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Firms Send More Cash Back To Shareholders

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“U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development. Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.”

[…]

“If they aren’t, then we have to worry about the impact,” says Yvan Allaire, the executive chairman of the Institute for Governance of Private and Public Organizations. “It has to be a fairly significant impact on the economy.”

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IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias, Media Interviews

Companies Send More Cash Back to Shareholders

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U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development. Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

[…]

If they aren’t, then we have to worry about the impact,” says Yvan Allaire, the executive chairman of the Institute for Governance of Private and Public Organizations. “It has to be a fairly significant impact on the economy.

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Reports & Studies

The case for and against activist hedge funds

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A subset of so-called hedge funds, henceforth known as “activists”, has latched on the idea that many corporations are not managed or governed in a manner likely to maximize value for shareholders. With the capital they have obtained from pension funds and other institutional investors, they take a small position in the equity of publicly traded companies which, in the view of these “activists”, have not taken all appropriate measures to raise the price of their shares.

This is a fast growing business. The number of activist attacks, some 27 in 2000, will exceed 320 in 2014. Activist hedge funds, fed by institutional investors, have now amassed an estimated $200 billion in managed assets1. To achieve more leverage on companies, smaller hedge funds may band in what has been aptly called «wolf packs».

In a by-now familiar scenario, the activist hedge fund pressures the targeted company to appoint to its board some people of its choosing (threatening a proxy fight if the company is not forthcoming). That is merely a first step, sometimes entirely skipped, in getting the company to adopt a set of measures deemed likely to boost a lagging or stagnating stock price.

Unless the company swiftly gives in to its demands, the hedge fund will produce a paper, or a long letter, critical of the company’s management and board and outlining the remedial actions that, in its view, would benefit shareholders. That document will be broadcast widely so as to gather the support of the company’s institutional shareholders, even if a tacit one. In due course, if matters come to a proxy fight, the hedge fund will seek to persuade the proxy advisors (ISS and Glass Lewis) to come out in favour of the hedge fund’s nominees for the board.

The contents of the attack pieces produced by hedge funds range from broad principles and detailed financial analysis to operating minutiae; for an instance of the latter, the hedge fund Starboard Value criticizes the Darden Corporation, owner of Olive Garden, for the fact that these restaurants no longer salt the water for cooking its pastas! For another instance, hedge fund activist Dan Loeb got the then-CEO of Yahoo, Scott Thompson, to resign in disgrace by publishing an open letter accusing Thompson of “fabricating a computer-science degree”2.

Activist hedge funds and their academic supporters make several arguments and claims in defense of their actions.  Read more

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Why Run Away from the Evidence?

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“Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, and this post is based on a Wachtell Lipton memorandum. The post puts forward criticism of an empirical study by Lucian Bebchuk, Alon Brav, and Wei Jiang on the long-term effects of hedge fund activism; this study is available here, and its results are summarized in a Forum post and in a Wall Street Journal op-ed article. As did an earlier post by Mr. Lipton available here, this post relies on the work of Yvan Allaire and François Dauphin that is available here. A reply by Professors Bebchuk, Brav, and Jiang to this earlier memo and to the Allaire-Dauphin work is available here. Additional posts discussing the Bebchuk-Brav-Jiang study, including additional critiques by Wachtell Lipton and responses to them by Professors Bebchuk, Brav, and Jiang, are available on the Forum here.

The experience of the overwhelming majority of corporate managers, and their advisors, is that attacks by activist hedge funds are followed by declines in long-term future performance. Indeed, activist hedge fund attacks, and the efforts to avoid becoming the target of an attack, result in increased leverage, decreased investment in CAPEX and R&D and employee layoffs and poor employee morale.

