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13D Monitor Real-time Activist Newsfeed


In a letter to the board of Whole Foods Market Inc. (WFM), mutual-fund manager Neuberger Berman, which owns a 2.7% stake in the organic grocery chain, urged the company to consider a sale. The letter comes just weeks after Jana Partners LLC disclosed a nearly 9% stake in the company and called for a similar review. Sources say Neuberger and Jana are not working together to put pressure on Whole Foods, although their interests align. A company spokeswoman said, "We remain committed to continuing to take actions to drive shareholder value and position Whole Foods Market for the future." In a recent interview, Neuberger portfolio managers Charles Kantor and Marc Regenbaum acknowledged that Whole Foods' has a valuable brand and a dominant prepared-foods business that set it apart from competitors, but they indicated that it has fallen behind rivals in adopting new retail technology that could help it boost sales and profit margins. The letter from Neuberger raised concerns about CEO John Mackey remaining the company's sole CEO but did not provide any details. Whole Foods already has adopted some of Neuberger's suggestions, including eliminating its dual CEO structure, searching for a new finance chief, naming a new director, and hiring retail experts.

ValueAct Capital Management President Mason Morfit disclosed at 13D Monitor's Active-Passive Investor Summit in New York that the fund has amassed a nearly 5% stake, worth about $750 million, in the private equity firm KKR & Co. through derivatives. Sources say ValueAct has engaged in friendly talks with the investing firm on the possibility of converting KKR from a partnership to a corporation, a move that may be beneficial under potential changes to the U.S. tax code proposed by President Donald Trump. Morfit said KKR could be worth as much as $37 a share once investors fairly assess its assets raised, its recurring management fees, and "tremendous operating leverage." He noted that "the future is quite bright" for KKR and some of its big investing peers. Scott Nuttall, KKR's head of global capital and asset management, said on the firm's first-quarter earnings call that "we have had interactions with them and they've been great. We like having smart, long-term investors as shareholders." Observers note that it is rare for an activist investor to take a big stake in a private equity firm. Morfit likened ValueAct's investment in KKR to others it has made in professional services companies, calling them "ideal human capital businesses."

At the same time that Buffalo Wild Wings Inc. (BWLD) is trying to fend off Marcato Capital Management LP, the company is laying off workers amid higher labor and chicken-wing costs. According to spokeswoman Heather Leiferman, "We have eliminated the director of operations position and redeployed some of those team members in other positions. We haven't disclosed the total number of employees let go as it's immaterial." Marcato, which owned a 6% stake in Buffalo Wild Wings as of February, has been pushing for changes at the company, including calling for CEO Sally Smith to step down. Buffalo Wild Wings is "faced with the challenge of rising labor costs and we have the unique headwind of chicken wing price inflation," Smith said, adding that the company is planning $40 million to $50 million in cost cuts over the next two years.

A shareholder rebellion materialized at the annual meeting for Swiss fund house GAM on Thursday.  Although investors successfully voted down executive pay and bonuses, a bid to shake up the board failed.  RBR Capital, which owns an estimated 4.4% stake in the company, had proposed three new directors.  Its choice for the chairmanship, Kasia Robinski, received only 43% of votes, with the majority preferring GAM's proposal to appoint longtime board member Hugh Scott Barrett to the position.  However, voters overwhelmingly rejected GAM's non-binding report on pay as well as plans for management bonuses in 2017.  The shareholder discontent came after CEO compensation at GAM increased by more than 20% last year, despite flagging profits.  Shareholders additionally voted against the reappointment of a member to the compensation committee, after several top advisers to shareholders—including Institutional Shareholder Services—emphasized a lack of transparency in the company's executive pay practices.  Barrett on Thursday pledged an investigation into pay arrangements, saying, "The message is clear—that we need to ensure a much better alignment of remuneration with long term success of this business."  Thursday's results mean all bonuses paid to management will have to be approved by a future shareholders meeting.  

