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		<title>How obeying an activist investor can destroy value</title>
		<link>https://igopp.org/en/how-obeying-an-activist-investor-can-destroy-value/</link>
		<comments>https://igopp.org/en/how-obeying-an-activist-investor-can-destroy-value/#respond</comments>
		<pubDate>Thu, 04 Aug 2022 22:36:41 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<description><![CDATA[[&#8230;] If you ever needed a reminder about how M&#38;A can be value destructive, look no further than Just Eat Takeaway’s $7.3bn acquisition of US rival Grubhub. The Netherlands-based company on Wednesday said it had to write down by €3bn the value of Grubhub, effectively admitting its consolidation strategy has failed. There are two lessons [&#8230;]]]></description>
		<content><![CDATA[[...]

If you ever needed a reminder about how M&#38;A can be value destructive, look no further than Just Eat Takeaway’s $7.3bn acquisition of US rival Grubhub.

The Netherlands-based company on Wednesday said it had to write down by €3bn the value of Grubhub, effectively admitting its consolidation strategy has failed.

There are two lessons from this.

The first is that bigger isn’t always better. JET and Grubhub believed that by creating economies of scale they could reap huge rewards. But dealmaking is tough and most mergers fail, as this study shows.

Several rigorous academic papers have also determined that combining companies has historically led to value destruction rather than creation. This paper in the National Bureau of Economic Research shows that US takeovers have led to losses worth more than $200bn for shareholders over the past two decades.

The second lesson is that the short-term strategies of activist investors are often detrimental to the broader interests of the company and long-term shareholders. In fact, this paper [1] by Yvan Allaire at the Institute for Governance of Private and Public Organizations in Montreal shows how activists underperform passive funds.

Read more [2]

[1] http://www.shareholderforum.com/access/Library/20150401_Allaire.pdf
[2] https://igopp.org/wp-content/uploads/2024/04/Financial-Times_How-obeying-an-activist-investor-can-destroy-value_August-2022.pdf]]></content>
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		<title>Some Thoughts for Boards of Directors in 2020: A Mid-Year Update</title>
		<link>https://igopp.org/en/some-thoughts-for-boards-of-directors-in-2020-a-mid-year-update/</link>
		<comments>https://igopp.org/en/some-thoughts-for-boards-of-directors-in-2020-a-mid-year-update/#respond</comments>
		<pubDate>Thu, 02 Jul 2020 18:29:48 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<guid isPermaLink="false">https://igopp.org/some-thoughts-for-boards-of-directors-in-2020-a-mid-year-update/</guid>
		<description><![CDATA[The past six months have been marked by a profound upheaval that has accelerated the growing focus on both the purpose of the corporation and the role of the board in overseeing and leading the corporation in ways that promote sustainable business success. For a number of years, there has been a growing sense of [&#8230;]]]></description>
		<content><![CDATA[The past six months have been marked by a profound upheaval that has accelerated the growing focus on both the purpose of the corporation and the role of the board in overseeing and leading the corporation in ways that promote sustainable business success. For a number of years, there has been a growing sense of urgency around issues such as climate change, environmental degradation, globalization, workplace inequality and the need to keep pace with rapidly evolving technologies. Then, in recent months, the COVID-19 pandemic prompted a systemic shock, which has been accompanied by a long overdue awakening regarding endemic racial injustice. The convergence of these events has accelerated the focus on environmental, social and governance (ESG) issues and stakeholder capitalism as operational and strategic imperatives that are core to corporations’ abilities to compete and succeed. The well-being of employees and other stakeholders, and the ability to engage in more sustainable ways of doing business, are not a nice-to-have luxury or a branding exercise, but rather a basic building block of corporate value. There is an essential nexus between “value” and “values.”

Attention is being focused not just on stock price and quarterly financial results, but also on understanding what is needed to manage through challenging business conditions, strengthen the business and ensure it is well-positioned to execute on strategic goals as conditions normalize. It is clear that value is not necessarily equivalent to stock price, particularly as the limitations of the stock market as the “all-things-considered” arbiter of value have been illustrated by seemingly capricious volatility, precipitous plunges and exuberant upward trajectories that, in some respects, have defied reality. A more holistic conception of value that is anchored not only in financial results and stock price, but also in a more nuanced understanding of a corporation’s strengths and weaknesses that takes into account factors that are often difficult to quantify (such as corporate culture and employee well-being), goes hand-in-hand with stakeholder governance and the idea that a myopic focus on stock price and shareholder returns will ultimately limit, rather than enhance, the overall value of the corporation.

