which have knowledge of a range of possible candidates.

An examination of the bank’s selection process, which until now has been little known, could prompt questions about how much influence Dimon has over the largest U.S. bank’s board. It comes ahead of a critical shareholder vote next Tuesday over whether the board should strip him of the chairman’s title and give it to another director, which would increase oversight of Dimon’s stewardship as CEO.

Selecting directors in this way can create the appearance that the board may be too close to Dimon and his senior management team, some corporate governance experts said.

“There is value in seeking input from others outside of the board room,” said Ann Yerger, executive director at the Council of Institutional Investors, an association of pension funds, endowments and foundations. “The point here is you should be casting a wide net, especially at our most elite companies.”

JPMorgan spokeswoman Kristin Lemkau said on Wednesday that the board has used executive search firms but has not found them useful. “Many of the director candidates for our board are names already well known to the business community,” she said.

For example, Lemkau said, James Bell, who joined the board in November 2011 shortly before retiring as Boeing Co’s (BA.N: Quote, Profile, Research, Stock Buzz) chief financial officer, was known to the governance committee as a highly qualified director prospect for a number of years.

By most corporate standards, JPMorgan’s 11-member board is strong – with a lot of business heavyweights – and is relatively independent. Ten directors are described by the bank in regulatory filings as independent from management, and Dimon is the only executive on the board. Former ExxonMobil (XOM.N: Quote, Profile, Research, Stock Buzz) CEO Lee Raymond is the lead independent director.

A former JPMorgan executive who has made presentations to the board said that Raymond acts as an effective counterweight to Dimon. Some shareholders agree.

“I don’t think these guys are shrinking violets,” said Jordan Posner, managing director of Matrix Asset Advisors Inc, a New York money manager with about 619,000 JPMorgan shares, referring to Raymond and other directors. Matrix is voting in favor of keeping Dimon in both roles.

JPMorgan said that Raymond did not want to be interviewed for this article.

But no director other than Dimon has significant banking industry experience – a shortcoming that started to gnaw at some investors last year when JPMorgan suffered a $6 billion loss from failed derivative positions that came to be known as the “London Whale” trades. Since then Dimon has had a series of high-profile dust-ups with regulators, which have further added to shareholder discomfort.

“This board doesn’t have the bench, the expertise, the supporting cast,” said Michael Pryce-Jones, an analyst at CtW Investment Group, which, as an adviser to union pension funds owning about 6 million JPMorgan shares, is pushing for changes to the bank’s board.

Still, many investors say they do not want Dimon to leave as CEO of the firm he has profitably run for more than seven years. Dimon has suggested that he might quit if shareholders at the Tampa, Florida meeting vote to ask the board to strip him of the chairmanship. A similar measure won 40 percent support last year.

RISKY BUSINESS

An executive at an institutional investor with several million shares in JPMorgan said it is looking beyond the trading loss to broader questions around governance as it decides how to vote on the proposal. Last year the investor supported Dimon.

Proxy adviser Institutional Shareholder Services has recommended voters support the split. ISS said when it asked Raymond whether board members on the risk management committee had enough expertise, he said that it was hard to find qualified people who had no conflicts.

At other banks, the board selection process is different.

In the aftermath of the financial crisis, Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) added eight directors with skills including regulatory and risk management expertise, ISS said. Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) added five directors, including a former governor of the U.S. Federal Reserve and a former CEO of a bank holding company, it said.

Both Citigroup and Bank of America use search firms. Of the 10 largest U.S. banks, only JPMorgan and Bank of New York Mellon Corp (BK.N: Quote, Profile, Research, Stock Buzz) make no mention of using outside search firms to find directors, a review of filings shows.

BNY Mellon spokesman Ron Gruendl said that the trust bank uses a variety of ways to recruit directors, including working with outside search firms.

At the time of the London Whale losses, the three directors on the risk committee were: James Crown, president of a large family investment company; David Cote, the CEO of Honeywell International Inc (HON.N: Quote, Profile, Research, Stock Buzz); and Ellen Futter, who heads the American Museum of Natural History in New York. The three, who remain on the committee which has now been augmented by a fourth member, were not available for comment.

ISS found the experience of the original three members wanting. It said plenty of directors with strong backgrounds in risk management, financial regulation and other relevant areas serve on rival financial companies’ boards.

Last week, JPMorgan directors Raymond and William Weldon, who is a former CEO of Johnson & Johnson (JNJ.N: Quote, Profile, Research, Stock Buzz), vouched for the qualifications, diligence and independence of board members in a letter to shareholders.

They pointed out that the board had cut Dimon’s pay in half for 2012 because of the London Whale problem, and ensured the employees responsible for the losses paid back $100 million to the bank and were fired. They described the board as “highly functioning, engaged and empowered.”

In their letter, Raymond and Weldon said those three members of the risk panel could not have anticipated that the company’s hedging strategy would turn into a far riskier trade.