Samsung Electronics on Thursday rebuffed a call from Elliott Management to convert into a holding company structure but did announce a plan to cancel treasury shares, a move that was welcomed by the hedge fund.  By deciding against the structural change, the South Korean tech group shut down one of Elliott's key demands and also eliminated hopes of governance reform at the conglomerate.  Samsung argued that setting up a holding company would hamper its competitiveness and burden longer-term operations.  However, it said it would cancel treasury shares—made up of common and preferred shares—worth Won40 trillion ($35 billion).  "We are encouraged that Samsung Electronics has agreed to take the bold step of optimizing its balance sheet," said Elliott.  "We think there is room for even more progress due to the company's announced commitment to enhance its board."  The moves came after Samsung on Thursday reported its best quarterly operating profit in more than three years, propelled by robust component sales.

Discount retailer Fred's Pharmacy (FRED) has reached a deal with Alden Global Capital to add two directors—Steven Rossi, CEO of Digital First Media, and Timothy Barton, former CEO of—to Fred's board.  Alden President Heath Freeman applauded the appointments and expressed "great confidence in the future of the business" given Fred's turnaround strategy focused on healthcare.  Freeman's sentiments about the company are considerably more upbeat than they were last month, when he said, "Fred's business has persistently underperformed as evidenced by poor comparable store traffic, declining comparable store sales, suboptimal gross margins, and bloated SG&A.  Given the company's lackluster operating performance, it is not surprising that Fred's total shareholder return significantly lags behind its dollar store and pharmacy peers."  In addition to the appointment of the two new directors, Fred's and Alden have agreed not to disparage or sue one another, subject to certain exceptions.  Furthermore, one of Alden's selections will resign from the board if Alden's ownership of Fred's shares—currently a t25%—declines below 10%; the other director will step down if Alden's interest dips below 5%.

Deckers Outdoor Corp. (DECK) nodded to shareholder pressure on Tuesday, agreeing to consider a sale of the company or other strategic alternatives.  The move comes after Red Mountain Capital Partners LLC last month urged Deckers to explore a sale, saying the stock had underperformed across all major indices in recent years.  Meanwhile, in February, Marcato Capital Management LP said it planned to discuss strategy and options with Deckers.  Red Mountain owns a roughly 3.3% stake in Deckers, while Marcato had disclosed a 6% interest.  Sales of Deckers' sheepskin UGG boots skyrocketed to $1.52 billion in fiscal 2016, but growth has stalled; and Decker's share price has lost more than one-third of its value since the end of 2014.  The company in February reported lower-than-expected earnings for the third quarter and slashed its revenue forecast for 2017.  However, shares of the apparel and accessories maker jumped 6.5% to $62.53 in trading after markets closed on Tuesday.

BHP Billiton (BBL) announced Wednesday that its Fayetteville shale gas assets in the United States are under review, and it is now "considering all options, including divestment."  Analysts tied the move to Elliott Management's call earlier this month for BHP to spin off its petroleum division, as the company did with non-core operations when it created South 32 in 2015. BHP has rebuffed Elliott's demand and on Wednesday denied that its prospects for Fayetteville were motivated by the hedge fund. Rather, it claimed the move was part of an ongoing review.  The world's biggest miner intends to focus on more lucrative opportunities in oil.  BHP first attempted to sell the Fayetteville assets more than two years ago but changed course in February 2015, saying it planned to "maximize value" of the assets.  Macquarie Bank analysts said in a note that divestment of Fayetteville was the most likely course of action.  Elliott says it owns a 4.1% interest in BHP's U.K-listed shares.

An investor group delivered a letter to fellow Praemium shareholders on Tuesday declaring they have "lost confidence" in the company's directors and will proceed with plans to shake up the board.  In their letter, Paradice Investment Management, Australian Ethical Investment, and the Abercrombie Group reiterated their intention to oust all incumbent directors—including Chairman Greg Camm—and install three new board members.  The shareholder bloc, which owns a roughly 14% stake in Praemium, is also seeking to reinstate the fired former CEO of Praemium, Michael Ohanessian.  The group urged fellow shareholders to vote for its resolutions at the extraordinary meeting in May, noting they are concerned about the circumstances surrounding Ohanessian's departure and the board's judgment and ability to direct Praemium.  The board cited a number of personal and professional performance issues in its decision to axe Ohanessian.  However, the concerned shareholder group believes his employment was "terminated without reasonable justification" and without sufficient explanation from the board.  The group argued Ohanessian has strong support from staff, customers, and shareholders.  Meanwhile, Australian Ethical and Paradice IM have claimed that "Ohanessian's skillset and knowledge of the company remains vital to Praemium's ongoing success."