As directors work to maintain focus in these uncertain times, it is more important than ever to have a clear understanding of and conviction about the corporation’s purpose [1]. This is the anchor and compass that boards require to chart the path forward towards a new normal and is the bridge that reconciles value with values. As BlackRock CEO Larry Fink recently observed, “Companies and investors with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.”

[...]

Stakeholder Governance

A strong and growing consensus of corporations, investors, academics and leading institutions—including the Business Roundtable, the British Academy and the World Economic Forum—have overwhelmingly embraced stakeholder governance. The consensus recognizes that directors should not be required to act as if any one stakeholder trumps all others, with potentially value-destructive consequences. Instead, they have latitude to make decisions that reasonably balance the interests of all constituencies and operate to promote sustainable, long-term business success of the corporation as a whole.

Stakeholder governance is fully consistent with well-established principles of corporate law and the existing fiduciary duty framework for directors. The directors of a corporation have a fiduciary duty to promote the success and value of the corporation, and the means and time horizon for achieving such goals are within the purview of the board’s business judgment. Furthermore, the exercise of balancing competing interests and risks to pursue the best interests of the corporation is the very core of business judgment, and the decisions of unconflicted directors, acting upon careful deliberation, will be fully protected by the business judgment rule. As we have previously discussed [2], there is no rule of law that mandates the ideology of share-price maximization, or case law requiring directors to manage the ongoing business of a corporation with the paramount goal of maximizing share price.

For an example of how stakeholder governance could influence board decision-making, Yvan Allaire and Stéphane Rousseau have outlined a framework [3] for corporate governance in a multi-stakeholder context that suggests that directors should (i) be explicit about how the decisions they make relate to the objective of maximizing the corporation’s long-term value, (ii) adopt a rigorous and explicit decision-making process that involves identifying stakeholders and their level of relevance for the decision, (iii) consider the reasonable expectations of all stakeholders, including shareholders and (iv) finally, render fact-based business judgment as to the course of action that would best serve the long-term interests of the corporation. This framework recognizes the competing tensions between stakeholders, but also accounts for the differing relevance of stakeholders for certain decisions and focuses on the long-term interests of the corporation as the overarching goal. Boards and board committees that follow a similar framework will be fully protected by the business judgment rule.

Read more [4]

[1] https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.26961.20.pdf
[2] https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.26567.19.pdf
[3] https://www.wlrk.com/docs/IGOPP_Rapport_PartiesPrenantes_EN_v3_WEB.pdf
[4] https://igopp.org/wp-content/uploads/2020/07/Harvard-Law-School_Some-Thoughts-for-Boards-of-Directors-in-2020_-A-Mid-Year-Update_July-2020.pdf]]></content>
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		<title>Regulations to rein in short-sellers must not overlook the good they do</title>
		<link>https://igopp.org/en/regulations-to-rein-in-short-sellers-must-not-overlook-the-good-they-do/</link>
		<comments>https://igopp.org/en/regulations-to-rein-in-short-sellers-must-not-overlook-the-good-they-do/#respond</comments>
		<pubDate>Wed, 29 Jan 2020 19:49:23 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<description><![CDATA[A thick hide is a necessary qualification for the job of activist short-seller. When Spruce Point Capital Management released a negative report on Canadian Tire Corp. Ltd. in late 2019, it prompted Yvan Allaire, the executive chair of the Institute for Governance of Private and Public Organizations, to fire back in the Financial Post: “What [&#8230;]]]></description>
		<content><![CDATA[A thick hide is a necessary qualification for the job of activist short-seller. When Spruce Point Capital Management released a negative report on Canadian Tire Corp. Ltd. in late 2019, it prompted Yvan Allaire, the executive chair of the Institute for Governance of Private and Public Organizations, to fire back in the Financial Post: “What one never finds in these short-seller hatchet jobs is concern for anything other than a quick profit.” This was followed with several suggestions for reining in short-sellers.

Mr. Allaire is not the only one proposing restrictions – indeed, there appears to be an upswing in such calls from a number of sources recently. The danger here is that the urge to impose new regulations could go too far and choke off the good things that academic studies have found short-sellers provide to financial markets.

Only seven campaigns were launched in Canada by activist short-sellers in 2019, according to financial data firm Breakout Point. This was the lowest tally since financial analytics firm Activist Insight began keeping records in 2015: In most of those years, the number of new campaigns ranged from 19 to 22. It appears some short-sellers may have gone to the sidelines during 2019 to wait out the bullish tide flowing through the stock market.