(Reporting by Nadia Damouni and David Henry in New York and Ross Kerber in Boston, additional reporting by Emily Flitter in New York; Editing by Dan Wilchins, Paritosh Bansal and Martin Howell)

The JPMorgan board’s governance committee, responsible for
hiring new members, relies almost entirely on referrals from
management to find director nominees, according to two sources
familiar with the bank’s practices and a review of bank
regulatory filings. All of the other 10 largest U.S. banks say
they use executive search firms, which have knowledge of a range
of possible candidates.

An examination of the bank’s selection process, which until
now has been little known, could prompt questions about how much
influence Dimon has over the largest U.S. bank’s board. It comes
ahead of a critical shareholder vote next Tuesday over whether
the board should strip him of the chairman’s title and give it
to another director, which would increase oversight of Dimon’s
stewardship as CEO.

Selecting directors in this way can create the appearance
that the board may be too close to Dimon and his senior
management team, some corporate governance experts said.

“There is value in seeking input from others outside of the
board room,” said Ann Yerger, executive director at the Council
of Institutional Investors, an association of pension funds,
endowments and foundations. “The point here is you should be
casting a wide net, especially at our most elite companies.”

JPMorgan spokeswoman Kristin Lemkau said on Wednesday that
the board has used executive search firms but has not found them
useful. “Many of the director candidates for our board are names
already well known to the business community,” she said.

For example, Lemkau said, James Bell, who joined the board
in November 2011 shortly before retiring as Boeing Co’s
chief financial officer, was known to the governance committee
as a highly qualified director prospect for a number of years.

By most corporate standards, JPMorgan’s 11-member board is
strong – with a lot of business heavyweights – and is relatively
independent. Ten directors are described by the bank in
regulatory filings as independent from management, and Dimon is
the only executive on the board. Former ExxonMobil CEO
Lee Raymond is the lead independent director.

A former JPMorgan executive who has made presentations to
the board said that Raymond acts as an effective counterweight
to Dimon. Some shareholders agree.

“I don’t think these guys are shrinking violets,” said
Jordan Posner, managing director of Matrix Asset Advisors Inc, a
New York money manager with about 619,000 JPMorgan shares,
referring to Raymond and other directors. Matrix is voting in
favor of keeping Dimon in both roles.

JPMorgan said that Raymond did not want to be interviewed
for this article.

But no director other than Dimon has significant banking
industry experience – a shortcoming that started to gnaw at some
investors last year when JPMorgan suffered a $6 billion loss
from failed derivative positions that came to be known as the
“London Whale” trades. Since then Dimon has had a series of
high-profile dust-ups with regulators, which have further added
to shareholder discomfort.

“This board doesn’t have the bench, the expertise, the
supporting cast,” said Michael Pryce-Jones, an analyst at CtW
Investment Group, which, as an adviser to union pension funds
owning about 6 million JPMorgan shares, is pushing for changes
to the bank’s board.

Still, many investors say they do not want Dimon to leave as
CEO of the firm he has profitably run for more than seven years.
Dimon has suggested that he might quit if shareholders at the
Tampa, Florida meeting vote to ask the board to strip him of the
chairmanship. A similar measure won 40 percent support last
year.

RISKY BUSINESS

An executive at an institutional investor with several
million shares in JPMorgan said it is looking beyond the trading
loss to broader questions around governance as it decides how to
vote on the proposal. Last year the investor supported Dimon.

Proxy adviser Institutional Shareholder Services has
recommended voters support the split. ISS said when it asked
Raymond whether board members on the risk management committee
had enough expertise, he said that it was hard to find qualified
people who had no conflicts.

At other banks, the board selection process is different.

In the aftermath of the financial crisis, Citigroup Inc
added eight directors with skills including regulatory and
risk management expertise, ISS said. Bank of America Corp
added five directors, including a former governor of the
U.S. Federal Reserve and a former CEO of a bank holding company,
it said.

Both Citigroup and Bank of America use search firms. Of the
10 largest U.S. banks, only JPMorgan and Bank of New York Mellon
Corp make no mention of using outside search firms to
find directors, a review of filings shows.

BNY Mellon spokesman Ron Gruendl said that the trust bank
uses a variety of ways to recruit directors, including working
with outside search firms.

At the time of the London Whale losses, the three directors
on the risk committee were: James Crown, president of a large
family investment company; David Cote, the CEO of Honeywell
International Inc ; and Ellen Futter, who heads the
American Museum of Natural History in New York. The three, who
remain on the committee which has now been augmented by a fourth
member, were not available for comment.

ISS found the experience of the original three members
wanting. It said plenty of directors with strong backgrounds in
risk management, financial regulation and other relevant areas
serve on rival financial companies’ boards.

Last week, JPMorgan directors Raymond and William Weldon,
who is a former CEO of Johnson & Johnson, vouched for
the qualifications, diligence and independence of board members
in a letter to shareholders.