Several law school professors who have long embraced shareholder-centric corporate governance are promoting a statistical study that they claim establishes that activist hedge fund attacks on corporations do not damage the future operating performance of the targets, but that this statistical study irrefutably establishes that on average the long-term operating performance of the targets is actually improved.” Read more

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

The DuPont Proxy Battle: New Myths, Old Realities—and Even Newer Data About Hedge Fund Activism

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A watershed moment is coming for shareholder activism and corporate governance generally, as the proxy contest brought by Trian Management Fund, seeking effectively to break up DuPont, enters its final stages (with the vote being less than a month away). Technically, the contest is to elect four Trian Fund nominees to the DuPont board, but, as a column in the New York Time’s Dealbook put it more bluntly, the real fight is over whether to break DuPont into three parts and “shut down DuPont’s central research labs.”[1] Much about this contest is unusual: unlike other targets of activism, DuPont has regularly outperformed the S&P 500 Index and virtually all other metrics for corporate profitability. Its stock price has risen over 185% since its CEO, Ellen Kullman, took office six years ago (while the S&P 500 Index rose only 122% over the same period).[2] The Trian Fund owns only a small stake (less than 3%), but still the contest is close. This column will use this episode as a stalking horse by which to approach a key issue in corporate governance today and also as a case study that illustrates both what we know and still do not know about hedge fund activism.

Let’s start with what we know. Hedge fund activism dates back for at least a decade to the appearance of proactive hedge funds that bought stocks specifically to challenge the management.[3] With that development, institutional activism moved to the offense, departing from a prior history of largely being defensive in nature (i.e., opposing managerial initiatives). What caused this development? Some of the answer lies in deregulatory SEC rules, but probably more of the answer stems from the inability of a hedge fund to consistently beat the market. If the market is efficient (or even approximately so), a hedge fund cannot outperform it for long as a stock picker—unless it buys stocks intending to change existing management policies and thus enhance firm value. Intense competition and thin returns probably drove some hedge funds into becoming pro-active. Relatively quickly, a consistent pattern emerged to characterize this new activism: on the filing of a Schedule 13D by an activist investor, the stock price of the target shows an immediate abnormal return of around 6 to 7%.[4] Whether this short-run price improvement later dissipates has long been debated,[5] but now there is newer data. The latest study, just released in March, shows that long-run returns to shareholders depend on the outcome of the activists’ engagement with the target.[6] If the activists fail to achieve their desired outcome, the long-term return is modestly negative.[7] If, however, the activists succeed, everything depends on what outcome they were seeking. The market largely ignores changes in corporate governance and “liquidity events” (such as special dividends or stock buybacks),[8] but jumps with alacrity in response to takeovers and restructurings.[9] This suggests that the real source of the gains to pro-active hedge funds is not superior corporate strategy, but increases in the expected takeover premium for the target. Apparently, the market perceives most corporate governance issues as important only as a signal of an impending takeover battle. Still, if nothing more materializes, the target’s stock price will stabilize or decline. Even if activists present themselves as superior business strategists or marketing gurus, their success comes largely from jump-starting a takeover or a bust-up.

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Further Recognition of the Adverse Effects of Activist Hedge Funds

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“Despite the continued support of attacks by activist hedge funds by the Chair of the SEC, and many “Chicago school” academics who continue to rely on discredited statistics, there is growing recognition by institutional investors and prominent “new school” economists of the threat to corporations and their shareholders and to the economy of these attacks and the concomitant short-termism they create.

In a “must read,” March 31, 2015 letter to the CEOs of public companies, Laurence Fink, Chairman of BlackRock and one of the earliest to recognize the danger from attacks by activist hedge funds, wrote:

It is critical, however, to understand that corporate leaders’ duty of care and loyalty is not to every investor or trader who owns their companies’ shares at any moment in time, but to the company and its long-term owners. Successfully fulfilling that duty requires that corporate leaders engage with a company’s long-term providers of capital; that they resist the pressure of short-term shareholders to extract value from the company if it would compromise value creation for long-term owners; and, most importantly, that they clearly and effectively articulate their strategy for sustainable long-term growth. Corporate leaders and their companies who follow this model can expect our support.

In an April 1, 2015 empirical study, Dr. Yvan Allaire of the Institute for Governance of Public and Private Corporations concluded:

  • Hedge fund activists are not really that great at finance or strategy or operations, as some seem to believe (and as they relentlessly promote);
  • Their recipes are shop-worn and predictable, and (almost) never include any growth initiatives;
  • Their success mostly comes from the sale of the targeted firm (or from “spin-offs”); their performance otherwise barely matches the performance of the S&P 500 and that of a random sample of firms;
  • The strong support they receive from institutional investors is rather surprising and quite unfortunate;
  • The form of “good” governance imposed on companies since Sarbanes-Oxley as well as the “soft” activism of institutional funds have proved a boon for the activist funds.”
IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias, Media Interviews

Cost-cutting Mosaic CEO collects $5.5 mln pay raise

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” U.S. fertilizer producer Mosaic Co boosted its chief executive officer’s pay last year by more than $5 million as a reward for slashing costs and jobs, a regulatory filing shows.