[ ... ]

Even though Canada’s activist short sales plunged last year, the count was still higher than in other countries, excluding the United States. Indeed, Canadian firms have been disproportionately targeted for several years: From 2015 to late 2019 there were 76 campaigns, compared with 17 in Australia and 57 in the European Union.

Activist short-sellers on the ropes

Perhaps the most notable of recommendations to curtail-short sellers came in a November report released by law firm McMillan LLP. It claimed that the regulatory framework in Canada for short-sale trades was “out of step” with other countries and some tightening up was needed to make it more difficult to engage in abusive transactions, particularly naked short-selling (which can result in illegal situations where the number of short sales exceeds the actual number of tradable shares).

The regulator in charge of trading rules, the Investment Industry Regulatory Organization of Canada, however, has pointed out that its studies have found little evidence of abusive short-selling in Canada. Moreover, assessments of IIROC’s regulatory framework by the International Monetary Fund and World Bank concluded that it met international standards.

Several other sources have forwarded their own proposals. They include bringing back the uptick rule (short sales can only be made on an uptick in share price), giving companies civil remedies to combat “short and distort” campaigns, and having institutional investors cut back on lending securities to short-sellers. (Companies can currently sue short-sellers on a criminal basis but civil remedies would be preferable because of their lower burden of proof.)

Read more [1]

[1] https://igopp.org/wp-content/uploads/2020/02/Regulations-to-rein-in-short-sellers-must-not-overlook-the-good-they-do-The-Globe-and-Mail_Januray-2020.pdf]]></content>
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		<title>The Angels of Market Efficiency</title>
		<link>https://igopp.org/en/the-angels-of-market-efficiency/</link>
		<comments>https://igopp.org/en/the-angels-of-market-efficiency/#respond</comments>
		<pubDate>Fri, 10 Jan 2020 15:02:22 +0000</pubDate>
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		<description><![CDATA[Mr. Ben Axler, Chief Investment Officer and founder of Spruce Point Capital responds (Financial Post, December 17th, 2019) to my article on short sellers of his kind (Financial Post, December 13th, 2019). He trots out the worn-out argument that short sellers only reveal the sordid truths hidden in the bosom of corporations. In short, “professional” [&#8230;]]]></description>
		<content><![CDATA[Mr. Ben Axler, Chief Investment Officer and founder of Spruce Point Capital responds [1] (Financial Post, December 17th, 2019) to my article [2] on short sellers of his kind (Financial Post, December 13th, 2019). He trots out the worn-out argument that short sellers only reveal the sordid truths hidden in the bosom of corporations.

In short, “professional” short sellers are sort of the guardian angels of market efficiency acting as a countervailing force to the fawning, relentlessly positive and often corrupted recommendations of sell-side analysts! Indeed, sell-side analysts tend to see glasses as half-full; for short sellers, glasses are always empty and… dirty.

The consequences of short-sellers’ actions may be dramatic. The near collapse of the financial system in 2008 owed a good deal to the savage, incendiary role of short selling (particularly of the “naked” sort). The book “On the Brink”, written by Hank Paulson, U.S. Treasury Secretary at the time of the financial crisis, makes clear the noxious role played by short sellers during that frightening period. That’s what angels of market efficiency do!

Mr. Asler invites me to share with him what I find wrong in their report on Canadian Tire. Much, too much for a short article but an overarching theme would be the relative ignorance of the Canadian retail market that pervades their report. Spruce Point Capital assumes the competitive and buying behavior of Canadians are identical to Americans. That assumption has proven costly in a number of instances (Think Target, Kmart, Sam’s Club, Best Buy, Sears). Similarly, Canadian retailers which crossed over to the US market were often taught a painful lesson about the differences between the two markets.

So, Spruce Point Capital’s report on Canadian Tire (CT) is insensitive to the particular nature of the Canadian retail and financial markets. It keeps comparing CT unfavourably to Amazon and Walmart as the be-all, end-all of retailing. That myopic American perspective may explain the case of Dollarama.

Barely a year ago in October 2018, Spruce Point Capital launched a virulent campaign against Dollarama producing a long negative report to buttress its claim that the stock price of Dollarama should or would drop from $46 to $28; the stock price actually leveled off briefly at $31 in December 2018 from which level it soared back to above $45.

I made two basic points in my earlier piece, which bear repeating.