They pointed out that the board had cut Dimon’s pay in half
for 2012 because of the London Whale problem, and ensured the
employees responsible for the losses paid back $100 million to
the bank and were fired. They described the board as “highly
functioning, engaged and empowered.”

In their letter, Raymond and Weldon said those three members
of the risk panel could not have anticipated that the company’s
hedging strategy would turn into a far riskier trade.

(Reuters) – JPMorgan Chase & Co’s (JPM.N: Quote, Profile, Research, Stock Buzz) Jamie Dimon may be losing ground in his fight to keep the title of chairman, as some major investors push for more oversight of the chief executive after the “London whale” trading losses.

At the largest U.S. bank’s annual meeting in two weeks, shareholders will be able to vote on a non-binding proposal to separate the chairman and CEO roles. Two of the bank’s top 10 shareholders told Reuters they are considering voting in favor of the proposal, a reversal of their position last year, because of the disastrous bets on credit derivatives that cost the bank more than $6 billion last year.

The proposal is only a non-binding recommendation and it is not clear what the board will do if it passes. ISS Proxy Advisory Services, the leading proxy advisory firm, on Friday recommended investors support the proposal and also said they should vote against the re-election of three directors who they said had failed in their oversight of the bank.

JPMorgan declined to comment for this story. The bank’s board has said it opposes the shareholder proposal and that the company’s handling of the trading loss shows its current governance works.

The bank’s directors are leading an aggressive campaign to persuade shareholders to vote against it, one of the investors said. It is not clear how much investor support there is for the proposal.

The two JPMorgan investors, who were not authorized to speak on the record, said that however the vote shakes out, they plan to continue to push the bank’s directors behind the scenes to take at least some power from Dimon.

One investor said they will likely encourage the bank to give more authority to its lead independent director, former ExxonMobil Chief Executive Lee Raymond. At JPMorgan, the lead director is currently known as the “presiding director,” a role that includes approving board agendas and schedules and leading meetings of independent directors.

The second investor said they would not be satisfied with anything less than a separation of the two roles because being a chairman is a full-time job.

Complicating the vote is Dimon’s reputation as the best manager on Wall Street. The 57-year-old executive is still viewed by many shareholders as a shrewd leader and they want him to continue to run the bank, albeit with some oversight. Some investors fear that Dimon will leave if he loses the vote.

Dimon’s difficulties began last year, when news emerged of the London Whale trades. The bank has since had a series of run-ins with regulators over issues ranging from money laundering controls to allegations of power market manipulation. JPMorgan’s growing array of problems has overshadowed last year’s record profits in the minds of many investors.

REGULATORY PROBLEMS

As investors ponder whether Dimon can provide enough oversight to a bank with nearly $2.4 trillion of assets, their doubts could give momentum to an idea held by a small but growing minority of U.S. lawmakers and regulators that the biggest banks are too big to manage.

The vote also comes amid a broader debate in corporate America over whether the head of a company should also lead the directors that oversee the company. In the United Kingdom, the two roles are typically separate.

“Independence is the cornerstone of accountability,” said Joe Dear, chief investment officer at the California Public Employees’ Retirement System, which owns JPMorgan shares. “As a principle, CalPERS believes boards should be chaired by an independent director, and we support the separation of the CEO and chair roles.”

Dear declined to comment specifically on JPMorgan.

The shareholder proposal was sponsored by the American Federation of State, County & Municipal Employees, New York City and state of Connecticut employee retirement plans and the United Kingdom’s Hermes Fund Managers.

At last year’s meeting, the AFSCME was the sole sponsor of the proposal, and it won 40 percent of investors’ votes, relatively high for a measure that the board had opposed.

Last year’s vote happened only five days after the company first acknowledged its bad bets on credit derivatives. Since then, shareholders have learned much more about the company’s failed risk controls and the trouble it has had with regulators.

ISS, which is also known as Institutional Shareholder Services, had supported last year’s proposal, but this year added a two-page analysis that concluded the London Whale loss had displayed the board’s lack of independence from Dimon.

A second proxy advisory firm, Glass, Lewis & Co, endorsed last year’s proposal but has yet to announce its recommendation for this year’s vote.

Dimon has had other problems recently. U.S. government investigators have found that a JPMorgan unit manipulated trading in the California and Michigan electricity markets, the New York Times reported on Friday.

The Office of the Comptroller of the Currency, one of the bank’s main regulators, is also considering censuring the bank for failing to conduct adequate due diligence and report suspicions about Ponzi-schemer Bernard Madoff, Reuters first reported last month.

In his annual letter to shareholders, Dimon said executives throughout the bank are putting other projects on hold or scaling them back, so they can focus on the bank’s regulatory obligations. Dozens of these projects are on the back burner now, a source familiar with the situation said.

(Reporting by Nadia Damouni and David Henry; Editing by Dan Wilchins and Eric Walsh)