Tag Archives | shareowner

Contest: Foxhole of the Year Award

Peabodyno-entryAnnouncing the second Foxhole of the Year Award for the company that makes it the most difficult for shareowners turn up at their annual meeting. Last year’s winner was Peabody Energy for their choice of Gillette, Wyoming, a town with less than 30,000 residents.  Nominations are now being accepted for 2014.

Yuanzhi Li and David Yermack studied the location and timing of annual shareholder meetings in their study Evasive Shareholder Meetings. When companies move their annual meetings a great distance from headquarters, they tend to announce disappointing earnings results and experience pronounced stock market underperformance in the months after the meeting. Continue Reading →

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Directors Forum 2014: Morning Sessions

Kroc-School-of-Peace-and-Justice-University-of-San-DiegoBelow are some notes I took during the morning sessions at the Corporate Directors Forum 2014, held on the beautiful campus of the University of San Diego, January 26-28, 2014. This year, I was only able to attend on January 27th. The program was subject to the Chatham House Rule, so there will be little in the way of attribution below but I hope to provide some sense of the discussion. Continue Reading →

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Cisco: How Our Proxy Competition Would Work – The Short Version

ciscoVoteAfter posting Cisco Systems: Prime Target For Proxy Advisor CompetitionCisco Systems: Proxy Proposal #5 – 11 Q&A, and Cisco Systems (CSCO): How I Voted – Proxy Score 56 I am still getting the most basic question from funds trying to determine how to vote. That’s understandable. People lack the time necessary to analyze proxy issues. That’s one of the reasons behind the proposal. More resources and more competition could make for better voting at Cisco for all shareowners.

I keep getting the same fundamental question. How would it work in practice? Here’s what I tell them.  Continue Reading →

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Review: Directors’ Duties and Shareholder Litigation in the Wake of the Financial Crisis


Joan Loughrey

Joan Loughrey

This timely book, edited by Joan Loughrey, brings together academics and practitioners to assess the efficacy of directors’ duties, or lack thereof, regarding shareholder litigation in the wake of the financial crisis. Although primarily focused on the UK and the Companies Act of 2006, the part played by the US and its regulatory scheme is not ignored. Americans reading the book will benefit from a better understanding of the UK framework and how portions may or may not apply here.

For example, the UK Code of Corporate Governance makes boards responsible for determining the nature and extent of the risks that companies should undertake. Yet, even in the wake of extreme circumstances and huge financial losses, Continue Reading →

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John Chevedden: “Economy Class” Investor Activist


John Chevedden

It was great to see Ross Kerber’s “Special Report” yesterday in the Baltimore Sun and other Reuters outlets entitled Economy-class activist investor crashes the corporate party. While Carl Icahn and Dan Loeb have the money that brings ready attention, it is good to see the spotlight shine on this “small” retail shareowner who has both filed and won more proposals than any individual or institution in history.

Chevedden’s wealth may be small in comparison to well-publicized activists but the scope of his tactics is huge. While the rich grab headlines when they buy 10% of a large company and demand stock buybacks, John Chevedden has been working almost below the surface with $2,000 – $3,000 investments. He’s been winning what I view as more significant long-lasting reforms like getting rid of poison pills, eliminating supermajority requirements, having all directors stand for a vote each year, limiting pay abuses, separating CEO and chair positions, etc. I ran a quick report using SharkRepellent.net and came up with a list of 430 proposals, not counting others, such as my own, which he has generously assisted with and I didn’t go back very far. See the list at the bottom of this post. Continue Reading →

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Video Friday: Who’s Winning the War on Corporate Governance (and should you care)?

Chad Norton

Chad Norton

Lecture given by Chad L. NortonVice President, Fund Business Management Group of Capital Research and Management Company at Banta Center for Business, Ethics and Society, University of Redlands.

Mr. Norton previously served as corporate secretary of The New Economy Fund and SMALLCAP World Fund, Inc., two of Capital’s retail mutual funds, as well as American Funds Insurance Series, which serves Continue Reading →

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Review: Shareholder Activism as a Corrective Mechanism in Corporate Governance

Paul Rose

Paul Rose

Bernard Sharfman

Bernard Sharfman

Rose, Paul and Sharfman, Bernard S., Shareholder Activism as a Corrective Mechanism in Corporate Governance (September 11, 2013). Ohio State Public Law Working Paper No. 225. Available at SSRN.