1. Canada is a benign place to practice financial/casino capitalism as our regulators never adopted either of the two following measures put in place in the USA. As a consequence of the financial crisis, the SEC has clamped down on “naked” short selling, the practice of selling shares but delaying the delivery of the shares for as long as possible in the hope of buying back the shares at a much lower price without incurring the cost of borrowing shares from other holders. Also, in 2010, the SEC introduced a measure whereby if the price of a security falls by more than 10 per cent, transactions in the stock are stopped for the remainder of the day and all of the following day.

2. Large institutional investors with a significant position in a company have, or should have, the analytical wherewithal to assess public claims made by short sellers against this company. If they find those claims to be illfounded or even false, they should state so publicly instead of, as is the case now, letting the company fend off the attack by itself. And these large institutional funds should not lend their shares to short sellers of the Spruce Point Capital ilk.

Should Canada let American short sellers roam free and wreak havoc in our financial markets? To ask the question is to answer it.

&#160;

The author is solely responsible for the opinions expressed in this article.

[1] https://business.financialpost.com/opinion/counterpoint-short-sellers-like-us-create-real-value-for-public-markets-by-telling-canadian-investors-the-truth
[2] https://igopp.org/limiting-the-damage-of-short-sellers/]]></content>
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		<title>Carried Interest Warning From Court May Be Trouble for Treasury</title>
		<link>https://igopp.org/en/carried-interest-warning-from-court-may-be-trouble-for-treasury/</link>
		<comments>https://igopp.org/en/carried-interest-warning-from-court-may-be-trouble-for-treasury/#respond</comments>
		<pubDate>Thu, 07 Nov 2019 14:43:38 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
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		<guid isPermaLink="false">https://igopp.org/?p=12033/</guid>
		<description><![CDATA[A recent court case meant to clarify the definition of a corporation intensifies questions about the tax treatment of carried interest, a prized perk for private equity and hedge fund managers. The IRS argued for a broad definition of the term “corporation” in the case. But the legal issue that could come up in the [&#8230;]]]></description>
		<content><![CDATA[A recent court case meant to clarify the definition of a corporation intensifies questions about the tax treatment of carried interest, a prized perk for private equity and hedge fund managers.

The IRS argued for a broad definition of the term “corporation” in the case. But the legal issue that could come up in the future is whether it’s reasonable for Treasury regulations to interpret the term more narrowly in the carried interest context, affecting who can qualify for the treatment.

That question is even more relevant because Treasury is planning guidance that could close what some see as an error created in the 2017 tax law’s treatment of carried interest. The carried interest perk lets fund managers have much of their income taxed at 23.8% rather than at the top tax rate of 37%.

The tax law exempted corporations from having to hold assets for a longer time period before qualifying for the preferential tax rate. Treasury’s forthcoming rules are expected [1] to shut down the possibility that an S corporation could qualify for the exception. (An S corporation is an entity that isn’t taxed at the corporate level, instead passing income through to shareholders for tax purposes.)

But the U.S. Court of Appeals for the Federal Circuit suggested it isn’t so simple: it said the IRS may struggle to defend the rules in future legal fights.

“I don’t think the IRS is going to win on this one,” said Steve Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center.

If future regulations are challenged and invalidated by a court, it could leave open the potential for some private equity and hedge fund managers to take on S corporation status and get the preferential tax rate after just one year. To block that strategy, Congress would have to rewrite the provision in the tax law.

[ ... ]

Looking Ahead

The exact impact of future carried interest regulations getting struck down in court is tricky to pinpoint, because of the nature of private equity and hedge funds.

Private equity funds typically hold assets for between four and seven years, although that can vary, according to Jason Mulvihill, COO and general counsel at the American Investment Council, a private equity advocacy group.

Hedge funds have traditionally had much shorter investment holding periods. One exception is activist hedge funds, which acquire stakes in companies and push for change.

Activist hedge funds that targeted companies in 2010 and 2011, for example, had a median holding period of 458 days, according to an article [2] published in the International Journal of Disclosure and Governance.

Even some activist funds that hold assets for shorter periods may end up altering investment behavior to lock in tax benefits, said Yvan Allaire, one of the article’s authors and executive chair of the Board of Directors for the Institute for Governance of Private and Public Organizations.

If future regulations are struck down in court, those hedge funds may decide to put carried interest into an LLC, which could elect S corporation status.

But being an S corporation comes with a lot of requirements.

“S corporations are just sort of a pain generally,” said Scott Dolson, who heads the Private Equity Industry Team at Frost Brown Todd LLC. “I think you’d probably want to just set it up so that you would not have to convert everything.”

