Arconic CEO exits after 'poor judgment' in fight with Elliott Management

Klaus Kleinfeld takes part in the Yahoo Finance All Markets Summit in New York on Feb 8, 2017.
Klaus Kleinfeld takes part in the Yahoo Finance All Markets Summit in New York on Feb 8, 2017. PHOTO: REUTERS

HOUSTON (BLOOMBERG) - Arconic chief executive officer Klaus Kleinfeld stepped down after showing what the board of directors called "poor judgment" in sending a letter to Elliott Management amid a proxy fight.

David Hess, a board member, has been appointed interim CEO, the company said in a statement Monday. Lead director Patricia Russo will take over as interim board chair.

"Mr. Kleinfeld stepped down as chair and CEO by mutual agreement after the Board learned that, without consultation with or authorization by the Board, he had sent a letter directly to a senior officer of Elliott Management that the Board determined showed poor judgment," Arconic said in the statement.

The resignation disrupts what had been shaping up to be the biggest and most aggressive US proxy battle this season. Elliott had been seeking to oust Mr Kleinfeld and replace four directors at the aluminum parts maker's May 16 annual meeting.

Arconic stressed that its decision to let Mr Kleinfeld go wasn't made in response to the proxy fight or Elliott's criticisms of the company's strategy, leadership or performance.

Arconic was created last year when former parent Alcoa spun off its jet- and auto-parts operations into the new company, with Mr Kleinfeld, 59, taking the helm of the unit.

Elliott has said its problems with Mr Kleinfeld include financial under-performance and corporate governance, embodied by an "obsession" with image and prestige and a history of wasteful spending, including a Manhattan headquarters and ad campaigns featuring the fictional cartoon family the Jetsons.

Arconic has pointed to Mr Kleinfeld's track record of diversifying the old Alcoa Inc. and undertaking last year's separation into two companies. Since then, Elliott has been reducing its stake in the new Alcoa while expanding its holdings in Arconic, according to data compiled by Bloomberg.

Arconic had said the Elliott campaign was more about asserting influence than bettering governance. Nevertheless, it has proposed with board and by-law changes, saying it will seek approval to make all directors subject to annual elections, eliminate a super-majority vote and give eligible shareholders a proxy access mechanism to nominate candidates.