What was shaping up to be one of the year’s great battles between an activist investor—Paul Singer’s Elliott Management—and an established corporate CEO—Arconic (and formerly Alcoa) CEO Klaus Kleinfeld—took a strange turn yesterday when Kleinfeld resigned under pressure from his board because of a letter he wrote to a senior officer at Elliott.

Details of the letter haven’t been released. But the board said it showed “poor judgement” on Kleinfeld’s part, and Elliott described it as an “attempt to intimidate or extort a senior officer” of the firm.

I had lunch with Kleinfeld just a few weeks ago. At the time, he was girding for the battle, and felt an Elliott victory would hurt Arconic’s commitment to innovation in new materials. He seemed confident he had the support of both his board and his customers. Indeed, the company put together a web site that included strong testimonials from the CEOs of Airbus, Boeing, United Technologies and GE Aviation, all backing Kleinfeld and arguing he was committed to delivering innovation for their firms.

But Elliott has been harsh in its criticism of Kleinfeld’s leadership, attacking the company’s high overhead costs, its Park Avenue headquarters, and its costly marketing campaign. (You can see its latest attack video here.) It even went so far as lining up a replacement…Larry Lawson, most recently CEO of Spirit Aerosystems

The Arconic board is headed by Pat Russo—a veteran of corporate battles. She oversaw Lucent’s merger with Paris-based Alcatel, before being pushed out in the infighting between French and American leadership. She also served as lead director of Hewlett Packard, when activist pressure contributed to a decision to split the company in two.

Interestingly, the Arconic board insisted in its letter yesterday that Kleinfeld’s departure was “not made in response to the proxy fight or Elliott Management’s criticisms of the company’s strategy, leadership or performance, and is not in any way related to the financials or records of the company.” And it called on Elliott to back down. The hedge fund indicated it will continue the battle. Arconic stock rose 3%.

I received many responses to Friday’s item on the Harvard Business Review article arguing our capitalist system has become too tilted in favor of short-term shareholder returns—virtually all of the comments favoring the argument. The authors argued that it is up to the board of directors to protect a company’s long-term future. Arconic’s board now has that responsibility squarely in its lap.

More news below.

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