Danone can stomach new activist investor – Breakingviews

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

Activism in Germany | Ethical Boardroom

Shareholder and hedge fund activism has become an influential force in German corporate life over the past 15 years or so, both in terms of corporate governance improvements and value creation, with approximately 400 campaigns launched by 100 (predominantly foreign) activist hedge funds against 200 of the country’s 650 public corporations.

Until recently, it was the threat of hostile takeovers that was deemed the principal corrective for poor management decisions and shareholder value destruction due to performance failures. Today, in Germany it has shifted to active monitoring by engaged or activist value minority investors – characterised by such an alignment of interests with and persuasion of fellow shareholders and institutional investors to generate support in the form of the requisite general shareholders’ meeting (AGM) majorities, if necessary. With 60 to 70 per cent (sometimes an even higher percentage) of the voting stock of leading German corporates owned by foreign institutional investors, this train of thought must be taken seriously.There are two significant factors that help contextualise activist campaigns and market acceptance of shareholder and hedge fund activism in the German corporate governance debate.

Firstly, 60 per cent of all 650 German publicly listed companies are controlled or dominated via share block ownership by families, founders, management teams, investors or holding companies. Thus only 250 German public companies lend themselves to the presumption that activism is dependent on a widely-held, dispersed shareholder ownership/population so that when negotiations with target management break down, the activist may resort to launching a confrontational proxy fight in order to replace some or all members of the supervisory board. They, in turn, may  recall the management and replace them with new managers who agree with  the activists’ strategic plan.Second, there is a certain consensus-oriented German corporate culture, etiquette and decorum that, over time, has demonstrated how publicity and accusatory campaigns against sitting management or supervisory board, proxy fights or resorting to litigation are by and large unsuccessful strategies, with only 20 per cent of all campaigns ever becoming public knowledge. There has only been one precedent (out of a total of seven attempts) where activists were capable of replacing the chairman of a supervisory board in an adversarial proxy fight – at pharmaceutical company Stada AG in August 2016.

In the view of many, the separation of ownership and control (Berle-Means) and the principal-agent problem (Jensen-Meckling) has recently led to sharp market cap drops and share price value-losses at the expense of shareholders in large DAX 30 German corporations and corporate groups, such as the utilities RWE and E.on, but also TUI, Commerzbank, Volkswagen and Deutsche Bank. It is no secret that concerned institutional investors have initiated discussions with activist hedge funds on these matters (see illustration opposite).

Observers believe that leading activist hedge funds, who acquire usually a minority position in the one to 10 per cent range (seldom more than 15 per cent total, depending on target size), could exert such additional monitoring function on behalf of all shareholders without necessarily destabilising the balance of powers between the AGM (shareholders), supervisory board and management board. First, they are not imposing their views on anybody, least of all management or the supervisory board, but seek to engage and present well-thought out alternative courses of action. Second, they have to win the votes and confidence of fellow shareholders and institutional investors in the first place in order to have any strategic impact.

So, to recap, there have been approximately 400 equity activist campaigns in the past 15 years or so in Germany, attaching to 200 public targets (out of a total of 650 listed companies), mostly hidden from the public.Further, assuming a base line of 400 campaigns, Thamm/Schiereck claim that 75 per cent of these samples have been kept under the lid and were never in the public limelight, on social media or mentioned in the press or legal/economic writings, reflecting the mainly informal approach take in these campaigns….

Interests and strategies of both activist hedge funds and German blockholders defy easy categorisation. Activists aim at creating value expressed in an increased share price of their portfolio companies. They employ intervention and campaigns built around some of the building blocks that we have presented. KUKA demonstrates that hedge funds may align themselves with blockholders to ride a rising stock price. On the other hand, German family blockholders may use activists to attract the interest of international institutional investors following the latter’s recommendations with the ultimate objective of boosting share value and selling their position – displacement through defection. Some activists adapt their strategies to the German context and demonstrate commitment to their portfolio companies, while German blockholders utilise activists to increase the value of their holdings, thus changing their preferences from commitment to liquidity.

Not unlike studies in the US, there are empirical findings in Germany that show there is considerable disciplinary power inhering in activist hedge funds. Virtually all listed companies in Germany (which have shrunk from about 1,000 to 650 in recent years) have an IR department now, monitoring closely their investor base. Many of them anticipate potential investments, interventions and engagements by activists and, in order to thwart campaigns, implement some of the typical activist demands, such as extra dividends, share buybacks or selling non-core divisions.