Type: Theoretical

Research Issue: How can activism be utilized to allow corporate decision making to be executed in the most efficient manner? Continue Reading →

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Investor Forums

forumInside Investor Relations (IR) had an important article on July 30th, On the Way to the Investor Forum that raised the question: do companies really want to encourage their shareholders to chat about them in online forums? Wouldn’t it create a lot of work for investor relations officers (IROs) “who are responsible for monitoring these online groups, responding to any misinformation posted on them, dealing with legal and other consequences?” Continue Reading →

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Google Insiders Foil Chevedden’s Latest Attempt to End Dual-Class Voting

John Chevedden, Shareowner Activist

John Chevedden, Shareowner Activist

Activist, John Chevedden pushed for Google to change its capital structure to give all shares an equal vote.  Most of us own Class A stock with one vote per share. But Google co-founders Larry Page and Sergey Brin, along with Chairman Eric Schmidt, control about 64% of the votes through Class B stock with 10 votes per share.

Chevedden argued the current system allows Google to use shareholders’ capital without giving them the power to hold management accountable for how they run the company. Most shareholders agree with his assessment. Consider the fact that Google insiders control about 70% of votes. Continue Reading →

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Director-Shareholder Engagement – Limits and Possibilities

Board/Shareholder engagement is a topic receiving increased attention in the US.  Many governance organizations and experts have been discussing this topic in an attempt to highlight the issues and challenges that have been expressed by the various constituencies including the directors, institutional shareholders (both US and global), activist shareholders, corporate management, regulators, Continue Reading →

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Review: Shareholder Democracies?

Shareholder Democracies?: Corporate Governance in Britain and Ireland before 1850 addresses a central issue. Current governance structures often allow managers to pursue their own interests. According to some, a dissemblance of democracy has led to “elitism and self-interest in the boardroom,” resulting in Continue Reading →

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Stakeholder Theory: Impact and Prospects

Stakeholder Theory: Impact and Prospects edited by Robert A. Phillips provides a great education in history to those of us who have been using the term “stakeholder” but who have little idea of its origins.

Honoring the twenty-fifth anniversary of R. Edward Freeman’s Strategic Management: A Stakeholder Approach, Phillips assembles a collection of commentaries and critiques by some of the most influential scholars of
stakeholder theory, with concluding remarks from Freeman himself.

The book starts by delving into citations and moves quickly to address three mischaracterizations of the original work:

  1. The assumption that Freeman approves of CSR – sees CSR as actually Continue Reading →
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Video Friday: “Say on Directors iPay” @ Apple

My say on director pay will be on the Apple proxy (embedded links added):

6 – Shareholder Say on Director Pay

Resolved: Shareholders request that our Board of Directors adopt a policy that provides shareholders the opportunity, at each annual meeting, to vote on an advisory proposal, prepared by the Board of Directors, to ratify the pay given members of our Board of Directors as disclosed in the proxy Continue Reading →

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Governance Roadshows Prepare for Proxy Season

Francis Byrd, Laurel Hill Advisory Group, Jeffrey Morgan, National Investor Relations Institute and Kenneth Wagner, Peabody Energy Corporation, discussed the governance roadshow idea at the Society of Corporate Secretaries and Governance Professionals conference in June.

Now might be the time to begin preparing to engage shareholders with such an effort – especially since the recent stock market slide is likely to make the largest investors even more edgy. Such an effort can alert directors to areas where policy adjustments can head off problem areas, allowing companies to retain the trust and confidence of shareowners.

Morgan suggests traveling to visit key investors during the off-season to keep communications open and to develop relationships that may come in handy later.  Byrd says, ‘This will help you prepare the board to deal with the governance issues most important to the shareholders.’ Wagner suggests that directors sit down with the largest investors and answer their questions on compensation and other governance topics.

Read more: Is it time for a governance road show? Corporate Secretary, 8/12/2011.

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Making Independent Board Leadership Work for the Long Term: Yale Governance Forum 2011 Concluding Remarks

Elise Walton

This session was the last for me at the fabulous Yale Governance Forum 2011. I had to leave this session early, missed the last one, missed the Rising Stars event and all those other sessions during the breakout.

The session was held under Chatham house rule, so no citing people or their organization when discussing what they said. Elise Walton moderated a panel that included Geoff Beattie, Thomas Glocer and Lynn Stout.

