Carl Icahn forced three board seats at a truck maker on the brink

In 2012 Navistar International was the US truck and engine maker in the worst shape of its peers. It had bet on a proprietary exhaust technology that did not meet US emissions rules, and was losing customers to rivals that had adopted the cleaner standard. Its shares were low, and in September activist investor Carl Icahn, holding about 14.9%, publicly demanded four board seats and called the company out in writing.

In October 2012 Navistar averted a proxy fight by giving seats to Mark Rachesky of MHR Fund Management and to an Icahn nominee, and agreeing to a third Icahn-designated director. Together Icahn and MHR controlled about a fifth of the company. The new directors pushed for a fresh look at the failed technology.

The next quarter Navistar announced it would abandon its own engine design and switch to the Cummins-based emissions solution, and later it took a huge charge to walk away from the wrong bet. The board change created the room to admit the mistake and fix it.

Navistar averted a proxy fight by granting Icahn and MHR three board seats, and soon regrouped around compliant emissions technology.

Icahn and MHR together owned a fifth of Navistar, giving them real leverage.

Navistar's emissions strategy was visibly failing and had cost it market share.

External directors could challenge a plan that internal executives had committed to.

Averting the proxy fight let management focus on the product fix rather than the fight.

When a company has bet the farm on a wrong product, forcing outside directors onto the board can break the internal lock-in that keeps the bad bet alive.

Navistar switched to compliant engines, took the writedown and slowly rebuilt. It later became a stable, profitable truck maker and was eventually acquired by Volkswagen's Traton group.