Read more [3]

[1] https://src.bna.com/Mkp
[2] https://igopp.org/wp-content/uploads/2016/01/jdg201518a.pdf
[3] https://igopp.org/wp-content/uploads/2019/11/Bloomberg-Tax_Carried-Interest-Warning-From-Court-May-Be-Trouble-for-Treasury_Novembre-2019.pdf]]></content>
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		<title>The Business Roundtable on “The Purpose of a Corporation” Back to the future!</title>
		<link>https://igopp.org/en/the-business-roundtable-on-the-purpose-of-a-corporation-back-to-the-future/</link>
		<comments>https://igopp.org/en/the-business-roundtable-on-the-purpose-of-a-corporation-back-to-the-future/#respond</comments>
		<pubDate>Fri, 20 Sep 2019 18:01:39 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
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		<guid isPermaLink="false">https://igopp.org/?p=11879/</guid>
		<description><![CDATA[In September 2019, CEOs of large U.S. corporations have embraced with suspect enthusiasm the notion that a corporation’s purpose is broader than merely “creating shareholder value”. Why now after 30 years of obedience to the dogma of shareholder primacy and servile (but highly paid) attendance to the whims and wants of investment funds? Simply put, [&#8230;]]]></description>
		<content><![CDATA[In September 2019, CEOs of large U.S. corporations have embraced with suspect enthusiasm the notion that a corporation’s purpose is broader than merely “creating shareholder value”. Why now after 30 years of obedience to the dogma of shareholder primacy and servile (but highly paid) attendance to the whims and wants of investment funds?

Simply put, the answer rests with the recent conversion of these very funds, in particular index funds, to the church of ecological sanctity and social responsibility. This conversion was long acoming but inevitable as the threat to the whole system became more pressing and proximate.

The indictment of the “capitalist” system for the wealth inequality it produced and the environmental havoc it wreaked had to be taken seriously as it crept into the political agenda in the U.S. Fair or not, there is a widespread belief that the root cause of this dystopia lies in the exclusive focus of corporations on maximizing shareholder value. That had to be addressed in the least damaging way to the
whole system.

Thus, at the urging of traditional investment funds, CEOs of large corporations, assembled under the banner of the Business Roundtable, signed a ringing statement about sharing “a fundamental commitment to all of our stakeholders”.

That commitment included:
1. Delivering value to our customers
2. Investing in our employees
3. Dealing fairly and ethically with our suppliers.
4. Supporting the communities in which we work.
5. Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate.

It is remarkable (at least for the U.S.) that the commitment to shareholders now ranks in fifth place, a good indication of how much the key economic players have come to fear the goings-on in American politics. That statement of “corporate purpose” was a great public relations coup as it received wide media coverage and provides cover for large corporations and investment funds against attacks on their behavior and on their very existence.

In some way, that statement of corporate purpose merely retrieves what used to be the norm for large corporations. Take, for instance, IBM’s seven management principles which guided this company’s most successful run from the 1960’s to 1992:

Seven Management Principles at IBM 1960-1992
1. Respect for the individual
2. Service to the customer
3. Excellence must be way of life
4. Managers must lead effectively
5. Obligation to stockholders
6. Fair deal for the supplier
7. IBM should be a good corporate citizen

The similarity with the five “commitments” recently discovered at the Business Roundtable is striking. Of course, in IBM’s heydays, there were no rogue funds, no “activist” hedge funds or private equity funds to pressure corporate management into delivering maximum value creation for shareholders. How will these funds whose very existence depends on their success at fostering shareholder primacy cope with this “heretical nonsense” of equal treatment for all stakeholders?

As this statement of purpose is supported, was even ushered in, by large institutional investors, it may well shield corporations against attacks by hedge funds and other agitators. To be successful, these funds have to rely on the overt or tacit support of large investors. As these investors now endorse a stakeholder view of the corporation, how can they condone and back these financial players whose only goal is to push up the stock price often at the painful expense of other stakeholders?

This re-discovery in the US of a stakeholder model of the corporation should align it with Canada and the UK where a while back the stakeholder concept of the corporation was adopted in their legal framework.

Thus in Canada, two judgments of the Supreme Court are peremptory: the board must not grant any preferential treatment in its decision-making process to the interests of the shareholders or any other stakeholder, but must act exclusively in the interests of the corporation of which they are the directors.

In the UK, Section 172 of the Companies Act of 2006 states: “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, among which the interests of the company's employees, the need to foster the company's business relationships with suppliers, customers and others, the impact of the company's operations on the community and the environment,…”

So, belatedly, U.S. corporations will, it seems, self-regulate and self-impose a sort of stakeholder model in their decision-making.