With two panelists from Thomson Reuters, that company was central to much of the discussion and I think that gives me a little more flexibility under the Chatham house rule, since readers can’t tell where comments came from if I Continue Reading →

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What is Corporate Governance For? Yale Governance Forum

Stephen Davis

The second session of the second day of the Yale Governance Forum 2011 was held under Chatham House Rule. Panelists were announced in advance, so that is no secret, but under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience. Stephen Davis was the moderator. Kerstin Jorna, Bernadette Kelly and Gregory Lau were panelists.

What you’re getting here is largely my take-away, complete with all my own personal bias, rather than an accurate reflection of what actually was said.

Who is corporate governance meant to serve? We all know it is not a national affair but is Continue Reading →

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Breaking the Hold on Rating Agencies

Into the second day of the Yale Governance Forum 2011 and I began to relax among friends, not being quite as conscientious about taking notes but here are a few tidbits from an interesting discussion between Kurt Schacht and Jules Kroll.


Jules Kroll

Schacht introduced Kroll by noting that everyone has taken aim at the credit rating agencies. Questions were raised about internal controls, professional standards for analysts, failure to disclose how they arrive at ratings, “Chinese walls” that failed to hold. Yet, business seems to be back to usual. The issuer pays model is still in question.

Kroll made a name and a Continue Reading →

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Governance in the Cloud

Fay Feeney

The fourth session of the Yale Governance Forum 2011 was was a breakout. All four sessions looked great. I choose the one on social networking held under Chatham House Rule. Under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience. This discussion was especially interactive, with a great deal of participation from the small audience, as well as the panel. And, just to mix it up, I also added my own thoughts and commentary to these notes.

The panel, moderated by Fay Feeney, started with a YouTube video from Socialnomics on the Social Media Revolution. The message was clear. Social media represents a fundamental shift in how we communicate. They will find you. Will you shape Continue Reading →

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Corporate Governance Challenges

This was the third session of the Yale Governance Forum 2011, one that I’ve already noted was the best yet of the several I’ve attended. Like the first session, the third was held under Chatham House Rule. There’s no secret as to who the panelists were, but under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience.

With this group, I found that difficult, since discussions of specific countries are readily (if sometimes mistakenly) attributable to panelists from that country. The Continue Reading →

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Can Investors Behave Long Term?

The second session of the Yale Governance Forum 2011 was held “on the record.” In some

Marco Becht

respects, that makes it even more difficult to report. I’m not a quick note taker, so would welcome comments from any who attended the forum, especially panelists, concerning what transpired.

Keith Ambachtsheer

As I recall, Keith Ambachtsheer, author of Pension Revolution: A Solution to the Pensions Crisis, started us out after a brief introduction from Marco Becht, who served as the moderator. Ambachtsheer noted that all shareonwers are not the same. The wealthy, insurance industry, pensions, and others should be contrast with “guns for hire” who seem to need to be active. There is growing realization by many investors, such as  Keith Johnson Continue Reading →

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What is Short Term? A Conversation Retesting Assumptions


Ira Millstein




The first session of the Yale Governance Forum 2011 was held under Chatham House Rule. Panelists were announced in advance, so that is no secret, but under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience. This was a discussion where, often, members of the audience were as assertive as those on the panel.

Be forewarned, what you’re getting here is largely my take-away, complete with all my Continue Reading →

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Increased Investor Engagement

The first comprehensive analysis of the engagement between investors and public U.S. corporate issuers finds a notably high and increasing trend of engagement.  Yet, there is a disconnect between investors and issuers in basic areas such as the time frame of engagement, the definition of a successful engagement and, by implication, what engagement itself means.

“The State of Engagement Between U.S. Corporations and Shareholders,” commissioned by the IRRC Institute and conducted by Institutional Shareholder Services Inc., reveals that engagement is either a priority or a non-event for investors:  asset owners and asset managers were most likely to report either that they had engaged with more than ten companies in the previous year, or that they had not engaged at all.