Construction of excess potash capacity and fiercer competition have pressured the sector, and leading North American producers Mosaic, Potash Corp of Saskatchewan and Agrium Inc have chopped expenses.

Mosaic CEO Jim Prokopanko collected $5.3 million more in stock awards last year, taking the value of his pay package to $14.8 million, up $5.5 million, according to a filing last week.

Mosaic executives got shares as an incentive to save costs, spokesman Ben Pratt said.

Minnesota-based Mosaic, which has a $16.4 billion market cap, said in 2013 it would cut $500 million in operating costs over five years, including about 550 jobs. Prokopanko said on March 31 that the company was ahead of schedule in finding savings.

The recent filing said cost-cutting incentives “enhance our alignment of executive compensation with stockholder interests and will significantly benefit us and our stockholders by helping ensure that Mosaic remains a low-cost producer.”

Mosaic’s stock price and net earnings both slipped about 3 percent in 2014.

Shareholders will vote on Mosaic executive pay and the incentives at its May 14 annual meeting.

Rewarding executives for cutting jobs and costs is “a very bad idea,” said Yvan Allaire, executive chair of the Montreal-based Institute for Governance of Private and Public Organizations.

“In terms of the sense of sharing, the spirit that, ‘we’re all in the same boat in this company,’ what we do with this (pay approach) really is create two boats – a yacht and a very small dinghy,” Allaire said.

Potash Corp paid former CEO Bill Doyle and other executives more in 2014 largely because of interest rate fluctuations that affected the company’s short-term pension obligations, spokesman Randy Burton said.

Doyle, who was replaced as CEO midway through 2014 but remained senior adviser, earned $7.9 million, up from $6.4 million. His salary was unchanged at $1.3 million and Doyle received no stock awards.

Agrium paid CEO Chuck Magro $6 million in 2014, his first year on the job, slightly less than it did in 2013 when he was chief operating officer. The reason for the difference was that Magro received a one-time share grant in 2013 when he was appointed to succeed the previous CEO, spokesman Richard Downey said. (Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Jonathan Oatis)”

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News Articles

When does a publicly listed corporation become a criminal?

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Under what circumstances is it appropriate to lay criminal charges against a publicly listed corporation for the actions of its employees? What justifies imposing what amounts, in Terrence Corcoran’s words, to a “corporate death penalty”? (Financial Post, February 23rd, 2015)

Lawyers will debate these questions ad infinitum” but what would be a common-sense answer?

A publicly listed corporation is “owned” by its shareholders, a large and dispersed group of people and institutions. These “owners” elect a board of directors “to manage, or supervise the management of, the business and affairs of a corporation” (from the Canadian Business Corporation Act). This board of directors has the ultimate authority and responsibility over management’s actions and decisions but on the basis of the information provided by management and other advisers to the board. For a widely-held, exchange-listed corporation, its board of directors is the embodiment of that legal entity.

To lay criminal charges against a publicly listed corporation should require proof that the board of directors was aware, facilitated, abetted or approved illegal conduct by members of management.

As no one, including the RCMP, has claimed that the board of directors of SNC-Lavalin, at the time the alleged illegal acts were committed, had any knowledge of, or in any way had abetted, such acts, it is grossly inappropriate to place SNC-Lavalin in such serious jeopardy.

Before proceeding with the criminal charges laid by the RCMP, which would injure the 40,000+ employees of SNC-Lavalin around the world, the federal prosecutors should determine whether the board indeed did know of the illegal actions taken by some managers and executives and whether the board had taken all reasonable measures to safeguard the company against such illicit behavior.

Based on those findings, prosecutors should modify the charges and indict former SNC-Lavalin executives who were found to have engaged in illegal actions and levy a fine against the company to the extent that all measures were not taken to protect the company against illicit actions.

The argument that the corporation having profited from the illegal actions of some of its executives is equally guilty makes little sense. Indeed, by that logic, as shareholders ultimately benefited from the impact on the company’s stock price from these illegally obtained contracts, shareholders should be charged and prosecuted! Of course, the limited liability of shareholders would quickly thwart such a move, but the logic is the same.

