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Archive for the ‘Shareholder Activism’ Category

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

July 18, 2016 1 comment

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…

Negative voting and derivative markets

February 16, 2014 Leave a comment

This post will allow us to present a feature of derivative markets that should be a concern, given the rise in trading volume in these markets and increased activism and rights and empowerment held and granted to shareholders. We will comment a post and article by Holger Spamann, Harvard Law School, on Friday October 5, 2012. (1)

The idea can be described as follows: a share or debt holder has a stake in the company, and is interested that those assets increase their value. Nevertheless, he may also have bought a short position that more than offsets his interest, so that his total interest is short, that is, he would be favored by a decrease in the price of the assets. The concern in this case is that he could use his rights as a shareholder or debt holder to pursue that goal and against the interest of shareholders or the company. Read more…

What to include in a hedge fund campaign letter: an example

January 18, 2014 Leave a comment

I include in this post a very short comment on an activist campaign led by hedge fund Starboard Value LP, the biggest shareholder in the target company, Wasau Paper Corp.,  with more than 15% of outstanding common stock.

Should we consider the arguments are correct, the letter addressed by the hedge fund to the company board and management includes many of this kind of campaign`s topics, and is also a manual of easy to improve management habits, such as: Read more…