A power shift is underway and issuers are now more willing to engage.  Nearly nine out of ten public companies report having had at least one engagement with its investors during the prior year. Previously, routine engagement referred to quarterly discussions about earnings and corporate strategy that occurred in company-designed forums such as conference calls and analyst meetings.  Today, engagement has become a year-round exercise involving dialogue on topics such as executive compensation, boardroom independence, and sustainability through a variety of channels including conference calls, meetings, e-mails, public announcements, telephone calls, and regulatory filings. The report’s key findings are as follows:

  • The level of engagement between issuers and investors is high. Approximately 87% of issuers, 70% of asset managers and 62% of asset owners reported at least one engagement in the past year.
  • The level of engagement is increasing. Some 53% of asset owners, 64% of asset managers, and 50% of issuers said they are engaging more.  Virtually none of the investors and only 6% of issuers responded that engagement is decreasing.
  • Amongst investors, engagement is either a priority or a non-event.  A bimodal, or “barbell,” distribution was evident, with 28% of asset owners and 34% of asset managers reporting engagements with more than ten companies. On the other hand, about 45% of asset owners and 43% of asset managers indicated they did not initiate any engagement activity whatsoever.
  • Despite the headlines that result from high-profile conflicts between issuers and investors, the vast majority of engagements between issuers and investors are never made public. About 80% of issuers said most engagements remain private, as did 72% of asset owners and 62% of asset managers.
  • Asset owners, asset investors, and issuers do not always agree on what constitutes “successful” engagement. While all three groups believed constructive dialogue on a specific issue was a success, issuers were materially more likely than investors to think that establishment of a contentious dialogue was a success. An even more dramatic difference was that about three quarters of both asset managers and asset owners defined either additional corporate disclosures and/or changes in policies as a “success” while only about a third of issuers agreed.
  • Engagement is most likely to lead to concrete change by issuers in areas where shareholders are broadly in agreement, such as declassification of the board of directors or the elimination of poor pay practices, than in areas where shareholders’ views diverge, such as the need for an independent board chair.

The study was conducted as an online survey of approximately 161 institutional investors and 335 issuers based in the United States from March to May 2010, followed by in-depth follow-up telephone interviews with 21 investors and 22 issuers in August and September 2010. For each respondent, the level of engagement was assessed in terms of subject matter, frequency, participants, measurements of success, and impediments. The study also evaluated how the volume and the success of engagement have changed over time and are likely to change in the future. The survey defined engagement broadly – as direct contact between a shareowner and an issuer allowing each respondent some flexibility to define the term. Interview participants were provided anonymity to encourage candor. The full report is available at irrcinstitute.org and issgovernance.com.

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Shareholder Activism in U.S. Public Companies, 1900-1949

“Offensive shareholder activism” involves buying up sizeable stakes in underperforming companies and agitating for changes predicted to increase shareholder returns. Though hedge funds are currently highly publicized practitioners of this corporate governance tactic, there has been no analysis of the extent to which managers of U.S. public companies were faced with challenges of this nature during the first half of the 20th century. This paper correspondingly examines instances during this period where investors engaged in offensive shareholder activism, based on a hand collected dataset of proxy contests occurring between 1900 and 1949. Our findings indicate that offensive shareholder activism, while not commonplace, did occur and was considerably more prevalent in the 1930s and 1940s than in earlier decades. We explain our results by reference to a simple model of offensive shareholder activism and argue that the ebb and flow of takeover activity may have been the primary determinant of the trends we observe…

It is widely assumed that with respect to corporate governance historically “market control over the allocation of U.S. corporate resources stands out as a recent phenomenon.”67 Under this view, it was not until the 1980s that an “expansion and empowerment of the shareholder class” shifted “interest group power from managers to shareholders.” It was at this point, according to the received wisdom, that the norm of shareholder primacy achieved pre-eminence, fostered initially by the rise of the hostile takeover bid and reinforced in the 1990s by the growing influence and power of institutional investors.

The rise of institutional investors, combined with a strong corporate governance counter-reaction to the building of conglomerate empires in the 1960s and revelations of widespread corporate kick-backs and bribes in the 1970s, no doubt reshaped relations between executives, directors and shareholders of U.S. public companies.70 This does not mean, however, that those running U.S. public companies in earlier eras were entirely insulated from investors inclined to take aim at firms with the intention of orchestrating changes designed to improve returns. The activist hedge funds of today lacked direct antecedents during the first half of the 20th century, as only rarely did collective investment vehicles initiate activism campaigns. Nevertheless, our research into shareholder activism during this period has uncovered numerous instances where investors targeted public companies and built up a sizeable stake with the intention of either launching a proxy contest or seeking to obtain outright voting control. Underperforming public companies no doubt have faced in recent times investor-driven discipline that is more robust than would have been the case during the period we have focused on. However, our research indicates the difference may have been one of degree rather than kind.

Cheffins, Brian R. and Armour, John, Offensive Shareholder Activism in U.S. Public Companies, 1900-49 (February 11, 2011). University of Cambridge Faculty of Law Research Paper No. 11/09. Available at SSRN. Hat tip to Jason Schloetzer.

