February 6, 2015

Engagement and Activism in the 2015 Proxy Season

Wachtell, Lipton, Rosen & Katz | The Harvard Law School Forum

“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