14th October 2011
There have been a few high profile examples. McGraw Hill, for example, was targeted by shareholders Jana Partners and the Ontario Teachers' Pension Plan over its corporate structure. In 2010 Jana had already pressed for the break-up of Dutch Group TNT. NewsCorp has come under fire for its shareholder structure, which leaves a mismatch between Rupert Murdoch's actual shareholding and his voting rights:
Technology groups such as Yahoo and HP have also been targeted.
Shareholder activism has always been part of the cut and thrust of investment, but became increasingly important after the credit crisis. Institutional investors came under fire for not challenging boards on their governance, particularly in the banks, and have been more vigilant since. But some investors also notice a change in the style of activism in recent years.
James Copland from Investors.com argues: "Traditional shareholder activism, in which investors seek to topple management in underperforming companies, largely improves corporate performance by holding executives' feet to the fire. Though certain individual shareholders and hedge funds continue this type of active investing, today's shareholder activism largely focuses instead on submitting shareholder proposals through the annual proxy process." His views are also featured here.
He suggests that while certain investors, such as religious orders of nuns, "socially responsible" mutual funds and a handful of individual activists have long introduced shareholder proposals, more recently these proposals have started to pass: "the percentage of such proposals to receive majority-shareholder backing among the Fortune 150 companies increased from 6 percent to 12 percent from 2008 to 2009, before declining slightly in each of the last two years."
He worries that the 14a8 process, as currently used, may become more about facilitating interest-group influence over public corporations than about improving shareholder returns. The Delaware Corporate Governance blog has issued guidelines for using the proxy process effectively based on consultation with the industry. Its report is here – This site also provides updates on proxy voting.
Bobbygordon commenting on Investors.com believes that the market will eventually militate against these shareholders: "You get what you pay for. Lower quality management that focuses more on social or political agendas necessarily produce poorer profit performance and capital gains. This will have the long term effect of eliminating agenda based shareholder-proposals… markets are always self correcting and you can't vote if you don't own the stock. Short selling will be used more and more by average investors if they want a return… assuming short selling remains legal in this ultra-regulatory environment."
But increasingly ‘socially responsible' guidelines have started to be seen as part and parcel of competent risk management, rather than distinct from improving shareholder returns.
Corporate activism is also strengthening in emerging markets, as this recent incident in India has shown. If investors believe that company management within these countries are increasingly answerable to shareholders it should improve their investability.
This piece in the Financial Times quotes Roger Urwin of consultants Towers Watson arguing in a recent paper on universal owners that fund managers are beginning to move beyond a preoccupation with narrow financial goals. He points to the growth in signatories of the UN Principles for Responsible Investment, the increased supply of investment opportunities in environmental technology and the existence of vocal early movers to support his view that fund managers are shifting their agenda.
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