Elliott Management Corp. has rejected a deal proposed by Arconic Inc. (ARNC) that would have given Elliott two additional representatives on the company's board in exchange for ending its proxy fight. Elliott—which has a 13.2% economic interest in the company—said it was moving ahead with its proposal to Arconic shareholders to elect its slate of four nominees. On April 24, Arconic said it would delay its May 16 annual meeting and give the hedge fund until April 26 to sign off on its proposal. The company also indicated it was willing to make "certain other concessions," but Elliott said in an April 25 letter that the board's latest offer was insufficient. According to Elliott, "At this point, given where things stand, we have determined that the only realistic way to produce the kind of change Arconic needs is through the election of all four of the highly qualified shareholder nominees to Arconic's board."

On April 25, Akzo Nobel NV rejected a request by Elliott Management Corp. and other investors to hold an extraordinary meeting of shareholders to oust the Dutch paints and chemicals maker's supervisory board chairman, Antony Burgmans. The company, which reiterated its full backing of Burgmans, said Elliott's call for an extraordinary general meeting (EGM) "does not meet the required standards under Dutch law. The request is irresponsible, disproportionate, damaging, and not in the best interests of the company." The dismissal comes a day after PPG Industries Inc. (PPG) submitted its third bid to take over Akzo, increasing its offer from 88.72 euros a share last month to 96.75 euros a share. Elliott called for the EGM two weeks ago, as it pressured Akzo to engage in sale talks with PPG. Burgmans is seen as an obstacle to the takeover. On April 24, Elliott warned that this could be the company's last chance to engage in "friendly discussions" with PPG. "There can be no assurance that a hostile bid—if one were to materialize—would include the same or improved protections and undertakings for Akzo Nobel stakeholders," Elliott said.

Wells Fargo's (WFC) investors on Tuesday voted to re-elect all 15 of the bank's directors, despite considerable shareholder opposition. After a tense three-hour shareholder meeting, the bank said that all 15 directors were re-elected, but longer-serving directors received approvals as low as 53% of shares voted. Nonexecutive Chairman Stephen Sanger, who received only 56% approval according to a press release, said that shareholders "sent the entire board a clear message of dissatisfaction." Shareholders' limited support for the board reflected continue unease since the sales-practices scandal last fall, and suggested shareholders are pursuing further changes and explanations. In a rare move, Institutional Shareholder Services Inc. had advised shareholders earlier this month to vote against re-electing 12 long-serving directors. The fact that at least one director received just 53% of votes cast is concerning, since directors—who usually run unopposed—typically receive 95% or more of the votes cast.

Engaged Capital LLC on April 25 called on the board of Rent-A-Center Inc. (RCII) to reverse its latest attempt to manipulate the company's corporate machinery to further entrench the board and disenfranchise stockholders and restore the previously disclosed record date of April 10, 2017. On April 24, RCII revealed in a filing with the Securities and Exchange Commission that it changed the previously established record date for stockholders entitled to vote in connection with the 2017 annual meeting of stockholders originally set as April 10, 2017, to a new record date of April 24, 2017. The board made this change without providing any notice to stockholders until after the market closed on April 24. RCII's lack of proper notice to stockholders (particularly institutional stockholders who participate in stock lending programs) regarding the change in record date will result in many stockholders losing the right to vote in connection with the annual meeting because it will be impossible for them to recall their shares and have them in good voting order as of the new record date. Engaged Capital is concerned that the board may have intentionally attempted to disenfranchise stockholders who may have sold or loaned stock since April 10, 2017, and to include the votes of stockholders friendly to management who acquired shares after that date, but prior to the new record date of April 24, 2017, to further manipulate the stockholder vote. Meanwhile, RCII has yet to respond to Engaged Capital's request for a waiver to RCII's poison pill threshold. Engaged Capital owned approximately 16.9% of RCII's outstanding stock when it made the request, and in the request made clear that it had no intention of mounting a takeover bid, and thus should not be prevented from acquiring up to 19.9% of RCII's outstanding stock.

