Macy's Truce With Arkhouse Highlights the Value of Boards

While Macy’s Inc. and Arkhouse Management brokered peace in their proxy war — with the retailer agreeing to add a couple of the activist’s chosen experts to its board — it’s a battle that also sets up the next showdown. 

Arkhouse and its partner, Brigade Capital, are still trying to take Macy’s private and have now chosen two of the people who will give any buyout proposal the thumbs up or thumbs down. 

It’s a back and forth that shines a bright spotlight on the tippy top of the corporate or chart — the board of directors. 

They are the boss’ boss, the group of people who advise the chief executive officer on strategy, big capital expenditures, high-level dealmaking and are the only ones who can show a CEO to the door when things go bad. 

Board seats are often the plum, six-figure jobs that high-level executives get on the side or after they retire. At their minimum, they include regular board meetings and assignments on various committees,  like the panel that sets CEO pay. 

But board members are always on call and at times have to move quickly to respond to some big new crisis or development, like government mandates to shut down stores during the pandemic or Macy’s unsolicited and very public takeover offer. 

“The board can’t tell the CEO what to do, the board is supposed to be advisers,” said Elaine Hughes, managing director of executive search firm E.A. Hughes, a division of Solomon Page. “They’re supposed to have the credibility, they have the intelligence, they should have the skillset [needed to run] the business, experience.” 

Hughes stressed that the experience the directors bring needs to be “successful experience” and not just a long track record. 

Boards used to have the reputation of being stacked with the CEO’s golf buddies, but Hughes said that’s less the case now and that in recent years boards have become both more diverse and more tech savvy to deal with changes in the industry.  

To be an effective check on the CEO, directors need some distance. They also need to be able to act as a cohesive group, even if it’s something of a team of rivals.

“What is important when there’s an activist investor looking to come in to create disruption is that the board has the capacity to [meet the] challenge as a combined group, where they respect and trust each other as board members and are going to do what they firmly believe is in the best interest of the company rather than what’s in the best interest of the board seat,” Hughes said.  

That’s important since board members have a fiduciary duty to the company and shareholders — when they have to vote on a buyout offer, they could also be voting themselves out of a job. 

Putting together a board that is tough, responsive, experienced and astute is a tall task that involves a little art and a little science. 

Hughes said that when she is conducting a search for a board member she starts by making sure she understands the CEO’s vision and then meets the other directors. 

“The best boards are made up of people with complementary skill sets,” she said. “On top of that, every company has a different culture. The group of people have to fit the culture. You need to recruit people who are very dedicated to the company. It shouldn’t be someone who sits on a dozen boards.”