There are few precedents where a public company was indicted for criminal offenses; it is even fairly rare for private companies with a large number of shareholders (as opposed to a private company that is managed by the owners).

Previous cases prosecuted in Canada involved a private company and a penny stock mining outfit, both of which pleaded guilty and paid fines (Griffiths Energy International was fined $10.35 million in 2013; Niko Resources of Calgary was fined $9.5 million in 2011).

In another case, an agent of Cryptometrics Canada was sentenced in May 2014 to three years in prison. The CEO and the chief operating officer of U.S. parent Cryptometrics as well as the Canadian subsidiary, both of whom actively participated in the attempt to corrupt foreign officials, were charged by the RCMP but no criminal charges were laid against the company!

But a by-now distant example sticks out: the criminal indictment of the audit firm Arthur Andersen, a large private partnership, for alleged obstruction of justice in the Enron case.

As soon as the indictment was made public, the firm began to implode. Found guilty in August 2002 (less than 9 months after the Enron bankruptcy), Arthur Andersen closed down, putting on the market its 28,000 employees in the USA and 85,000 employees worldwide.

Of course, in May 2005, the U.S Supreme Court reversed this guilty verdict because of faulty instructions by the judge. But Arthur Andersen has remained and will remain a dead entity.

Now, this power to indict a public corporation is mostly used by U.S. prosecutors as a billy club or a Damocles sword to extract major concessions.

Innocent by-standers, be they employees or shareholders, are not acceptable collateral damages in the “war against corruption”. The culprits are the people who actually committed these acts; they should bear the costs for their actions. A corporation as a distinct legal entity should be charged only if its board of directors knew or should have known about the machinations of some members of management.

“Kill a few corporations to scare the many” is not a sensible policy for law enforcement.

The author is solely responsible for the opinions expressed here.

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

Twelve Ways to Become a Hero : Inside the Activist’s Playbook

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” But it’s no joke to Yvan Allaire, Executive Chair at the Institute of Governance, who believes The Economist is running infomercials for activist hedge funds:

On a topic requiring sober, balanced coverage, The Economist cuts logical corners, tramples contrary evidence, ignores a vast store of scholarship, and conjures up an empirical “study” to produce misleading data.

It seems journalists, like scholars might be sacrificing their higher professional duties to promote what is, after all, a money making venture.  How a paper that sells itself as taking “part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress”  has ended up on the wrong side of intelligence is beyond me.  ” Read more

News Articles

The Economist’s activist hedge fund infomercial

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With its knack for tackling big subjects in a one-sided manner, The Economist in its February 7th issue imagines a dystopian world where corporate managers and boards of directors are generally incompetent, most investors are lazy; but “activists are a force for good”, “capitalism’s unlikely heroes” and “the saviours of public companies”!

Even for a paid commercial, ad people would have considered these claims a bit of a stretch. But in The Economist’s fantasy world, public companies are bureaucracies run by distant managers accountable to funds run by computers!!

On a topic requiring sober, balanced coverage, The Economist cuts logical corners, tramples contrary evidence, ignores a vast store of scholarship, and conjures up an empirical “study” to produce misleading data.

This so-called study consists of compilations, put together by The Economist, of the performance of the 50 largest activist positions taken since 2009! From this loose, ill-defined design, which raises a host of methodological issues, The Economist managed to produce its chart 4 showing how many of these 50 target firms (?) have shown improvement in market cap, R&D, investment, net income, and leverage between the fourth quarter of 2009 and the third quarter of 2014.

Astonished that such a poorly framed analysis would pass muster at The Economist, we undertook to carry out our own computations. What would be the performance of 50 randomly selected firms drawn from the S&P 500 over the same period?

Figure 1 herewith answers the question by juxtaposing the results of The Economist “study” and those of our random sample.

FIGURE 1
Top 50 activist-held companies* and a randomly picked sample** of 50 companies listed on the S&P500 index showing improvement, Q4 2009-Q3 2014, % of total.

Graphique_theEconomist_fevrier2015_V2

* Source: The Economist, “Activist funds: An investor calls”, February 7th, 2015.

**IGOPP- Randomly picked companies from the S&P 500 index. Financial data provided by Compustat.
† 37 companies from our random sample do not disclose R&D expenses. We only kept the R&D companies for the improvement measure; The Economist does not state how many of their 50 companies are not disclosing R&D expenses.
†† Excluding financial companies.

