Hubbard’s Ties to Ackman May Pose Conflict in ADP Proxy BattleBy
ADP’s Glenn Hubbard has been a paid witness for Ackman’s firm
Hubbard heads ADP panel that spurned Ackman as board nominee
Glenn Hubbard, dean of Columbia Business School, has had a complicated relationship with Bill Ackman.
Hubbard has been an expert witness for Ackman’s Pershing Square Capital Management, making $1,500 an hour this year to help the hedge fund fend off an ongoing shareholder lawsuit, according to regulatory filings and court records. The dean is also a director at Automatic Data Processing Inc., where Ackman is waging an acrimonious proxy battle to win three board seats, including Hubbard’s.
Hubbard’s two roles -- Ackman’s courtroom pal and boardroom foe -- places a potential conflict of interest at the heart of Pershing’s attempt to make changes at ADP. Hubbard chairs the ADP board’s nominating and governance committee, giving him a key role in whether Ackman gets his way. In mid-August, the issue came to a head when Hubbard’s panel interviewed Ackman and his two other nominees, only to reject their request to expand the board by adding them, according to a Pershing filing.
Governance experts, asked about the possible conflict, disagree whether Hubbard’s hand in the proxy fight is proper. Two of them say he’s conflicted and should have recused himself. Another says Hubbard’s disclosure of his relationship with Ackman to ADP was sufficient. Hubbard, 59, didn’t respond to requests for an interview. Fran McGill, a Pershing Square spokesman, and Chris Cashman, a spokesman for Columbia, declined to comment.
Thumb on Scale
Hubbard “can’t possibly be objective,” said Nell Minow, vice chair of ValueEdge Advisors, a corporate governance consulting firm, adding that he should’ve recused himself from the beginning. “There is no ambiguity about that whatsoever.”
James Cox, a professor at Duke University School of Law who specializes in securities and corporate law, said Hubbard may have even felt some pressure to stymie Ackman in order to avoid the appearance of a conflict. ADP said Ackman and his nominees weren’t qualified to serve on the board.
“I would be very concerned about a conflict of interest,” said Cox, who also believes Hubbard should remove himself from the proxy struggle. “As an ADP shareholder, you are fearful that there is going to be a thumb on the scale because of this connection that Hubbard has with Pershing Square.”
The question of Hubbard’s independence at ADP comes as he may be a candidate for the post of Federal Reserve chair, Bloomberg reported earlier this month, citing people familiar with the matter. President Donald Trump is considering more than a half-dozen candidates to possibly replace Fed Chair Janet Yellen, whose term expires in February.
ADP is standing behind Hubbard. The company said in a statement that it was “fully informed” of the prior transactions between Hubbard and Pershing Square, adding that the fees “do not constitute a conflict of interest.” ADP also said in a filing that Hubbard’s directorships at other public companies provide him with broad experience on governance.
Richard Painter, who served as the chief White House ethics lawyer to ex-President George W. Bush, agreed that disclosure was the proper move for Hubbard.
“In government, you are not supposed to have any outside” financial interests, said Painter, now a professor of corporate law at the University of Minnesota Law School. “But in the corporate world, it’s generally ‘disclose it and be truthful about it.’ Then the other board members decide what to do.”
In early September, following ADP’s rejection of Pershing’s demand for seats, Ackman fired back. The hedge fund disclosed it was seeking to replace Hubbard, the longest-tenured director of more than 13 years, Chairman John Jones and Eric Fast, another long-standing director at the payroll outsourcing company.
Pershing’s law firm, Kramer Levin Naftalis & Frankel, recruited Hubbard in February to rebut the $2 billion in damages that Allergan Plc shareholders are seeking from Valeant Pharmaceuticals International Inc. and Pershing Square, according to court documents. Hubbard said in a July deposition that he had billed the defense team for about 80 hours of work at his standard hourly rate of $1,500, according to transcripts. He could also be called to testify if the case goes to trial.
A former chairman of President Bush’s Council of Economic Advisers, Hubbard has also served as a consultant, speaker or expert witness to more than 70 private sector clients since 2007, including Goldman Sachs Group Inc., Deutsche Bank AG and Pershing Square, according to his curriculum vitae.
Hubbard’s handling of his consulting work sparked criticism in 2010, when he appeared in the Academy Award-winning documentary “Inside Job” about the financial crisis. The documentary discussed a 2004 paper co-authored by Hubbard and a Goldman Sachs economist that praised risky credit derivatives as beneficial to the economy. When an interviewer asked Hubbard who his consulting clients were and whether they included Wall Street banks, he famously brushed off the question, replying, “This isn’t a deposition, sir,” adding “you have three more minutes. Give it your best shot.”
Columbia beefed up its disclosure requirements for professors after Hubbard’s comments in the documentary were widely covered in the media.
“After he had that humiliating interview in Inside Job, you would think he would have learned a few lessons on conflicts of interest,” said Minow, the governance consultant.
ADP is standing its ground against Ackman, who criticizes the board for failing to hold managers accountable for what he describes as underperformance. Chief Executive Officer Carlos Rodriguez has shot back, comparing Ackman to a “spoiled brat” and a “used car salesman” on CNBC. Earlier this month ADP again dismissed Ackman’s proposal to expand the board with this nominees and avoid the expense of a contested election.
Hubbard was suggested for ADP’s board almost 14 years ago by Leon Cooperman, the billionaire hedge fund manager who was then an ADP director. Cooperman, who recently said he no longer owns shares of the company, has been a vocal opponent of Pershing’s campaign and a staunch supporter of management, including Hubbard.
“Glenn Hubbard is an honest guy,” Cooperman said in an interview. “He is not going to be bought by Bill Ackman or anybody else.”