A particular pet peeve of mine is when corporations ominously state that a director (or candidate for election to the board of directors) has been “handpicked” by an investor. A recent example comes in the form of Huntsman Corporation’s (“Huntsman”) public response to Starboard Value LP’s (“Starboard”) nomination of three director candidates:

“We are deeply disappointed that Starboard is forcing Huntsman and its shareholders through the cost and distraction of an unnecessary proxy contest. Starboard is more concerned with installing their handpicked candidates on Huntsman’s Board than allowing the Board and management team to create shareholder value, through our multiple initiatives that Starboard supports.”[1]

At the risk of pointing out the obvious, all candidates for election have to be picked by someone.  Starboard selected three candidates for election to the board at Huntsman’s 2022 annual meeting of stockholders and, presumably, Huntsman (meaning its board or the nominating and corporate governance committee thereof) will pick three candidates as well. My guess is that neither Starboard nor Huntsman went out to a field and picked candidates like they would strawberries, but instead identified a potential pool of candidates and evaluated the relative merits of each to get to their final selections.

I don’t really think that the characterization of handpicked is supposed to describe the process of selection, by the way, but can’t help thinking of locally grown, artisanal directors every time I hear it. Instead, by referring to Starboard’s candidates as handpicked, there seems to be a clear implication that Starboard’s candidates are Starboard’s candidates in the sense that, if elected, they will work solely to advance Starboard’s interests.

Huntsman, however, is a Delaware corporation and, in the event that Starboard’s candidates are elected, they will owe the same fiduciary duties to all of Huntsman’s stockholders, just as Huntsman’s current directors do. I don’t think it is too much of a stretch to say that Starboard probably just thinks their candidates will do a better job of fulfilling those duties than Huntsman’s current directors.

Alternatively, Huntsman (and others who use the handpicked trope) might be trying to imply that there is something wrong with Starboard selecting candidates without the input of Huntsman’s board or its nominating and governance committee. Setting aside for a moment the fact that Starboard, as a stockholder, has the right to directly nominate candidates for director, it certainly doesn’t seem like Huntsman offered (or was going to offer) Starboard any input into Huntsman’s selection of candidates. It seems a little presumptuous of Huntsman to expect Starboard to discuss its candidates with Huntsman when Huntsman does not seem likely to extend the same right to Starboard. Gooses and ganders spring to mind.

Perhaps most importantly, however, Starboard (like any other Huntsman stockholder that complies with the procedures set forth in Huntsman’s bylaws) has just as much of a right as Huntsman’s board to nominate candidates for election to the board.[2]  In other words—to the extent that handpicked refers to a stockholder’s right as a stockholder to nominate candidates without any input from the board or any committee thereof—then Starboard (or any other Huntsman stockholder) has the right to handpick candidates for election to director. Moreover, since the Huntsman board approved Huntsman’s bylaws (as a practical matter, Huntsman’s board almost certainly determined the exact language of every single provision of the bylaws), it is fair to say that Huntsman’s board explicitly gave stockholders the right to handpick candidates for director (or at least acknowledged that right).[3] Now, it may well be the case that Huntsman’s board didn’t actually want to give Huntsman’s stockholders the right to handpick candidates for director, but felt compelled to, whether by corporate norms, stockholder expectations or maybe even by the fundamental notion that stockholders’ right to elect directors is only meaningful if accompanied by a right to select the candidates.[4]

Regardless of its motivation, Huntsman’s board—through its approval of bylaws providing stockholders the right to nominate candidates for election to director—gave Starboard the explicit right to handpick candidates. Having done so, Huntsman’s board (and other boards who rely on the handpicked trope to throw shade on a stockholder’s candidates) should in all fairness either acknowledge that fundamental right or, better still, retire a hackneyed and meaningless pejorative and maybe just focus on whatever significant business and/or performance issues prompted the stockholder to nominate candidates for election to the board in the first place.

[1] https://www.sec.gov/Archives/edgar/data/0001307954/000110465922003716/tm222714d3_defa14a.htm

[2] Section 2.8(a)(i) of Huntsman’s bylaws provide that nominations can be made both “by or at the direction of the Board” or “by any stockholder” who complies with the requirements set out therein.  https://www.sec.gov/Archives/edgar/data/0001307954/000143774921002772/ex_224980.htm.

[3] Huntsman’s board approved the company’s most recently amended and restated bylaws on June 16, 2020 expressly to, among other things, “amend existing advance notice bylaw provisions,” so the current Huntsman board is clearly aware of the extent of any stockholder’s right to handpick candidates for director.

[4] Delaware law recognizes that the “business of electing directors includes the nomination of directors.” Levitt Corp. v. Office Depot, Inc. C.A. No. 3622-VCN (Del. Ch. April 14, 2008). However, the pithiest formulation of how the right to vote is based on the right to nominate can be found in Boss Tweed’s famous saying: “I don’t care who does the electing, so long as I get to do the nominating.”