 Your new post is loading...
We document a network of information flow between activists and other investors during the 10 days prior to the announcement of a campaign. We use EDGAR search activity matched to institutional investor IP addresses to identify investors who persistently download information on an individual activist’s campaign targets in the days prior to that activist’s 13D disclosures. This pattern of informed EDGAR access suggests leaked information from the activist to the unaffiliated institutional investor, who is not named in the 13D filing. We find that the presence of these informed investors is associated with higher pre-13D turnover, higher post-13D returns, and an increased likelihood of the activist pursuing and winning a proxy fight.
Today, the International Corporate Governance Network, an investor led coalition of governance professionals with members responsible for assets of $54 trillion, issues a statement on racial discrimination which reads as below. As noted in ICGN’s Statement of Shared Governance Responsibilities of 22 April 2020, the Covid-19 pandemic has ignited an acute recognition of social failures and deep gender, income and racial inequality worldwide. The murderous death of George Floyd and the ensuing protests in cities across the United States and around the globe provide a stark demonstration of what it means to ignore inequality, human rights and the fundamental lack of justice and fairness in society. Investment institutions and companies cannot divorce themselves from this social and historical context. In the wake of these events, ICGN believes that is our duty to listen; and to continue to educate ourselves and our organisations about racial discrimination and other forms of inequality. It is our obligation to take concrete actions to dismantle the culture and structures that advance racial and other forms of discrimination. It is our duty to accept these
responsibilities as core to our mission and purpose. It is our duty, as investors and companies, to embrace this shared responsibility and to find opportunities to collaborate and cooperate to end systemic racial discrimination and build fairer and more sustainable economies.
Shareholder activism is a relatively new phenomenon in Japan. Although there are some famous cases of (largely unsuccessful) shareholder activism dating back to the 1980s, it was not until the second decade of this century that changes in the regulatory environment facilitated rapid growth in activism, including some successful public campaigns by shareholders to force change. Shareholder activism can be defined broadly as the application of pressure by shareholders to influence or change company behaviour – typically involving issues of strategy, operation, performance or governance. To date, issues of business performance and governance have been the dominant focus of activism in Japan. Shareholder activism comes in various forms; it can involve private engagement between shareholders and companies, or public campaigns. Shareholders can press their claims individually or collectively, and make a single demand or conduct a wider campaign, often involving a series of demands.
We study the real effects of environmental activist investing. Using plant-level data in a quasi-experimental setting, we find that firms targeted by environmental activist investors reduce their toxic releases, greenhouse-gas emissions, and cancer-causing pollution through preventative efforts. Improvements in air quality within a one-mile of targeted plants suggest potentially important externalities to local economies. We provide evidence supporting the external validity of environmental activism while also ruling out reporting biases, forms of selection, and other alternative hypotheses. Overall, our study suggests that engagements are an effective tool for long-term shareholders to address climate change risks.
Public activity as measured in hard numbers by ActivistInsight, is down significantly in Q1 2020. However, it is a tenuous metric, especially during times of severe dislocation. The market turmoil caused by COVID-19 creates an abundance of opportunities for activists: valuations have plummeted almost across the board and stark differences between companies´ ability to cope with the crisis are becoming increasingly apparent. Moreover, the pandemic will lead to a reassessment of corporate vulnerabilities, and open new doors for activists. ESG is likely to become one of those new doors, with social (‘S’) aspects gaining importance during the pandemic. So there is plenty of activity, but behind the scenes and not measurable, for now at least: activists are active, increasing existing positions and preparing for re-engagement with businesses post COVID-19. At the same time, poison pills are resurfacing, tolerated and sometimes even encouraged by authorities. But as in the past, they will be of limited help if activists´ arguments appeal to other shareholders, and possibly a wider set of stakeholders.