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"Low-Cost" Activism More Effective Since Enron

Ferri, Fabrizio, ‘Low Cost’ Shareholder Activism: A Review of the Evidence (December 1, 2010). Research Handbook on the Economics of Corporate Law, Claire Hill & Brett McDonnell, eds., Elgar Publishers, Forthcoming. Available at SSRN.  Ferria looks at studies of shareholder proposals filed under Rule 14a-8 and shareholder votes on uncontested director elections. He finds that “collectively, these studies suggest that low-cost activism has become a more powerful tool, capable of driving governance changes at target firms, promoting market-wide adoption of governance practices, and influencing key policy reforms.”

The decisions of proxy advisors appear to be key in many of the outcomes. Here are a few interesting tidbits:

  • A puzzling result in Choi et al. (2009) is that proxy advisors do not seem to take into account the conduct that led to a withhold recommendation for a director at firm A in issuing a recommendation for the same director at the annual meeting of firm B. Consistent with this result, Ertimur et al. (2010a) report that none of the directors of firms involved in the backdating scandal received a WH (withhold) recommendation from ISS/RM when up for election at another firm (and they were not penalized in terms of votes withheld), even when ISS/RM recommended to withhold votes from them at the backdating firm. If proxy advisors and shareholders do not take into account directors‘ conduct at other firms when, respectively, issuing recommendations and casting votes, then the reputation penalties for monitoring failures are limited.
  • Studies suggest that shareholder dissatisfaction expressed through director elections is followed by value-enhancing choices and a reduction in agency costs.
  • Ertimur et al. (2010b) find significant voting support for proposals aimed at affecting the pay setting process (e.g., proposals requesting shareholder approval of large severance payments), lower support for proposals aimed at micromanaging pay (e.g. proposals to adopt specific levels and structure of pay) and almost no support for more  ̳radical‘ proposals arguably reflecting objectives other than shareholder value (e.g., proposals to link executive pay to social criteria or to abolish incentive pay).
  • Shareholder proposals have become an effective activism tool in prompting firms to modify their governance practices. Firms are more likely to expense stock options (Ferri and Sandino 2009), declassify boards (Guo Kruse and Noel 2008; Cai et al. 2009), and remove poison pills (Akyol and Carroll 2006; Cai et al. 2009) after receiving a shareholder proposal requesting these actions.

  • Ertimur et al. (2010c) report an implementation rate of 31% for proposals winning a majority vote and only 3% for proposals receiving between 30% and 50% of the votes cast.

  • Ertimur et al. (2010c) report a rate of implementation of 40-42% of majority vote proposals in 2003-2004 versus 16%-24% in 1997-2002.

  • There is little doubt that shareholder proposals and shareholder votes have become a more effective tool in the post-Enron period (see also Section 2.2), with boards listening to shareholder ―voice‖ more than ever before.
  • Cuñat et al. (2010) find that approved shareholder proposals yield an abnormal return of 1.3% over the ones not approved, with a more pronounced price reaction for proposals related to anti-takeover provisions.

A recent example of such activism can be found at Zoran: Shareholder Activist as Catalyst, SeekingAlpha, 1/23/2011.

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ProxyMonitor.org: Database of Shareowner Proposals

The Manhattan Institute for Policy Research’s Center for Legal Policy, a conservative, market-orientated think tank, launched a new proxy monitoring resource: ProxyMonitor.org. This searchable database of shareowner proposals at the 100 largest U.S. companies over the past three years could be a valuable resource for management and shareowner activists alike. Sort through the data by company, industry, proponent and proposal type.

The Center intends to expand the database over time. For example, in three mouse clicks you can see that there were 32 shareholder proposals on executive compensation submitted to companies in the health care industry between 2008 and 2010. Want to know what proposals John Chevedden, Ray Chevedden and the Chevedden Family Trust have placed in front of shareowners? ProxyMonitor.org allows you to quickly identify 32 and to pull them up with a few clicks. Interested in reviewing the resolutions on executive compensation? You can quickly identify 217 and read each.

I found ProxyMonitor.org such a valuable tool, I’ve added it to our links page under both Proxy Voting/Monitoring and Shareowner Action.

Hat-tip to ProxyMonitor: A New Shareholder Proposal Proxy Access Monitoring Tool, 100 F Street, 1/20/2011.

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