Carol Ryan writes approvingly about a small stake by an activist investor in a previously entrenched French company:
Danone can stomach a new activist investor. A stake reportedly taken by U.S. hedge fund Corvex Management in the French yoghurt maker may be small, but would bring welcome pressure on management to meet its new margin target. Danone was once shielded from a Pepsi bid by the French state. If new investors bring good ideas and discipline, such defences won’t be necessary.
Keith Meister, the founder of Corvex and previous right-hand man of activist Carl Icahn, owns approximately 0.8 percent of Danone’s share capital, according to Bloomberg. The bite-size holding means Corvex is in no position to make aggressive demands, such as its ongoing attempt to derail a merger between chemicals groups Clariant and Huntsman.
Still, Meister’s arrival steps up pressure on Danone Chief Executive Emmanuel Faber to make the $53 billion dairy group more efficient….Some needling might be useful at a company that has previously disappointed investors with poor execution.
Danone has become emblematic of impregnable French companies ever since the French government scuppered reported interest from Pepsi back in 2005, making the yoghurt maker appear takeover-proof….
Were Corvex to bring useful ideas and discipline, it would make Danone more efficient, more profitable and more expensive to a would-be buyer. That’s a far more reliable form of takeover defence.
Source: Danone can stomach new activist investor – Breakingviews
Don’t say we didn’t warn you. Do not invest in non-voting stock. We’re not saying that if this stock had a vote it would not be losing value. We are saying that if the stock had a vote, shareholders could do something about it.
Snap Inc. execs did their best to spin the company’s second straight lifeless quarter on its Thursday earnings call, but shares of the Snapchat parent continue to jackknife in after hours trading.Shares quickly darted down about 13 percent after Snap posted underwhelming revenue and slowing user growth in its second quarter. And as CEO Evan Spiegel and Snap’s braintrust took to the mic, it did little to curb investors’ concerns, with Snap falling another 3 percent to new all-time lows of $11.55 a share.
Source: Snap’s Earnings Call Can’t Stop Its Nose Dive, Shares Hit New All-Time Lows
Norway’s $960 billion sovereign wealth fund, the world’s biggest, is taking a stance against equity indexes including companies that aren’t subject to shareholder control. The move opens a new front in the fund’s efforts to use its considerable—and growing—clout to force companies to improve their ESG act.
Source: Norway Sovereign Wealth Fund Is Refusing to Be Silenced – Bloomberg
Robert Purse reports on an international survey on corporate governance, concluding that respondents may support stronger standards and possibly a universal code of best practice:
Although 60% of respondents said ‘yes’, it is noteworthy that 40% responded either ‘no’, or ‘not sure’. Whilst we have no direct evidence to support the proposition, we are of the view that high standards of good governance should be self-evident with little room for uncertainty.
Source: A Survey on Corporate Governance
A proposal being floated by a large index firm could force finance chiefs at companies like Alphabet Inc., Facebook Inc. and Ford Motor Co. to choose between keeping their places in broad stock benchmarks or changing their share class structures.FTSE Russell is proposing possible restrictions on the inclusion of companies with unequal voting rights in its indexes, but the firm will weigh input from clients and investors before working out specifics.
Source: FTSE Russell Index Considers Booting Firms With Lots of Non-Voting Shares – WSJ
Matt Levine writes in Bloomberg:
[C]ross-ownership of many U.S. airlines by the same diversified institutional investors — index funds and “quasi-indexers” — discourages the airlines from competing on price and quality, and encourages them to focus on margins. An airline that cuts fares or spends money on better service to win market share isn’t necessarily doing its shareholders any favors: The increased market share comes at the expense of other airline companies that the shareholders also probably own….I think the “index funds ruin capitalism” story is best read as just one strand of a larger “financial capitalism ruins capitalism” story, and while the index funds story is still pretty niche, the financial capitalism story has become very popular. In this story, managers and investors have stopped thinking of companies as companies, as human networks of employees and customers and investors, and now think of them instead as numbers, as sets of financial factors to be optimized. There are many explanations for this: Developments in graduate business education, or the rise of corporate activism, or the cultural role of Wall Street. But the basic story is that companies used to balance the interests of workers, customers and investors; now they have adopted a fully investor-centric model in which profits are the only goal and customer service and workers’ rights are sacrificed. Sheelah Kolhatkar writes that “the investors-above-all doctrine seems to have triumphed over the more inclusive approach.”
Source: Airlines, Stock Splits and Voting – Bloomberg
BlackRock, Vanguard and State Street have expanded their corporate governance teams significantly in response to growing pressure from policymakers and clients to demonstrate they are policing the companies they invest in.The move by the world’s three largest asset managers, which together control nearly $11tn of assets, will help address fears that investors are not doing enough to monitor controversial issues around executive pay and board diversity at the companies they invest in.
Source: BlackRock, Vanguard and State Street bulk up governance staff
EU Directive 2017/828 has now been published in the Official Journal and will come into force in mid-June 2017, amending the Shareholders’ Rights Directive (SRD). Changes include:
Member States shall ensure that companies have the right to identify their shareholders, so companies will have the right to collect personal data on their shareholders “in order to enable the company to identify its existing shareholders in order to communicate with them directly with the view to facilitating the exercise of shareholder rights and shareholder engagement with the company.”