The search for relationships between shareholder activism and environmental, social, and governance (ESG) performance has been a research area that has garnered increased interest in recent years. Specifically, climate change and environmental concerns have been evaluated by private and public sectors around the world, and progress has been made with actions such as the Paris Agreement. Scholars conducted various studies to analyze the relationship between shareholder activism and corporate financial performance (CFP). In addition, scholars have also conducted various studies to analyze the relationship between ESG performance and CFP as well as ESG performance and risk. Given the emergence of ESG in recent years, the adoption of standardized ESG criteria and performance measures across industries and markets is still relatively undeveloped compared to criteria such as SEC reporting criteria for US publicly-traded companies. Therefore, the insights on shareholder activism and ESG adoption and performance remain inconclusive.
As I sit down to write, the coronavirus has completely paralyzed the U.S. economy. At this juncture, most conversations that are not about the plague seem a little off point. But some—like the ones in William Lazonick and Jang-Sup Shin’s recently published book, Predatory Value Extraction—are having their moment, too. Yes, it’s time to talk about share buybacks. Because they are, as Lazonick and Shin argue so persuasively, key to capitalism’s future. When we’re rebuilding whatever it is we have left after this is over, we should probably leave buybacks out of it entirely. While the book takes aim at an entire ideology of corporate resource allocation, its main argument is the same one Lazonick has been making for years: the American corporation has been looted—legally—via the profligate use of stock buybacks.
As coronavirus infections begin to decline, a number of states have started to ease restrictions on public activity and permit businesses to resume normal operations. However, COVID-19 remains a threat that will likely persist into the remainder of the year and perhaps longer. Going forward, companies not only face an altered economic landscape but also heightened scrutiny on leadership, risk management and relationships with employees, customers and other stakeholders. While the development and execution of a “reopening plan” is a management function, boards of directors should be familiar with the major elements of that plan for their companies. Set forth below are some considerations for boards in preparation for a return to a “new normal”.
There is an old Wall Street saying that the market takes the escalator to the top and elevator on the way down. We saw this play out in real-time in the first quarter as fears of the COVID-19 pandemic spread. In the media, we saw the emergence of the popular campaign, #Alonetogether, which intended to help slow the spread of COVID-19. The phrase would indicate that we are all in this together while working from home. Will this same phrase hold true for activists? Will they give companies the benefit of the doubt in this current environment? After the 2008 financial crisis, we saw over 260 proxy contests over a 2 year period including an all-time record in 2009. Does this portend that a similar resurgence of activism is on the way? The early take was this environment was quite different from previous market declines and investors would be more patient as senior executives were simply trying to keep their companies afloat and employees safe.
The impact of the coronavirus pandemic on activist investment funds is not yet clear. The crisis would appear to present a significant opportunity for activists to take larger stakes in more companies. Stock prices declined dramatically in a few short weeks in early 2020, and companies have been focused on survival rather than dealing with activist campaigns. So far, however, there has been no significant uptick in the number of activist campaigns during the economic downturn. While activists are likely to return to the playing field after the worst of the pandemic passes, with regard to new campaigns, most (but not all) are currently standing on the sidelines.
Sharp declines in stock prices due to COVID-19 are making companies more vulnerable to shareholder activism and hostile attacks. Boards of directors and management should proactively prepare to respond to potential increases in shareholder activism. COVID-19 has significantly impacted and continues to cause uncertainty and unprecedented volatility in the global financial markets. Depressed valuations of companies can create opportunities for increases in shareholder activism and opportunistic M&A activities, similar to the surge in activism following the 2008 global financial crisis. Although it is still too early to assess the overall impact of COVID-19 on shareholder activism, it would be prudent for companies to anticipate and proactively prepare for potential increases in shareholder activism.
An examination of the experiences of and views toward shareholder activism of three key stakeholder: IROs, the buy-side community and sell-side analysts.
Universal threats can unite opposing camps in a common effort. The new coronavirus has hit almost every country and has created a shared understanding that every effort to contribute, however small it may be, is needed to overcome the crisis. Many businesses, typically criticised for giving priority to profits and to the interests of shareholders and managers, are part of the common response to the virus.