Jonathan Litt penned a letter to shareholders on Tuesday claiming that Forest City Realty Trust Inc. (FCE.A) would attract numerous bidders, including private equity firms and publicly traded landlords, if the company put itself up for sale. The Cleveland-based real estate investment trust has so far refused to launch a formal strategic-review process, Litt said. "Why do the board and management appear unwilling to explore all strategic options at this time, despite numerous parties likely interested in acquiring the company at a significant premium to today's share price?" wrote Litt. "We are highly confident that a formal strategic review process would produce indications of interest from credible private equity and public real estate investment trust buyers that could provide full value to shareholders." In his letter, Litt also questioned whether the founding Ratner family "simply don't want to sell" Forest City. "Are the Ratners' interests put above those of other shareholders?" he asked. Litt was also critical of recent appointments to the Forest City board, arguing that even if they are independent, the two are likely to be "outgunned" by Ratner appointees. Litt's Land & Buildings Investment Management LLC held nearly 0.9% of the company as of Dec. 31, according to data compiled by Bloomberg.

Marcato Capital Management released a statement Monday claiming that Buffalo Wild Wings (BWLD) made an "astronomical error" in definitive proxy materials it filed with the U.S. Securities and Exchange Commission last week.  The investor said the restaurant chain falsely stated that its shares outperformed the S&P 600 Restaurant Index over a five-year period ended Dec. 25, 2016; however, the stock had actually underperformed the index by more than 60% during the period.  "This kind of sloppy, self-serving 'analysis,' which has gone uncorrected for three full days, including a trading day, is emblematic of what we believe is management's careless approach to assessment of shareholder value," said Marcato managing partner Mick McGuire.  "In our view, shareholders deserve board oversight and accountability, which they will get if they elect Marcato's nominees to the Board on June 2, 2017," he added.  Marcato—which owns a 6.1% stake in the company—wants Buffalo Wild Wings to franchise more of its restaurants, CEO Sally Smith to resign, and more representation on the board.

Arconic Inc. (ARNC) on Monday pushed back its scheduled May 16 annual meeting to later in the month and set an April 26 deadline for Elliott Management Corp. to accept a deal that would give the hedge fund two additional representatives on the board if it ends its proxy fight.  The two sides neared an agreement over the weekend, but talks collapsed over the formation of board committees and how much say Elliott's representatives would have in setting the company's course.  Arconic's disclosure that it is trying to reach a settlement follows the sudden departure of CEO Klaus Kleinfeld after he sent a letter to Elliott founder Paul Singer that the hedge fund viewed as a veiled threat.  The company on Monday said Elliott is seeking a level of control over the company's operations and board functions that is not in line with the firm's 13.2% stake.  Elliott wants to appoint four representatives to the board in the proxy contest in addition to the three directors it suggested last year.  There are five seats up for election this spring.  Arconic is protesting Elliott's demand that three of the five members on a CEO search committee be Elliott representatives.  The company also objects to Elliott's call for a three-director operations committee that would include two of its nominees, arguing Elliott's desire to control a majority of the members of the two committees was a power grab.

Elliott Advisors has acquired a 6.8% stake in WS Atkins, which could put a wrinkle in SNC Lavalin's proposed takeover of the engineering consultant.  WS Atkins' shares closed at 2,113p on April 24—1.6% higher than the 2,080p recommended offer price from SNC Lavalin.  In early trading April 25, shares had risen another 7p to 2,120p. Elliott has declined to comment.  WS Atkins Chairman Allan Cook said last week that given the company's realization of an 8% operating margin, directors believe the company is "strongly positioned to execute on its growth strategy going forward, underpinned by favorable end-markets trends, a differentiated offering, and the benefits of recent growth initiatives" but noted that the offer from SNC is "attractive."

