Posted: September 9th, 2022

Corporate Governance

Corporate Governance
Ms. Yin should sell Wells Fargo’s IMN position and take the loss because the CG’s proposal and recommendation for liquidation of CG will lead to the selling of IMN.
Initially, in 2011, IMN’s strategy failed, making it challenging for the company to become a technology, and it shifted to become a company that focuses on data storage, connectivity, and protection. The stock price performance has not performed well. Thus, the board should be accountable for the operational failures, and the failures of the executive team led to the destruction of shareholder value and poor financial outcomes and results. CG determined that the core financial performance of CG has declined over the years, and Mr. Lucas would work as CEO and president. The operating losses incurred in the company led to worse financial performance and pushed for negative momentum in 2014. The decision to sell a stake in Imation was the right one because the operational execution of the company has been poor, and the operating metrics of the company have been deteriorating compared to the rival firms. Some of the adverse financial outcomes include poor growth, gross margins, and weak return on invested capital, underperforming the stated goals. The acquisitions of the company underperformed, which hurts the capacity to manage expectations.
After voting in favor of the Clinton Group (CG), many changes occurred at Imation. CG board implemented a strategy for the liquidation of IMN and the use of the obtained cash in different ways, which were not beneficial for IMN shareholders. One of the changes in the sale of all IMN operating businesses such as Nexsan, approval of investment of up to 25% of the cash in CG-controlled funds, payment of $7.5 million to Barrall for business, $300,000 payment to Fernander for helping the company to review and assess Nexsan and IronKey businesses, payments of $2.4 million, and payment of $200,000 to Barrall in 2015 to conduct certain services such as the formation of business plan and budget. IMN was renamed towards GlassBridge Enterprises, Inc (GLA) and effectively managed as an asset manager after Nexsan was sold.
Clinton Group’s changes to the board were able to create value for Imation shareholders in different ways. In 2012, CG acquired Nexsan to transform transactions as a platform for future growth. In 2013, the absorption of short-term cost 2013 associated with Nexsan acquisition and revenues and an increase in the quarterly costs of IronKey in 2014. The new board adopted various strategic initiatives that improved the value of the shareholders. The consolidated growth margins have improved significantly from 15.5% in 2011 to 19.6% in 2014 as the percentage of revenues from mature businesses of Imation has reduced from 90% to 65% in the same duration. The stewardship of the mature businesses will remain unchanged irrespective of the decline in the revenues of the product lines. By 2014, the cash balance of the company was $115 million. The value of the shareholders has provided a strong combination of industry knowledge and strategic information and skills. The Clinton Group shareholders also benefited from the investment of value for Imation shareholders.

Imation’s decline was inevitable, and Lucas and the board should not have turnaround the company. In the last five years, the IMN board changed its business from a magnetic tape business to a data storage space business. The decline in the magnetic tape product lines led to the decline in the new sources of revenues as technology is strongly changing. The situation led to the production of new products to replace magnetic tapes to promote data storage. The board tried various strategic alternatives such as the selling of the firm and the replacing of declining tape businesses by the acquisition of new firms, Memorex Corporation and TDK Corp, which are consumer electronics firms. The failures of the company strategies show the inability of the board and the company to come up with sustainable corporate strategies. The inability to tap into the market and create sustainable strategies led to chronic failures in the corporate business. Activist investors play a good role in our economy because it brings about the revival of the companies facing collapse and the strategic recommendations are important in improving the performance of the companies. The activist investor demands changes to the company strategies and the board to improve strategic performance and productivity.
The recommendations of ISS and Glass-Lewis differ because their strategies are varied. ISS recommends the formulation of a strategy for the turnaround of the company by the board rather than the change inboard. The strategy is warranted in the recognition in controlling the board and change roles of the executive team and the board. GL recommends an overhaul of the entire board of Imation from the control of Clinton Group. GL believed that Clinton Group believed Imation altered the business from data storage and security operations to a business that engages in diverse business lines. The board’s leadership is not effective, and it does not create value for the business with the control of the board of Imation losing 75% of its value. The diverse strategies of ISS and GL will improve strategic performance and productivity.

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Tags: Corporate Governance