News media is abundant with stories from different parts of the world on how businesses, small and large, contribute to fighting the crisis. For example, British American Tobacco, the cigarette maker, is one of the companies adapting its existing commercial technology to develop a vaccine against COVID-19 on a not-for-profit basis. Other companies, like luxury goods maker LVMH, have rearranged their production lines to produce supplies that are much in need during the outbreak of the virus. Smaller businesses contribute too by offering help to medical workers, non-profit organizations, and self-isolating individuals.
|
This book provides a complete framework for contemporary shareholder activism and its implications for US corporate governance, which is based on director primacy theory. Under director primacy theory, shareholders do not wish to be involved in the management of the company; in the rare event that they wish to be involved, it is considered a transfer of power from the board of directors to shareholders, which in turn reduces the efficiency of centralised decision-making in public companies. However, this book demonstrates that shareholders do not use their power to transfer corporate control from the board to themselves, and that some form of shareholder activism is even collaborative, which is a new paradigm for US corporate governance. This book shows that while monitoring remains a key contribution of shareholders, they also bring new informational inputs to corporate decision-making that could not be obtained under the traditional board model. Accordingly, contemporary shareholder activism enhances the board’s decision-making and monitoring capacity, without undermining the economic value of the board's authority. [...] The book will be of interest to academics and students of corporate governance, both in the US and internationally.
REIT management and boards of directors should review their defensive profile and consider whether to prepare a rights plan. Key Points: (1) ..Unprecedented market volatility and investor uncertainty due to the coronavirus pandemic provide an opportunity for activist investors and hostile acquirers to seek to exploit recent macroeconomic conditions and gain control without paying stockholders a full control premium. (2) ..REITs experiencing significant declines in stock prices and valuations should review the benefits and limitations of their structural defenses and early warning systems, including any REIT ownership limit. (3) ..Taking into account their specific circumstances, REITs should consider preparing and potentially implementing a stockholder rights plan (a so-called “poison pill”) to protect against unattributed significant stock accumulations, activist approaches, and unsolicited bidder interest.
Many pundits have attempted to predict the impact of COVID-19 on shareholder activism. Some believe that shareholder activism will significantly increase in the current environment, as activists seek to take advantage of low valuations and leverage the effects of the pandemic in their thesis for change. Others suggest that shareholder activists will hold off in the near term given the widespread economic uncertainty and the poor optics of targeting companies battered by macro socio-economic factors outside their control. In Canada, we expect a more nuanced approach from shareholder activists given the country's relatively shareholder-friendly corporate and securities law regimes. This much is certain: shareholder activists will not be idle.
A bill is currently being debated in the Dutch House of Representatives for a 250-day cooling-off period for the board of a listed company if it is faced with a hostile takeover bid or (unsolicited) shareholder activism. The draft bill amends certain provisions of Book 2 of the Dutch Civil Code, the main purpose of which is to give the board of a listed company more time to evaluate and weigh the interests of the business and its stakeholders. On 7 April 2020, it was decided that the House of Representatives would take up the bill in legislative consultations prior to going on summer recess, despite, and indeed because of, the coronavirus crisis. This News Update provides a brief overview of the bill and its significance for listed companies.
This year, spring has arrived in the midst of a generalized lock-down. People have been—and in many places remain—confined to their homes. Most firms and industries are barely operative. In economic sectors where the provision of the corresponding service requires physical contact, nearly all activity has ceased. The Covid-19 outbreak is not only testing national health systems, but also the resilience of economic actors and national economies. The current dire economic prospects create a serious and systemic threat for our economic and social welfare. The situation calls for reflection on how we may attempt to mitigate the negative effects of the pandemic on firms’ financing and survival. An emergency calls for rapid, systemic ways to channel funds to firms while operating in an extraordinary, highly uncertain environment. Companies’ crisis-management playbooks typically aim to reduce capital expenditures and preserve resources. In these circumstances, the role that corporate law can play in improving firms’ capacity to attract funding is perhaps modest, namely to ease transaction costs and simplify ex ante measures and corporate procedures. In the longer term, if this crisis, not unlike previous ones, elicits from governments, legal systems and firms a protectionist response that is hostile to globalized finance, then corporate law and corporate governance in particular may undergo some fundamental changes.