On most measures of “performance”, our random sample does better than the top 50 activist-held companies! In other words, the analysis carried out by The Economist is worthless.

The Economist thus muddies the on-going debate about the pros and cons of hedge fund activism (See my piece “The case for and against activist hedge funds” at www.igopp.org). Sketching the most positive scenario of hedge fund activism, The Economist shows no interest in, or even awareness of, contrary evidence presented by those advocating restraint and control of these new players. Here are some of the many arguments against this breed of activism, which are either not mentioned or papered over in The Economist’s piece:

  • Stealing from Peter to give to Paul. When activist hedge funds bring some lasting value for shareholders, it often takes the form of wealth transfer to shareholders from the company’s employees and debt holders rather than wealth creation. Several authors have documented the transfer of value from debt holders to shareholders as a result of hedge fund activism. Both Moody’s and Standard and Poor’s have warned about the debt downgrades likely to result from the sort of initiatives pushed unto companies by hedge funds.
  •  Their game is rigged for short-term pay-offs. They are in practice short-term players; they, and their academic supporters, argue that their interventions are not strictly speaking short-term in nature and that they do not cause long-term harm to companies; but their holding period as shareholder is fairly short (activist hedge funds held the shares for less than 15 months on average and for nine months or less in half the cases) and they have no reason to care or worry about what happens to companies once they have exited its stock. If they stick around longer, it is often because they have not found a profitable way out.
  •  Activist hedge funds live in a world with no other stakeholder than shareholders. They have little sympathy or patience for the view that companies should live by values other than short-term stock price, that companies are the situ of commitment, obligations and loyalty. If their myopic concept of the corporation were to become the norm for publicly listed companies, it would raise social and economic issues and lead many critics to question the legitimacy of these warped corporate entities.
  • They create value mostly through financial engineering. Their playbook is essentially made up of a set of financial measures, well-known to boost stock prices for a short while. Even their request for board membership is but a first step to pressure the company to implement one or a combination of their standard financial moves: disburse all “excess” cash as shares buy-back or special dividends; split the company, spin-off or sell assets; sell the whole company.
  • They are harbingers of dismal collective outcomes. Given the frequency of their attacks and their success rate lately, activist hedge funds instil fear in the management of many corporations; to forestall an attack, boards and management are counselled to examine their company as seen through the eyes of activist hedge funds and implement measures they would likely urge on the company’s management; as the number of activist hedge funds mushrooms, attracted by the immense pay-offs (and manageable risk) of this business, and companies pre-emptively adopt their short-term policies, the net overall effects could be quite toxic for a country’s industrial health.

The Economist seems to believe that this form of activism may fade away for lack of “preys”; i.e. poorly performing companies in need of these funds’ electroshock. Yet, the article reports that about a third of targeted companies “were outperforming the wider market”; but that “does not mean that it couldn’t do better”.

With that sort of logic and the blessing of The Economist, activist hedge funds will do a thriving business for a while longer.

What should be taken away from these arguments against “activist” hedge funds? The fact that many companies refuse to carry out the financial maneuvers urged on them by these activists may be an indication that their management and boards believe that they would jeopardize the company’s long-term interest if they gave in to the activists. Who is right? Why should it be assumed that boards are motivated by crass self-interest or afflicted with chronic incompetence but hedge funds are bearers of wisdom and acting in the superior interest of the company and all its shareholders?

These “activists” view corporations as mere properties, as a collection of assets to be traded, a narrow, soulless concept of the business firm. Whatever benefits this breed of activism may bring are outweighed by its negative impact on innovation and investment, on the ways companies are managed, on the support from critical stakeholders including society at large.

Opinions expressed herein are strictly those of the authors.

IGOPP in the Medias, IGOPP in the Medias, IGOPP in the medias

Engagement and Activism in the 2015 Proxy Season

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“Yet companies, boards, and other investors should keep in mind that shareholder activism is often merely a tactic in a self-interested investment strategy. Shareholder activists such as hedge funds typically are pursuing short-term financial gain at the expense of long-term shareholders and stakeholders. These funds welcome the support of academics and theorists who argue that disruption is good for the market; however, a recent study by the Institute for Governance of Private and Public Organizations, after investigating these claims, found:

[The] most generous conclusion one may reach from these empirical studies has to be that “activist” hedge funds create some short-term wealth for some shareholders as a result of investors who believe hedge fund propaganda (and some academic studies), jumping in the stock of targeted companies. In a minority of cases, activist hedge funds may bring some lasting value for shareholders but largely at the expense of workers and bond holders; thus, the impact of activist hedge funds seems to take the form of wealth transfer rather than wealth creation.