Alas, as in Canada and the UK, they will quickly find out that there is little or no guidance on how to manage the difficult trade-offs among the interests of various stakeholders, say between shareholders and workers when considering outsourcing operations to a low-cost country.

But that may be the appeal of this “purpose of the corporation”: it sounds enlightened but does not call for any tangible changes in the way corporations are managed.

The author is solely responsible for the views expressed herein.
]]></content>
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		<title>Finding Friends is Hard: Long-Term Investors’ Relationship with Proxy Advisors, Activists and Private Equity Funds</title>
		<link>https://igopp.org/en/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/</link>
		<comments>https://igopp.org/en/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/#respond</comments>
		<pubDate>Wed, 31 Jul 2019 15:56:14 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Activism]]></category>
		<category><![CDATA[Hedge funds]]></category>
		<category><![CDATA[Proxy Advisors]]></category>

		<guid isPermaLink="false">https://igopp.org/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/</guid>
		<description><![CDATA[Institutional investors are howling for US public companies to focus more on the long-term.[1]  This is unsurprising. Long-term focused companies produce significantly better results over time, reporting far greater revenue growth with less volatility, far higher levels of economic profit, and greater total return to shareholders.[2] So if you are holding stock for a long time, a [&#8230;]]]></description>
		<content><![CDATA[Institutional investors are howling for US public companies to focus more on the long-term.[1] [1]  This is unsurprising. Long-term focused companies produce significantly better results over time, reporting far greater revenue growth with less volatility, far higher levels of economic profit, and greater total return to shareholders.[2] [2] So if you are holding stock for a long time, a long-term focus for your portfolio companies is critical.

[ ... ]

So who is picking up the tab?

There seem to be a variety of possible answers.

If the bulk of the value transferred comes from the payment of a takeover premium (as Professors Coffee and Palia and Professor Allaire think likely)[19] [3], then the argument could be made that the additional value comes from the third party buyer of the shares – a gift from heaven.  However, this may not be something long-term holders should thank activists for.  The pie has not actually gotten bigger, and no new value has been created.  A sale just represents a cashing in of chips held.  For a long-term holder, there is no need to capture the inherent control premium in any particular time period, and there is no reason to think that the time period selected by an activist (with median holding periods of 266 days)[20] [4] will be particularly advantageous for long-term holders.

[ ... ]

[19] [5] Id. at 59 (“All told, this evidence suggests that changes in the expected takeover premium, more than operating improvements, account for most of the stock price gain.”); Yvan Allaire &#38; Francois Dauphin, The Game of ‘Activist’ Hedge Funds: Cui Bono? 26, International Journal of Disclosure and Governance (Dec. 31, 2015) (“Our study, similar to several others, show that the best way, bar none, for these activists to make money for their funds is to get the company sold off or substantial assets spun off.”).

Read more [6]

[1] https://www.lexblog.com/2019/07/31/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/#_ftn1
[2] https://www.lexblog.com/2019/07/31/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/#_ftn2
[3] https://www.lexblog.com/2019/07/31/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/#_ftn19
[4] https://www.lexblog.com/2019/07/31/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/#_ftn20
[5] https://www.lexblog.com/2019/07/31/finding-friends-is-hard-long-term-investors-relationship-with-proxy-advisors-activists-and-long-term-private-equity-funds/#_ftnref19
[6] https://igopp.org/wp-content/uploads/2019/08/Finding-Friends-is-Hard_-Long-Term-Investors’-Relationship-with-Proxy-Advisors-Activists-and-Long-Term-Private-Equity-Funds-_-LexBlog_July-2019.pdf]]></content>
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		<slash:comments>0</slash:comments>
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		<title>Short-term thinking forcing companies to delay IPOs, opt for dual-class shares: Governance expert</title>
		<link>https://igopp.org/en/short-term-thinking-forcing-companies-to-delay-ipos-opt-for-dual-class-shares-governance-expert/</link>
		<comments>https://igopp.org/en/short-term-thinking-forcing-companies-to-delay-ipos-opt-for-dual-class-shares-governance-expert/#respond</comments>
		<pubDate>Tue, 14 May 2019 14:03:06 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Activism]]></category>
		<category><![CDATA[Chief Executive Officer]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Gouvernance créatrice de valeurs]]></category>
		<category><![CDATA[Head offices]]></category>
		<category><![CDATA[Hedge funds]]></category>
		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/short-term-thinking-forcing-companies-to-delay-ipos-opt-for-dual-class-shares-governance-expert/</guid>
		<description><![CDATA[Yvan Allaire, executive chair at the Institute for Governance of Private and Public Organizations, joins BNN Bloomberg to discuss &#8220;quarterly capitalism&#8221; in light of WestJet CEO Ed Sims’ warning on the destruction it brings to long-term company plans. To watch this interview, please click here. &#160;]]></description>
		<content><![CDATA[Yvan Allaire, executive chair at the Institute for Governance of Private and Public Organizations, joins BNN Bloomberg to discuss "quarterly capitalism" in light of WestJet CEO Ed Sims’ warning on the destruction it brings to long-term company plans.

