It is quite possible that the Carlyle Group, the private equity firm that is preparing to go public, is proposing the most shareholder-unfriendly corporate governance structure in modern history.Professional opinion:
It starts with the fact that Carlyle is providing its soon-to-be public shareholders with no power over the company. Carlyle shareholders will have no ability to elect directors. Instead, Carlyle intends for the company to be controlled by its management, primarily its co-founders: Daniel A. D’Aniello, the firm’s chairman, and William E. Conway Jr. and David M. Rubenstein, the co-chief executives. They will have special power to elect Carlyle’s board of directors as long as they and Carlyle’s affiliates own more than 10 percent of the company.
Carlyle does intend to appoint some independent directors to this board, along with the three Carlyle co-founders. But Carlyle has yet to say if the independent directors will comprise a majority of the board. And the Carlyle board will not have a board committee of independent directors to supervise executive pay and director nominations, as is normal at most public companies.
Carlyle does not even intend to hold annual meetings of stockholders. Given that shareholders have no voting rights, why bother?
It is not only that Carlyle shareholders will have no say over the firm’s governance. Carlyle has also deliberately limited other rights of shareholders that are typically present in public companies. Carlyle has a right to summarily repurchase all of the public’s shares if less than 10 percent of the company is held by those shareholders. Carlyle puts the consequence of this aptly when it states in its initial public offering registration statement that “a holder of common units may have his common units purchased at an undesirable time or price.”...MORE