Arconic, the engineered aluminum products company, has been under pressure from hedge fund Elliott Management, which launched a proxy fight against the company earlier this year. But when CEO Klaus Kleinfeld (#139 on the CEO1000) suddenly departed two weeks ago, it wasn’t because of that activist-investor pressure—at least not directly.
Kleinfeld’s resignation followed the news that he had sent a letter to Elliot, which has been calling for his ouster. Elliott said the letter, which was sent without the authorization of the Arconic board, was threatening. Arconic said the move showed “poor judgment” on Kleinfeld’s part.
A week later, the saga continued as Kleinfeld left the boards of Morgan Stanley and HP Enterprise. At that point, Elliott released the contents of the letter. It seems to have suggested that Kleinfeld had embarrassing information about the “great time” that the fund’s manager Paul Singer had while celebrating in Berlin during the 2006 World Cup championship.
“This story illustrates the tremendous pressure that CEOs are under from a variety of directions, particularly from activist investors,” says Paul Winum, leader of the Board and CEO Services Practice at RHR International, a premier firm in the development of top management leadership of Global 1000 companies and a collaborator with Chief Executive in the CEO1000. “Klaus’s letter to Singer reminds us of the value of asking trusted colleagues and advisors to vet outgoing communications before they hit the proverbial send button, particularly when their emotions may be running high.”
After Kleinfeld left, Arconic board member David Hess was named interim CEO, and the board is now searching for a permanent executive. Although Kleinfeld is gone, Elliott has said that it still wants changes at the company. As the proxy fight continued, Arconic announced that it was delaying its annual meeting from May 16 to sometime later in the month.
“While the current proxy battle with Elliott and the sudden departure of its CEO pose formidable challenges to Arconic, this is a time for the board to deliver tangible value to the company’s stakeholders,” says Winum. “Remembering it is the calm and not the storm that makes the sailor, acting CEO David Hess, new board chair Pat Russo and their fellow directors can really earn their fees in the coming months by ensuring the selection of a new CEO and by cohering an effective board after the upcoming director elections.”