To watch this interview, please click here. [1]

&#160;

 [2]

[1] https://www.bnnbloomberg.ca/video/short-term-thinking-forcing-companies-to-delay-ipos-opt-for-dual-class-shares-governance-expert~1683258
[2] https://www.bnnbloomberg.ca/video/short-term-thinking-forcing-companies-to-delay-ipos-opt-for-dual-class-shares-governance-expert~1683258]]></content>
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		<title>Activist Hedge Funds Aren’t Good for Companies or Investors, So Why Do They Exist?</title>
		<link>https://igopp.org/en/activist-hedge-funds-arent-good-for-companies-or-investors/</link>
		<comments>https://igopp.org/en/activist-hedge-funds-arent-good-for-companies-or-investors/#respond</comments>
		<pubDate>Mon, 20 Aug 2018 16:02:04 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Activism]]></category>
		<category><![CDATA[American governance]]></category>
		<category><![CDATA[Hedge funds]]></category>

		<guid isPermaLink="false">https://igopp.org/activist-hedge-funds-arent-good-for-companies-or-investors/</guid>
		<description><![CDATA[Activist hedge funds have become capital market and financial media darlings. The Economist famously called them “capitalism’s unlikely heroes” in a cover story, and the FT published an article saying we “should welcome” them. But they are utterly reviled by CEOs. And at best, their performance is ambiguous. The most comprehensive study of activist hedge fund performance that I have read [&#8230;]]]></description>
		<content><![CDATA[Activist hedge funds have become capital market and financial media darlings. The Economist famously called them [1] “capitalism’s unlikely heroes” in a cover story, and the FT published an article [2] saying we “should welcome” them.

But they are utterly reviled by CEOs. And at best, their performance is ambiguous.

The most comprehensive study [3] of activist hedge fund performance that I have read is by Yvan Allaire at the Institute for Governance of Private and Public Organizations in Montreal, which studies hedge fund campaigns against U.S. companies for an eight-year period (2005–2013).

Total shareholder return is what the activist hedge funds claim to enhance. But for the universe of U.S. activist hedge fund investments Allaire studied, the mean compound annual TSR for the activists was 12.4% while for the S&#38;P500 it was 13.5% and for a random sample of firms of similar size in like industries, it was 13.9%. That is to say, if you decided to invest money in a random sample of activist hedge funds, you would have earned 12.4% before paying the hedge fund 2% per year plus 20% of that 12.4% upside. If instead you would have invested in a Vanguard S&#38;P500 index fund, you would have kept all but a tiny fraction of 13.5%.

Since the returns that they produce underwhelm, why do activist hedge funds exist? Why do investors keep giving them money? It is an important question because the Allaire data shows the truly sad and unfortunate outcomes for the companies after the hedge funds ride off into the sunset, after a median holding period of only 423 unpleasant days. Over this span, employee headcount gets reduced by an average of 12%, while R&#38;D gets cut by more than half, and returns don’t change.

The reason investors keep giving their money to these hedge funds is simple. There is gold for activist hedge funds if they can accomplish one thing. If they can get their target sold, the compound annual TSR jumps from a lackluster 12.4% to a stupendous 94.3%.  That is why they so frequently agitate for the sale of their victim.

Read more [4]

[1] https://www.economist.com/leaders/2015/02/05/capitalisms-unlikely-heroes
[2] https://www.ft.com/content/c7549d3a-57fd-11e7-80b6-9bfa4c1f83d2
[3] https://igopp.org/wp-content/uploads/2016/11/Hedge-Fund-Activism_Preliminary-results-and-evidence_2015-04-01_Allaire.pdf
[4] https://hbr.org/2018/08/activist-hedge-funds-arent-good-for-companies-or-investors-so-why-do-they-exist]]></content>
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		</item>
		<item>
		<title>Pershing Square, Ackman and CP Rail: A Case of Successful &#8221;Activism&#8221; ?</title>
		<link>https://igopp.org/en/cp-rail-a-case-of-successful-activism-2/</link>
		<comments>https://igopp.org/en/cp-rail-a-case-of-successful-activism-2/#respond</comments>
		<pubDate>Fri, 17 Nov 2017 20:46:00 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Reports & Studies]]></category>
		<category><![CDATA[Activism]]></category>
		<category><![CDATA[American governance]]></category>
		<category><![CDATA[Chief Executive Officer]]></category>
		<category><![CDATA[Hedge funds]]></category>
		<category><![CDATA[Proxy Advisors]]></category>