Institutional investors and asset managers must comply with two requirements, or publicly disclose a reasoned explanation as to why they have not complied: (i) institutional investors and asset managers shall develop and publicly disclose an engagement policy that describes how they integrate shareholder engagement into their investment strategy, and; (ii) institutional investors and asset managers shall, on an annual basis, publicly disclose how their engagement policy has been implemented.
Institutional investors public disclose how the main elements of their equity investment strategy are consistent with the profile and duration of their liabilities, in particular long-term liabilities, and how they contribute to medium to long-term performance of their assets.
Asset managers must disclose annually how their investment strategy and implementation contributes to the medium to long-term performance of the assets of the institutional investor or the fund.
Proxy advisors must have and disclose a code of conduct.
Shareholders have the right to vote on director pay.
Companies must disclose related party transactions.
Source: The Amended Shareholders’ Rights Directive | Company Law and Corporate Governance
A new study by Robert Anderson IV finds that choice of law firm plays a significant role in the decision to incorporate in Delaware.
Dr. Anderson examined regulatory filings related to raising private capital, and concluded that it is all about the company’s choice of law firm near the time of founding.He found that some larger, elite law firms may steer businesses toward a Delaware incorporation with their own needs in mind, rather than because of any superior quality of the state’s legal system or the companies’ needs. Perhaps, he speculates, it is easier and less expensive for them to focus on Delaware, rather than having to master the laws of many states.In contrast, other firms—such as smaller, regional firms—are likely inherently focused on their state’s law, and therefore might be expected to disproportionately recommend in-state incorporation, he says.
Because it is difficult for companies to reincorporate, there is little incentive for states to compete for incorporation business and the franchise fees it generates by offering robust alternatives to Delaware law, Dr. Anderson says.
“The consequence is a stagnant menu of relatively homogeneous state corporate law with little innovation, even though innovation might benefit shareholders,” he says.
Dr. Anderson’s research doesn’t take into account various factors that prior research has shown to influence incorporation decisions, such as the antitakeover statutes of a business’s state of headquarters, says Lucian Bebchuk, the James Barr professor of law, economics and finance at Harvard Law School and the director of its program on corporate governance.Delaware manages to snare more than half of the incorporations of U.S. public companies.
A study by Dr. Bebchuk and Alma Cohen, a professor of empirical practice at Harvard Law School, found that companies are more likely to incorporate in Delaware rather than their state of headquarters when they have more employees or sales, when they’re based in the Northeast or South or when their state of headquarters has fewer antitakeover statutes.But Dr. Anderson says he’s confident that weighing states’ antitakeover statutes wouldn’t undermine his results.
Source: A ‘Delaware Trap’ for Companies – WSJ
David H. Webber, professor at the Boston University School of Law, writes about efforts funded by corporations to reduce the number of shareholder proposals. Note that a very small number of these proposals are filed each year, at a very small percentage of companies, and that even a 100 percent vote in favor is almost never binding on management. And yet, somehow advisory votes by shareholders are so terrifying that the snowflakes in the corporate boardroom get the vapors even thinking about them.
Corporate lobbyists at the Business Roundtable — led by JPMorgan Chase chief executive Jamie Dimon — are heralding an effort to sharply limit the ability of investors to have a say in their companies through shareholder proposals. If successful, it will reduce stockholders’ ability to shape the companies they own and hold corporate managers accountable. As with political voting rights, these corporate voter-suppression efforts demonstrate that even the most basic rights need constant vigilance to protect them.Shareholder proposals — governed by the Securities and Exchange Commission — allow shareholders to suggest ideas to be voted on by their peers at the annual meeting. As with voter-suppression tactics generally, the Business Roundtable would not eliminate shareholder proposal rights. Tactically, that would be too crude. Instead, it would interpose a series of technical requirements that would have the same effect as a ban. Most notably, the Roundtable would drastically raise the ownership threshold needed to file a proposal.But shareholder proposals are effectively tools for significant corporate change, akin to ballot initiatives that have played such an important role in American democracy. In recent years, shareholder proposals have called for better assessment and disclosure of climate change risks and for improved diversity in hiring….A recent SEC study shows that New York City’s efforts [to get companies to adopt proxy access provisions] led to a total increase of $10.6 billion in shareholder value at targeted companies…Even when unsuccessful, shareholder proposals can become important mechanisms for registering discontent and helping companies adjust policy…Shareholder proposals mainstreamed diversity as an investment issue, recently pounced on by State Street — a traditional investment house with $2.5 trillion in assets under management — which adopted a new voting policy favoring women board members, symbolically underscored by the company’s commission of the “Fearless Girl” sculpture on Wall Street….None of this is to say that shareholder proposal rules are perfect. Certain revisions might be worth considering. But nothing justifies the stratospheric threshold that Dimon and the Roundtable are backing. Apparently, they’re not interested in protecting shareholders — only in protecting themselves.
Source: Big corporations are trying to silence their own shareholders – The Washington Post