Source: Activism in Germany | Ethical Boardroom

Foreign investors to unite on Japanese corporate governance- Nikkei Asian Review

America’s biggest pension fund and three British asset management companies will work in lockstep on corporate governance reform in Japan by voting.

They will coordinate to request increasing outside directors from the at least two now recommended by the Tokyo Stock Exchange to at least one-third of the board. Companies that do not will be punished with votes against their choices for directors in principle….

The partners are the California Public Employees’ Retirement System, Legal & General Investment Management, Standard Life Investments and BMO Global Asset Management. Details of the group’s requests will be announced as soon as early next week.

The quartet collectively holds about 4 trillion yen ($36.3 billion) in Japanese stocks….Increasing outside directors will be a high hurdle for some companies. Just 40% of the Nikkei Stock Average’s 225 components have met the goal of at least one-third. But with collective engagement, the movement will likely gain momentum.

Source: Foreign investors to unite on Japanese corporate governance- Nikkei Asian Review

A Survey on Corporate Governance

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

Japan’s big corporates shift to provide AGM agendas online

Japanese firms are beginning to release the topics and agendas of their annual shareholders’ meetings online, before they send them out by mail to investors. The development comes in response to growing calls from international investors.Some of the key firms that have decided to release online notices in advance this year include Yakult Honsha, a Japanese drinks maker, along with Meitec, a major staffing business.

Source: Japan’s big corporates shift to provide AGM agendas online

UK: Shareholders need greater power to curb board directors’ pay, says IoD | The Independent

Shareholders need more power to curb director pay if companies are to rebuild public trust. That’s the conclusion of the Institute of Directors (IoD), which has been calling upon the next government to give investors a greater say over executive pay at Britain’s biggest companies.Right now shareholders have a binding vote on the company’s future pay policy every three years. However, the IoD believes it’s time to strengthen their hand. It has suggested that if 30 per cent or more investors oppose the plans, then companies should revisit their pay policy and give shareholders another vote.

Source: Shareholders need greater power to curb board directors’ pay, says IoD | The Independent

Japan’s ‘Show Me The Money’ Corporate Governance

John Vail writes in Forbes that improvements in Japanese corporate governance have led to increased profitability.

[W]hile increasing the number of independent directors and other recent governance issues are very important in the intermediate term for Japan, it is crucial for investors to understand that the profitability message has actually been understood by most Japanese corporates for over a decade. This is shown by the divergence in the profit margins from the trend in GDP growth in the charts above, showing that even though GDP growth has remained subdued, profit margins have surged.

Source: Japan’s ‘Show Me The Money’ Corporate Governance

The Amended Shareholders’ Rights Directive | Company Law and Corporate Governance

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

Brazil: Vale minority shareholders nominate candidate to board | Reuters

Brazil’s mining company Vale SA on Wednesday said Aberdeen Asset Management PLC, on behalf of minority shareholders, nominated Isabella Saboya to join the company’s board.

Vale said in a securities filing that Sandra Guerra was also nominated by the minority shareholders as a substitute board member for Saboya in the election scheduled for April 20, 2017.

Source: Vale minority shareholders nominate candidate to board | Reuters

Directors must stand their ground with governance | Netwerk24

Thina Siwendu, Judge of the South African High Court: Gauteng local division was the guest speaker at an Africa Directors Programme (ADP) certificate award ceremony recently held in Johannesburg for the class of 2016. Her comments included:

Good corporate governance offers the ability to generate and create, to produce wealth and products. To solve human problems is one of the greatest human endeavours and is an incredible gift of humanity.“The danger to corporate governance is that it is sometimes still seen as an ‘after the fact process’, unrelated to the day to day being of corporate life. This lack of integration in thinking and behaviour has led to many instances of the slowing down of things, or just the ticking of boxes.“The separation between business, politics and the state has narrowed significantly. The common denominator is the constant distant demand for leadership.“Not just any leadership, but ethical, sound and courageous leadership. This is what we need in boardrooms.“In the context in which we operate, we have noticed a trust deficit and a challenge of a social contract that has collapsed.”

Source: Directors must stand their ground with governance | Netwerk24