		<guid isPermaLink="false">https://igopp.org/pershing-square-ackman-and-cp-rail-a-case-of-successful-activism/</guid>
		<description><![CDATA[Pershing Square, an activist hedge fund owned and managed by William Ackman, began hostile maneuvers against the board of CP Rail in September 2011 and ended its association with CP in August 2016, having netted a profit of $2.6 billion for his fund. This Canadian saga, in many ways, an archetype of what hedge fund [&#8230;]]]></description>
		<content><![CDATA[Pershing Square, an activist hedge fund owned and managed by William Ackman, began hostile maneuvers against the board of CP Rail in September 2011 and ended its association with CP in August 2016, having netted a profit of $2.6 billion for his fund. This Canadian saga, in many ways, an archetype of what hedge fund activism is all about, illustrates the dynamics of these campaigns and the reasons why this particular intervention turned out to be a spectacular success… thus far.

Governance at CP Rail

In 2009, the Chairman of the board of CP Rail asserted that the company had put in place the best practices of corporate governance; that year, CP was awarded the Governance Gavel Award for Director Disclosure by the Canadian Coalition for Good Governance. Then, in 2011, CP ranked 4th out of some 250 Canadian companies in the Globe &#38; Mail Corporate Governance Ranking1. Yet, this stellar corporate governance was no insurance policy against shareholder discontent.

Indeed, during the summer of 2011, a group of 20 portfolio managers were gathered in a New York City bistro to discuss opportunities in the transportation sector. During pre-diner cocktail, one of the investors spoke critically about the governance of CP. “He was exasperated that the company’s board had not thrown out the chief executive, Fred Green.”

That investor admitted that the previous winter had been grueling for rail transportation, but blaming the weather to justify CP’s poor results was, according to him, just another lame excuse made by Fred Green to avoid taking responsibility. His views were shared by many other portfolio managers who turned belligerent about CP’s Board and wondered why no activist fund had yet spotted the opportunity offered by CP. A phone call was made to Paul Hilal, an associate at Pershing Square Capital Management (Pershing Square), an activist hedge fund. That phone call triggered the most highly mediatized proxy contests in Canada. Thou shalt never (henceforth?) underestimate the power of discontented shareholders.

Ackman attacks 

Pershing Square began purchasing shares of CP on September 23, 2011. They filed a 13D form on October 28th showing a stock holding of 12.2%; by December 12, 2011, their holding had reached 14.2% of CP voting shares, thus making PS the largest shareholder of the company.

A few weeks after Pershing Square disclosed its acquisition of CP shares, Ackman asked to meet the Chairman of the Board of CP, John Cleghorn. A meeting was scheduled on November 2, 2011 at the Montreal airport. Ackman reminisced: “Although I’d said we wanted to talk about a management change, he and Fred Green were there. After three of us made a presentation, Mr. Cleghorn said, ‘I’ve spoken to the board and want to let you know we’re 100 percent behind Fred.’ I couldn’t believe the board made its decision before hearing our case."

On December 15, 2011, CP issued a press release announcing the appointment (effective immediately) of Tony L. Ingram and Edmond L. Harris as directors on CP’s Board. "Both Tony and Ed have extensive and valuable railway experience. I am confident that Canadian Pacific will benefit from their operational expertise and sound business knowledge.” said John Cleghorn.

These appointments were a form of concession to Ackman. Tony L. Ingram was the former COO of the CSX,6 while Edmond L. Harris held the same position at the CP for 11 months before retiring. The latter was well respected by the financial analysts and by the industry in general; his (surprise) departure from the CP raised numerous questions at the time since he was closely associated with the potential successful execution of the multi-year plan7 (CP’s strategic plan). These appointments were well received by Ackman, who nonetheless judged them as being too little, too late, and the proxy contest was officially launched.

Read more [1]

[1] https://igopp.org/wp-content/uploads/2017/11/YAllaire_FDauphin_Pershing-Square_CAIA_Q3-2017.pdf]]></content>
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