Hornby's second-largest shareholder, New Pistoia Income, has grown frustrated with the company's progress and called for the removal of Chairman Roger Canham.  Earlier this month, Ian Alexander Anton sent the company a letter on behalf of himself and New Pistoia demanding a meeting to vote on proposals for boardroom change.  The investor, which owns a 20% stake in Hornby, described Canham's tenure as "disastrous," saying the firm had lost £31 million in five years.  The firm also criticized Hornby's current strategy and said that Phoenix Asset Management's majority shareholding was not "in accordance with principles of good corporate governance."  Hornby's directors on Tuesday denounced the proposals, defending its turnaround plan and claiming support from most shareholders.  The directors will call on investors to reject the proposals to remove Canham as a director and to install Anton on the board.  It has already received the backing of shareholders representing a 54% stake, including Phoenix.

PPG Industries Inc. (PPG) CEO Michael McGarry intends to make a hostile takeover bid for Akzo Nobel NV if PPG's 26.9 billion euros ($28.8 billion) offer doesn't encourage the company to come to the negotiating table. McGarry said in a telephone interview that if necessary he will take the offer to investors by June. Paul Singer's Elliott Management Corp., along with other shareholders, is calling on Akzo Nobel to consider the most recent offer. "There can be no assurances that a hostile bid—if one were to materialize—would include the same or improved protections and undertakings for Akzo Nobel shareholders," Elliott stated April 24. "Elliott therefore believes that friendly discussions now are in the best interest of all stakeholders." The threat of a hostile bid exerts pressure on Akzo Nobel CEO Ton Buechner a day before an annual meeting of shareholders, some of whom want a deal. Akzo Nobel said it would "carefully review and consider" PPG's most recent offer. "The revised offer will be very difficult for Akzo to reject," forecasts Jeremy Redenius, an analyst at Sanford C. Bernstein & Co. "The most likely outcome is that Akzo grants PPG due diligence to enable a slightly improved offer." The most recent bid gives Akzo time to negotiate a merger agreement before June 1, which is the deadline under Dutch law for PPG to make a tender offer to shareholders.

Arconic Inc. (ARNC) said April 24 it is willing to nominate two of Elliott Management's director nominees to its board, in hopes of resolving an ongoing proxy contest. The company also said it plans to postpone its annual meeting to the end of May from the earlier scheduled May 16.

In an April 24 proxy filing and letter to shareholders, Buffalo Wild Wings Inc. (BWLD) took aim at Mick McGuire of Marcato Capital Management, insisting that he has "no credible plan" to take over and run the company. Buffalo Wild Wings set a June 2 date for its annual shareholders meeting and urged shareholders to stay with the company's current leaders. Furthermore, the company refuted criticisms by McGuire, citing several key financial measures—shareholder returns, earnings per share growth, returns on capital, same-store sales, and restaurant margins—that outperformed its casual dining rivals. "And we are not sitting still," the company said. Marcato, which took a 6% stake in Buffalo Wild Wings last year, is the company's largest shareholder. McGuire has urged the company to sell a large number of its company-owned restaurants, proposed his own slate of board nominees—including himself—and recently called for CEO Sally Smith's resignation. Although McGuire has said the company refused to engage with him, Buffalo Wild Wings indicated in the new documents that its executives and directors "have invested significant effort in engaging with Marcato." The company wrote to shareholders, "Given our focus on extending our successful long-term track record, we will not support risky financial engineering strategies that provide an unlikely and modest short-term benefit but create substantial long-term risk. We do not believe that is what you want us to do, nor would you be well-served by it."

Alcobra Ltd. (ADHD) has mailed proxy materials for an extraordinary general meeting of shareholders called by Brosh Capital L.P. The proxy materials detail the board's opposition to the calling of the meeting and urge shareholders to reject Brosh Group's efforts to take control of the board.

PPG Industries Inc. (PPG) has once again sweetened its offer price for Akzo Nobel NV. Embroiled in a lengthy takeover battle, PPG boosted its cash-and-share bid to acquire the Dutch paint and chemicals maker to €96.75 a share (about $105.05) from €88.72 a share.  The latest overture values Akzo at about €24.6 billion, up from about €22.4 billion.  PPG said in an April 24 letter to Akzo that this offer represents "one last invitation" for it to reconsider a deal.  Akzo said it would review and consider the latest proposal.  The Amsterdam-based company has been encouraged by Elliott Management Corp. and some of its other biggest investors to engage in negotiations with PPG.

