Nontraditional Board Candidates Made Headway in 2017
" Cooley PubCo (05/16/18) Posner, Cydney"
A new report from the EY Center for Board Matters reveals 54% of the 2017 class of directors of Fortune 100 companies served in non-CEO roles and 40% were female. More than half of the Fortune 100 added at least one independent director, slightly less than in 2016, but together, over the two-year period, more than 80% of the Fortune 100 added at least one independent director. Taking director exits into account, "nearly all of the companies experienced some type of change in board composition during this period." Moreover, EY suggests that boards are seeking more diverse candidates that offer "a range of functional expertise, including on complex, evolving areas such as digital transformation, e-commerce, public policy, regulation, and talent management," with the result that "boards are increasingly considering highly qualified, nontraditional candidates, such as non-CEOs, as well as individuals from a wider range of backgrounds." EY's study of proxy statements for the Fortune 100 for the 2017 class of directors revealed that 72% of companies identified gender, race, or ethnicity as a factor in identifying candidates (compared with 64% in 2016). The demographic is shifting younger, with the average age of the 2017 director class at 57, compared to 63 for incumbents and 68 for exiting directors. EY said the addition of a single new director is unlikely to dramatically alter board composition averages, so diverse perspectives may be slow to emerge.
CEO Pay Shrinks by $350,000 a Year Once Hedge Funds Move in, Study Finds
" MarketWatch (05/21/18) Linnane, Ciara"
Hedge funds such as those run by Carl Icahn, Bill Ackman, and Daniel Loeb can shave more than $350,000 off a CEO's remuneration within a year of taking a stake in his or her company, according to research from Warwick Business School at the U.K.'s University of Warwick, which compiled CEO remuneration data from 244 listed U.S. companies and analyzed it over seven years. Researchers looked at data for the three years before a hedge fund took an interest, the year it bought stock in the company, and the three years after that. They then compared the results with data on CEO pay from another 244 companies that were not engaged by a hedge fund but belonged to the same industry sector and were of a similar size and book-to-market value. The research found that both base pay and stock awards declined significantly once hedge funds engaged a company. CEOs received on average $329,344 more than their peers in total compensation in the two years before a hedge fund engaged their companies. One year later, that difference had contracted to $51,435 with CEO base pay now $27,704 lower than peers. The stock portion of total pay was reduced by $258,201 to just $63,090 more than peers. The study also found that CEO pay starts to increase again two years after the company is engaged and by the third year is $270,766 more than peers.
Why Bill Ackman Will Salvage Pershing Square
" Forbes (05/18/18) Schiefelbein, Luke"
In a recent interview, Garrett Arms, a portfolio manager at Moon Capital Management, discussed his long call on Pershing Square, the resilience of Bill Ackman, and his value investing philosophy. When asked whether several high profile losses and nearly $2 billion in redemptions will cause permanent damage to Ackman's and Pershing Square's reputations, he said he highly doubts it. "It is certainly not something that a couple of strong years of returns wouldn't cure and Ackman has a pretty good long-term batting average. The brevity of investor memory will allow the recent performance to get papered over, unless the mistakes keep compounding. And judging by the extent to which he has been crucified lately, the recent period of Ackman dismissal will probably turn out to be a good contrarian indicator for the fund," he said. As for how Ackman will emerge from this losing streak, Arms said, "I struggle to see Pershing's investing strategy changing much. At the margin, maybe Ackman keeps a lower profile for a few years." He added, "When you maintain such a high profile and exude that much confidence and things go poorly, by default, you are going to attract proportionately larger criticism. I heard one activist refer to it as the 'downside of what was the upside of being Bill Ackman.'"
Elliott Needs Pensioners' Help to Fight Auto Dynasty
" Bloomberg (05/17/18) Kim, Heejin; Kim, Sohee; Einhorn, Bruce"
Elliott Management Corp.'s proxy fight at a South Korean company is once again coming down to the country's $580 billion National Pension Service (NPS). The hedge fund is challenging Hyundai Motor Group's $8.8 billion merger plan between two units, three years after it opposed a reorganization plan by Samsung. In that battle, the deciding vote in favor of the conglomerate was cast by the NPS. The state-controlled NPS is once again at the center of this fight because of its combined $2.7 billion in holdings in the two Hyundai units. "If I were the NPS, I would abstain from voting," said Chang Park, an economics professor at Chung-Ang University in Seoul. "If the fund votes against Hyundai, local media would criticize it by saying it hates the chaebol. If it votes for Hyundai, local media would also criticize it for driving away foreign capital." Hyundai's founding family can hardly afford to lose the NPS' backing. The deal requires support from at least two-thirds of shareholders voting at a scheduled meeting May 29, and foreign investors last month held nearly half of Hyundai Mobis, according to data from the Korea Exchange. Meanwhile, Elliott owns more than $1 billion in Hyundai units. Glass Lewis & Co. and Institutional Shareholder Services Inc. agreed with Elliott that the proposed deal was unfavorable to Hyundai Mobis shareholders. The highest-ranking official to weigh in on the proxy fight is Kim Sang-jo, head of the Fair Trade Commission that oversees conglomerates, who has opposed Elliott's proposal. Caught in the middle is the NPS, which will ask an outside committee to decide next week on whether it should vote for the deal or not.
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