Activist hedge funds, in other words, keep their profits for themselves.” Read more

News Articles

How Pershing Square found success at Canadian Pacific Railway

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In 2011, Pershing Square Capital Management, an activist hedge fund founded by William (Bill) Ackman, acquired some 14.2% of Canadian Pacific Railway’s outstanding shares and proceeded to require several changes in the management and governance of the company. The CP board resisted fiercely his entreaties.

A memorable proxy fight ensued, which was won by Pershing and resulted in a new CEO, new board members and a new strategy for CP.

Results of this palace revolution were, in share price terms at least, remarkable — astounding, actually. From September 2011 to Dec. 31, 2014, CP’s stock jumped from less than $49 to north of $220, a compounded annual rate of return of 62% (including dividends).

Why was the CP intervention such an apparent success, when, in several other instances, Pershing’s brand of activism was far less successful? Mr. Ackman’s forays into J.C. Penney, Target, and Borders gave results ranging from mediocre to abysmal.

A close examination of the CP saga reveals a number of differentiating features absent from other less successful interventions:

First, this was a rare case of perfectly transferable managerial talent. The recently retired CEO of Canadian National Railways (CN), the best performing railroad company in North America, was soon to be freed from the legal (if not the ethical) constraints on his joining a direct competitor. This man, Hunter Harrison, is acknowledged as a highly skilled and innovative railroader and he was ready and willing to take over as CEO of CP.

In the Canadian context, such behaviour is not quite gentlemanly. Imagine the high performing CEO of Royal Bank Canada who, soon after retirement, would join the Bank of Montreal as CEO. But both Ackman and Harrison are Americans who could not care less about the mores and values of the Canadian business world.

In several other instances, Pershing’s brand of activism was far less successful

So, an “activist” hedge fund unhappy with the performance of the current CEO of a targeted company calls on the recently retired CEO of its best-performing, direct competitor who happens to be ready to jump ship and hit the ground running. How rare is that?

Second, the North American Railroad Industry is extremely well defined. The same companies have been serving this market for decades; their networks are well-established. Performance measures are standard across the industry, which makes for easy comparability across firms. Thus, it is a simple task for management, the board of directors and investors to benchmark any company against its peers.

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The State of Corporate Governance for 2015

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Financial Activism

” Over the past three years, the number and intensity of financial activism initiatives has increased. The ongoing debate on the wealth effects of hedge fund activism is worth following and is well-covered on Harvard’s corporate governance blog (blogs.law.harvard.edu/corpgov). Although financial activism may return immediate wealth to some shareholders through the sale of assets, payment of special dividends or share buybacks, evidence is mounting that this may be at the expense of the longer term corporate and societal interests. For example, a July 2014 paper by Yuan Allaire and Francois Dauphin, “Activist” Hedge Funds: Creators of Lasting Wealth? (available at www.igopp.org), concludes that “the most generous conclusion one may reach” is that activist funds “create some short-term wealth for some shareholders” because investors tend to jump into the stock of targeted companies upon the announcement of activist activity.

“In a minority of cases, activist hedge funds may bring some lasting value for shareholders but largely at the expense of workers and bond holders; thus the impact of activist hedge funds appears to take the form of wealth transfer rather than wealth creation.”

The research further notes that hedge funds tend to be focused on the short term, with half of interventions not lasting nine months. In addition, a growing number of commentators, including senior representatives of some institutional investors, have expressed concern about the impact of hedge fund activism, and associated increased debt and cuts in capital spending, on long-term corporate health, innovation, job creation and GDP growth.” Read more

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The Continuing Critique of “The Long-Term Effects of Hedge Fund Activism”

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Yvan Allaire and Francois Dauphin are back with another critique of Bebchuk et al.’s claims about the merits of hedge fund activism:

Bebchuk et al. have produced a new version of their paper The Long-Term Effects of Hedge Fund Activism (December 2014) to be published in the June 2015 issue of the Columbia Law Review. In this revised text, the authors struggle valiantly to cope with the challenging questions a number of critics have raised about their original paper. We, among many, have taken issues with their original paper. While the revised draft by Bebchuk et al has the merit of clarifying some aspects of their study, many issues remain unresolved and new ones creep in. In this paper, we provide examples of the latter while reiterating the fundamental questions that remain unanswered.

