Bill Ackman: Activist Investors Aren't Dangerous
" Fortune (10/17/17) Nusca, Andrew"
Corporate boards of directors should not fear activist investors, Bill Ackman, the billionaire hedge fund manager behind Pershing Square Capital Management said Tuesday at the Wall Street Journal's D.Live conference in Laguna Beach, Calif. "What activism does is sort of a replacement for the founders," said Ackman, adding that activist investors can help make decisions like a major owner. Ackman acknowledged that his firm once held shares in Proctor & Gamble (PG), and said most of the directors on P&G's board are working CEOs at other companies who do not have the time to spend on P&G. "It is dangerous to not have opposing viewpoints in the boardroom," according to Ackman. Pershing Square spent much of this year engaged in a battle with ADP (ADP) over seats on its board, and Ackman said the situation at the human resources software company is dangerous. He called supervoting share structures like those at Uber and other tech and media giants a mistake because they protect them from activists and what other shareholders have to say. Ackman also said companies that give guidance to shareholders about their results and focus on meeting specific metrics miss greater opportunity. ADP hits its numbers quarter after quarter only to miss the next wave of innovation affecting its business, according to Ackman.
Should Credit Suisse Break Up? The Answer Isn't Obvious
" Wall Street Journal (10/17/17) Davies, Paul J."
RBR Capital Advisors, a small Swiss investment firm, will soon publish details of its plan calling for Credit Suisse (CS) to engage in a three-way split into investment banking, asset management, and wealth management firms. Observers say it is an odd time to make such a move, as the global bank's stock is up nearly 20% since June, and despite early missteps and cuts to profit targets, CEO Tidjane Thiam is winning shareholder support for his multi-year overhaul. However, they note that Credit Suisse's position is far from secure, and RBR would be right to point out inconsistencies in its actions. Furthermore, observers note that not all of the bank's pieces would stand on its own. The wealth management arm might be more highly valued than today, but its asset management arm could struggle to be relevant, and both would lose easy access to products created by the investment bank. Moreover, a stand-alone investment bank would be too small and too expensive to fund without cutting more of its financing and trading businesses. They are not confident that RBR will provide the answer to these issues.
Light Backing From State Street Weighs on U.S. Diversity Drives
" Reuters (10/16/17) Kerber, Ross"
State Street Corp. (STT) did not fully back boardroom diversity measures this year, according to a new analysis by Proxy Insight. Of eight shareholder resolutions on board diversity in 2017 at Russell 3000 companies, funds run by State Street's asset-management arm supported one, opposed four, and abstained on three others, the research shows. Rival asset managers BlackRock Inc. (BLK) and Vanguard Group backed five and six of the eight resolutions, respectively. State Street has been applauded for its past efforts to put more women on corporate boards, including the "Fearless Girl" statue it installed near Wall Street. But activist shareholders are frustrated that the firm's public stance on diversity did not translate into a greater show of support during shareholder votes—especially since its $2.6 trillion under management gives it considerable clout on corporate matters. For example, State Street opposed a shareholder resolution calling for Apple Inc. (AAPL) to accelerate efforts to diversify its senior management and board. The proposal received 4.9% support at Apple's meeting in February, missing the 6% threshold needed to be refiled. State Street abstained, meanwhile, on a measure asking Discovery Communications (DISCA) to include qualified women and minority candidates in board searches, backed by 35% of votes cast. State Street said it engages with companies in various ways and voted against directors when necessary. Representatives noted that, including abstentions, State Street did not support management in half of the eight cases and that its funds often voted against directors as well.
The Hedge Fund, the CEO, and the Fight for P&G's Future
" FT.com (10/13/17) Nicolaou, Anna; Daneshkhu, Scheherazade"
Trian Partners' Nelson Peltz recently was denied a seat on the board of Proctor & Gamble (PG). In one of the largest and most expensive proxy battles corporate America has ever seen, Peltz charged P&G, which has been losing market share for a decade, with being slow, closed-minded, and too focused on its big brands at a time when consumers are looking for more distinctive products. Trian, which paid $3.5 billion for a 1.5% stake in P&G in February, wants to simplify the consumer goods group's corporate structure from 10 business units to three, but has not demanded more extreme measures, like a change of leadership or spinoffs. Both sides spent tens of millions of dollars on campaigns and nearly double the number of shareholders—more than 400—showed up to the meeting in Cincinnati compared to previous years. Trian drew the "vast majority" of its support from institutional investors, but P&G won over retail investors and employees, who make up an unusually high share of its investors. Analysts say P&G has made progress, with shares growing more than 20% since CEO David Taylor took over two years ago, keeping pace with the S&P 500. However, the message from large investors is clear and Peltz is unlikely to go away, according to market observers.
Japan Inc. Scandals Build a Case for Corporate Reform
" Bloomberg (10/12/17) Smith, Noah"
Kobe Steel Ltd., which has admitted faking data about the quality of its materials, offers further evidence that Japanese companies need to adhere to better corporate governance, rather than relying on apologies after the fact. Corporate governance would prevent scandals and also foster productivity. Investors and independent directors are the best people to force Japanese managers to improve, according to research by economists Naoshi Ikeda, Kotaro Inoue, and Sho Watanabe of the Tokyo Institute of Technology. Without shareholder pressure, they say, managers tend to favor "satisficing" or "the quiet life"—avoiding big decisions and contenting themselves with managing stable corporate empires, which allows their companies to stagnate. This tendency was recognized in the 1930s, and Ikeda and his colleagues say that this is going on in modern corporate Japan. Numerous Japanese companies engage in cross-shareholding, where corporations own one another's stock, resulting in a "you don't push us too hard, and we won't push you" mentality. Exacerbating the problem is the fact that Japanese companies don't have a lot of independent directors on their board, which often leaves managers themselves in control. The researchers also discovered that companies with more cross-shareholding spend less on both capital investment and research and development, and engage in less corporate restructuring. Capital expenditure and R&D suggest a desire for growth and expansion into new markets, while restructuring suggests a push for efficiency. Japanese managers who are protected from shareholder pressure tend not to do either of these things. The presence of independent directors on a company's board is correlated with more investment, R&D, and restructuring, the researchers say.
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