Duties of External Director or ANY director-What Warren Buffet Said
In his 1993 letter to shareholders, Warren Buffett addressed the issue of what a director should do if he
believes the board is not appropriately discharging its duty towards its shareholders and he/she cannot convince the rest of the board of the merit of his concern:
[A] director who sees something he doesn't like should attempt to persuade the other directors of his views.If he is successful, the board will have the muscle to make the appropriate change. Suppose, though, thatthe unhappy director can't get other directors to agree with him. He should then feel free to make his viewsknown to the absentee owners. Directors seldom do that, of course. The temperament of many directorswould in fact be incompatible with critical behavior of that sort. But I see nothing improper in such actions, assuming the issues are serious. Naturally, the complaining director can expect a vigorous rebuttalfrom
the unpersuaded directors, a prospect that should discourage the dissenter from pursuing trivial or non-rational causes. [Source: Berkshire Hathaway 1993 Annual Report.]
Indeed the Sun appointed management is world class and has improved fundamentals in Taro including bolstering its balance sheet with $613 cash. So while we give credit where it is due, we see two glaring omissions in this presentation to ISS. I cannot explain these 2 external directors behaviors during the 2 offers:
1. $350m. We believe this notional loss is underestimated due to the current undervaluation of Taro in the market. This seeming "error in judgement" takes on even more significance, as it happened even after the minority pointed out that the 1st 6 months estimates used in justifying the $39.5 offer was already off by 50%.
Our expectation per Warren Buffet: We would have expected as an independent director whose duty is to protect shareholder interests, would have dissented pointing to the error. But these 2 directors did NOT.
So when the company attributes the share price $16 to $65 as a reason to vote in favor of for these 2 directors, we beg to differ. There is no legitimacy for these 2 directors to take credit for a single cent share price increase beyond $39.5 because they just didn't see it.
2. In the 1st offer, the Special committee and hence the board waited for an inexorable period of 9 months even when Taro continued to trade 60%.
Our expectation per Warrent Buffet: At this point, Ms Bor and Ms Diran rather than dissenting and putting a stop to the obvious unfair treatment(taro trading 60% yet market is made to believe $24.5 is worth evaluating?) to shareholders allowed this unfair evaluation to continue. We saw no dissent and hadCONT
Point 1) text was deleted.
Less than a year ago, the 2 incumbents seemed to lack the foresight that Taro was severely undervalued when they voted in favor of the offer and on 10/02/2012 were recommending minority shareholders. This oversight would have caused significant, permanent/irreparable harm to minority shareholders.
On the basis of the price where the stock is trading today, this shareholders would have suffered a notional loss of greater than $350m. We believe this notional loss is underestimated due to the undervaluation of Taro in the market.
This "error in judgement" takes on even more significance,
despite the fact that the minority pointed out that the 1st 6 months estimates used in justifying
the $39.5 offer was already off by 50%.