Archive for the ‘Shareholder Activism’ Category

Increasing shareholder concentration, voice and exit

November 26, 2017 Leave a comment

In my 2017 July 9th post (1) and following Gilson, Ronald J. and Gordon, Jeffrey N., (2) I suggested that the increase of the role of Institutional Investors as well as the concentration in their industry operated against voice as a control mechanism by shareholders. According to them, this also fueled the role of activist investors in assessing performance (Corporate governance, strategy, capital allocation, etc.) and using voice to improve it, (their success needing support from institutional investors when voting is required).

I also tried to understand why and when II prefer exit to voice in certain circumstances, (as in small firms providing wider and cheaper information, or when blockholders prevent voice from being effective), in (3) and following (4). Read more…


Agency Costs and Institutional dominated share ownership: activists and governance

July 9, 2017 1 comment

Summary: Institutional Investors (II) -such as mutual funds- are rational while not doing research and issuing shareholder proposals; activists and hedge funds may have a role issuing those proposals, so that others have an option to increase their voting value. (See (1) and (2) by Gilson, Ronald J. and Gordon, Jeffrey N. and by Bebchuk, Lucian A. and Cohen, Alma and Hirst, Scott respectively.

The fact that property is concentrated in II makes the world of Berle and Means outdated. A new agency problem arises between record owners, (II now) and managers, but also between record owners and beneficial owners, (this is what they call “Agency Capitalism”, where II or agents hold investments on behalf of final or beneficial owners).

Read more…

Why do institutional investors “exit” instead of raising their voice?

July 18, 2016 4 comments

A certain time ago, I published a post about Pescanova, (1) a rather small public firm. At the time its problems were unveiled by an investor who didn`t believe the accounts and management´s explanations about the CF trends, no “voice” had been raised against its managers, or its performance, the corporate governance structure, its strategy, capital allocation….What`s more, I remember a chorus of financial analysts that had been broadcasting their recommendations to buy the stock one or two years before. The story (if true as it has been told) is well-known: results had been introduced for some time from outside of the perimeter, while the “third party firms” were in fact firms controlled by the company or its managers, (and were full of debt that finally “exploded”).

Exit or Voice 2

 But I won`t talk about this today. Instead, I will try to guess why no voice had been produced about its corporate governance (CG) practices, that were apparently very defective, (as the Spanish regulator said –after everything was unveiled- ),(2). The distinction between “exit and voice”, or “active versus passive monitoring” was introduced by Hirschman (3) and is described by Tirole, (4). Read more…

Is shareholder activism in controlled firms possible?

July 16, 2015 1 comment

We recently refered to this in our recent post (1), when analyzing the evolution of activism and particularly in Europe where controlled companies are common.

This is the question to which Kobi Kastiel, (a Fellow of the Program on Corporate Governance, and Terence M. Considine Fellow at the Center for Law, Economics and Business, Harvard Law School), tries to answer in a paper published in 2015 (it received The Victor Brudney Prize for June 2015) under the title “Against all Odds: Shareholder Activism, in Controlled Companies”, (1).

The author refers to the New York Times Company and its engagement with shareholders after a 2008 activist campaign led by Harbinger Capital Partners, Firebrand Partners, and Morgan Stanley. The company ended hiring two directors named by activists, selling non-core assets, reducing its Capex, lowering its operational costs, etc. But this company was not the typical target of such a campaign as it remained controlled by the founding family, which according to the broadest opinion should have prevented an activist campaign to succeed, (it would have needed a dispersed stock ownership). Read more…

The international evolution of activism

News on activists and their campaigns have multiplied in the last years, and concerns among possible targets has also risen, which may have fostered consultations and analysis on how to prevent an attack and how to react to it when it comes.

In a recent paper, Angela Giovinco, a Sodali executive, tried to understand all these trends. (1)


She refers to some stylized facts:

  • Target companies have become bigger,
  • Activists don`t only focus in unlocking value by replacing managers and directors, or alter the financial strategies in the company. Their strategies have become much more complex.
  • Target companies are not necessarily underperforming companies; they don`t need to be in crisis or restructuring situations, (see Dupont`s case in 2015).
  • Money has recently poured into activist tools, such as hedge funds.
  • Activism started in the USA, in the 1980`s, but since then it has spread to Canada, UK and other European countries.

  Read more…

Symbolic Corporate Governance politics: what is activism about?

August 16, 2014 1 comment

There are a number of Corporate Governance controversies that seem more an intellectual or theoretical “amusement” that an actually relevant matter for shareholder value, or whatever firm goals can be defined. But instead of remaining in the academic debate, those topics appear as the main activist or shareholder concerns, if the shareholder proposals are to be considered.

In “Symbolic Corporate Governance Politics”(1), Marcel Kahan & Edward Rock devote their efforts to understand what the significance of this range of themes is, after they assume the economic stake is not the key factor for the controversy.

  Read more…

Activism`s consequences and effects on directors`careers

In this post we will analyse the effects of shareholder activism in a different direction than the one researchers usually target, (effects on firm performance and shareholder value).

The authors, Gow, Sean Shin and Srinivasan, extract the conclusion that directors having faced an activist campaign are twice as likely to leave their job as their fellow directors haven`t been confronted to it. So, apart from other consequences on firm performance and shareholder value, activism has career effects and costs for directors. (1)


It has been argued that proxy contests are an ineffective and inefficient tool for replacing directors, but according to Gow, Sean Shin and Srinivasan, the activists replacement seed grows even if activists don´t even engage in such a proxy fight. The seed grows even stronger when directors having faced a campaign are afterwards given a low approval rate at elections; nevertheless, their reputation does not seem to be affected overall, as they don`t usually lose their other board seats in other firms.


I will try to briefly explain how the authors get to their conclusions, and above all explain their and my view on the reasons why these consequences occur the way they do. Read more…