Two board experts explain how in times of crisis or transformation, the CFO can serve as a rock in the boardroom, a critical arbiter of difficult decisions, and a scout for the future. Critical business decisions cannot be made unless management teams and boards of directors are on the same page. Transparency, fair and balanced dialogue, and well-structured processes for gaining agreement on strategic plans—these dynamics must be present in every boardroom, in good times and, especially, in bad. The CFO plays an important role in ensuring that they are.
Early empirical studies find a negative association between firm performance and shareholder activism, whereas more recent studies document a positive association. We argue and theoretically show that this change in behavior results from mandating executive compensation disclosure. We develop a two-period model in which a potentially dependent board contracts with a CEO and a shareholder decides on the costly replacement of the board. Our key feature is information asymmetry between insiders and the shareholder about whether the firm faces a board dependence issue, i.e., information asymmetry about governance quality. We show that when only earnings are disclosed, shareholders intervene in firms with intermediate performance and dependent boards distort CEO contracts to manage earnings in order to avert replacement. However, if CEO pay levels are jointly disclosed with earnings, shareholders target intermediately and well-performing firms with a high pay-performance ratio and dependent boards' incentives to manage earnings are mitigated. Further results are consistent with the argument that executive compensation disclosure not only facilitates shareholder monitoring ex post but also alleviates the detrimental ex ante incentive effects of shareholder monitoring. The paper provides a number of novel empirical predictions.
The EY 2020 Global Corporate Divestment Study reveals divestment activity is poised for a sharp rebound as companies rebalance portfolios. More companies than ever (72%, up from 63% in 2019) say they have held onto assets too long. At the same time, our latest survey suggests that the economic downturn is providing an impetus for sellers to take action, with more than three quarters (78%) planning a divestment. That’s no surprise – in light of COVID-19, executives need to plan now for what happens next. Companies, including 65% that are rebalancing portfolios as a result of the crisis, must be willing to take action as they face even tougher capital allocation decisions. And capital investments will likely be needed now to future-proof the organization in terms of technology, automation and supply chains.
Activist fund managers have the potential to create even more value from downtrodden companies as a result of the coronavirus turmoil, according to Independent Investment Research, because the timing is extremely favourable for a turn of fortunes. Activist funds can increasingly guide equity recapitalisations, operational improvements and merger and acquisition activity in a bid to unlock value in oversold or overlooked listed companies, said IIR, which provides analysis of investment products. There are three ways to unlock value in the current market environment, according to senior analyst Rodney Lay.
This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the last date of trading in 2019) during the second half of 2019. Announced shareholder activist activity declined relative to the second half of 2018. The number of public activist actions (24 vs. 40), activist investors taking actions (17 vs. 29) and companies targeted by such actions (23 vs. 34) each decreased substantially. The slowdown was in contrast to the first half of 2019, during which period shareholder activism activity was robust. On a full-year basis, however, 2019 represented a slowdown in activism versus 2018, as reflected in the number of public activist actions (75 vs. 98), activist investors taking actions (49 vs. 65) and companies targeted by such actions (64 vs. 82).
Activist investors publicly subjected 20 companies based in Japan to activist demands in the first four months of 2020, one more than in the same period of 2019 and the highest number on record, according to data from Activist Insight Online. A new report, Shareholder Activism in Japan, finds that investor sentiment has been closely correlated with the extension of governance reforms by Shinzo Abe’s government. The 15 companies targeted by non-Asian activist funds last year was a near-term record (includes three companies targeted by both Asian and non-Asian activists). Moreover, recent concern among foreign activists over the Foreign Exchange and Foreign Trade Act, which was signed into law last month, appears to have subsided.
What issue could be urgent enough to move the publishers of most of the country’s newspapers to unite in a common cause – and not only management, but the leader of their largest union, as well? The pandemic crisis? The recession? World peace? Not exactly. The issue that prompted the nation’s newspapers to take out full-page advertisements in themselves over the weekend was rather – would you believe it – newspaper ad sales. Specifically, the mortal threat to these posed by that baleful duo, Google and Facebook. The notion that Google and Facebook are to blame for the industry’s woes, stealing the content they use to steal our ads, is a perennial publishers’ complaint. But it took on new life recently after France and Australia separately launched initiatives to force the two mega-platforms to share more of their advertising revenues with each country’s newspapers.
|