Still Unanswered Questions (and New Ones) to Bebchuk, Brav and Jiang (January 19, 2015). Available at SSRN: http://ssrn.com/abstract=2552176 or http://dx.doi.org/10.2139/ssrn.2552176 ”

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Reports & Studies

Still unanswered questions (and new ones) to Bebchuk, Brav and Jiang

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Bebchuk et al. have produced a new version of their paper The Long-Term Effects of Hedge Fund Activism (December 2014) to be published in the June 2015 issue of the Columbia Law Review. In this revised text, the authors struggle valiantly to cope with the challenging questions a number of critics have raised about their original paper. The authors, among many, have taken issues with their original paper. While the revised draft by Bebchuk et al has the merit of clarifying some aspects of their study, many issues remain unresolved and new ones creep in. In this paper, they provide examples of the latter while reiterating the fundamental questions that remain unanswered.  Read more

This paper is the third one of a series of three papers on Hedge Fund Activism.

Courses and Events

Young Directors (JAIGOPP)

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The mission of the Young Directors of the Institute for Governance of Private and Public Organizations (IGOPP) is to educate, prepare, and involve the Quebec business community by organizing interesting events and by spreading information through social media with the ultimate goal of sensitizing young professionals to the great challenges in governance facing public and private organizations.

 

OUR DIRECTOR OF TOMORROW PROGRAM

The program offered by the Young Directors of the Institute for Governance of Private and Public Organizations (IGOPP) consists of a series of conferences developed to offer young professionals, whether they are current or aspiring directors, an opportunity to develop and deepen their knowledge of good governance, to exchange with other passionate individuals, and to prepare for a role as a director.

Key benefits of the program include:

  • Improving knowledge about good governance: Opportunity to exchange on a variety of stimulating topics with well-known experts and experienced directors of public and private companies, as well as non-profit organizations;
  • Networking with other passionate professionals: The Executive Committee of the IGOPP Young Directors selects around 40 individuals from diverse backgrounds who have distinguished themselves by their professional, academic and social accomplishments;
  • Preparing for a role as a director: Members benefit from effective tools and good governance practices promoted by the IGOPP.

 

The program includes the following activities:

  1. Opening Cocktail

Each fall, the IGOPP Young Directors organize a major event to launch the season, which is open to the public. This event is an excellent way to meet young professionals interested in governance.

  1. The Program’s Conferences

During our conferences, a number of relevant and stimulating subjects are discussed and moderated by our speakers and experts in good governance coming from the public and private sectors.

  1. Simulation: from theory to practice

Once the theoretical foundations of good governance have been discussed and illustrated by the practical experiences of our speakers, the IGOPP Young Directors organize the simulation of a board meeting during which practical case studies are explored and resolved.

  1. Closing cocktail and diploma ceremony

This event marks the end of the program and brings together the current class of participants, the Executive committee of the IGOPP Young Directors and the officers of the IGOPP.

 

APPLICATION PROCESS

For the cohort of 2024 (all events are in french), starting in January-February 2024, the submission period will be from November 21th to December the 5th 2023 (11:59PM). The steps, to submit your candidacy, are displayed on the following page.

If you have any questions or if you want to show your interest for the JAIGOPP program,  please write to us with ja@igopp.org.

 

EXECUTIVE COMMITTEE

The Executive Committee of the Young Directors of the Institute for Governance of Private and Public Organizations is comprised of a group of young professionals distinguished by their leadership, community involvement, and professional as well as academic accomplishments.

 

LAUNCH EVENT FOR THE 2024 SEASON OF JAIGOPP

The launch event for the 2024 season of the JAIGOPP will be held on November 21th 2023 at the Union Française. The event will tackle subjects such as social issues and belonging from the standpoint of board of directors. **The event will be in french**

To buy tickets and learn more, please click here.

 

ASSOCIATE SPONSOR

 

CONTACT US

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Email us to be added to our mailing list and receive updates about our public events and call for applications: ja@igopp.org.