Rockwell Medical Inc. (RMTI) is embroiled in a dispute with a couple of large shareholders who have been critical of the biopharmaceutical company's governance structure and alleged lack of communication with shareholders. The shareholders want a seat on the governing board, which will broaden to six this summer. The dispute has spilled into court with claims and counter-claims between Rockwell and top executives at Richmond Brothers Inc. and Tri-Star Management, which represent 11.9% of Rockwell's outstanding common shares. The two shareholders have been petitioning Rockwell for months to improve sales of the Triferic iron replacement therapy and the drug Calcitriol, as well as restructure corporate governance and add at least one shareholder representative to the board.

Officials of two large California public retirement systems confirmed late last week they are voting against nine of 15 Wells Fargo & Co. (WFC) directors up for election at the bank's annual meeting. In doing so, they cited Wells Fargo's phony-account scandal as the reason. The largest U.S. state pension system, known as CalPERS, announced it is voting about 13.9 million shares against the bank nominees, which include Chairman Stephen Sanger. "We believe these directors failed in their oversight responsibilities during the retail banking controversy at the company," a CalPERS statement read. Additionally, CalPERS said some Wells Fargo director nominees have tenures of a dozen years or more that "could compromise director independence." Separately, the California State Teachers' Retirement System announced Friday it voted its 11.6 million Wells Fargo shares against the same group of nine directors.

Sarissa Capital Management LP has issued a statement indicating that "although Innoviva (INVA) announced that all of its directors were reelected, an overwhelming majority of non-GSK shareholders supported Sarissa and emphatically declared that Innoviva needs change. This loud and clear message should be profoundly obvious to Innoviva, especially given the 10% decline in the stock price, one of the largest declines of the company's market value since the spin-off." It added, "Innoviva reneged on a binding agreement with Sarissa to add two Sarissa nominees to the board. ... We will continue to abide by this binding agreement and we will enforce it. We have filed a lawsuit in Delaware court to make sure Innoviva also complies with this binding agreement. We believe those Innoviva board members who sanctioned Innoviva's intentional breach of our agreement have recklessly destroyed shareholder value, and we intend to hold them accountable."

ABB Ltd. and Schneider Electric SE are contending for General Electric Co.'s (GE) industrial solutions division, which could secure as much as $3 billion, according to sources. The divestiture would represent a key effort by GE to focus on its core businesses and boost its operational performance, amid pressure from Trian Fund Management. The two European engineering groups are through to the second round of bidding for GE's industrial solutions business, sources said this week. Schneider Electric reportedly is searching for a partner to break up the business should its bid succeed, in order to address any antitrust concerns. Other private equity firms are also in the running, according to the sources.

Top shareholders in BHP Billiton are urging the mining company to consider spinning off its entire oil and gas production arm, adding to pressure from Elliott Advisors, which last week demanded a demerger of BHP's U.S. oil business.  Investors also want the firm to release details of two reviews it commissioned from investment banks that concluded its U.S. oil business was worth more as part of BHP than separated, some of them questioning the validity of the reports.  The new shareholder drive is expected to increase pressure on CEO Andrew Mackenzie to explain why BHP should hold on to the unit; most mining groups do not also produce oil and gas. Last week, Elliott went public with a three-part plan it said would boost shareholder returns.  Along with spinning off the U.S. oil business, the hedge fund said BHP should ditch the group's complex corporate structure involving U.K.- and Australia-listed companies and adopt a new capitals returns policy.  While shareholders accepted BHP's rejection of Elliott's proposals on structure and returns, they were much less convinced by the company's reasons for retaining the oil business.

Sources say shareholders of Innoviva Inc. (INVA) voted in its three directors and fended off nominees from Sarissa Capital. The two sides reportedly were near a settlement that would have allowed them to avoid the vote, but the company backed out of the plan at the last minute when it became clearer that it might win all three seats. According to sources, a settlement would have added two of the hedge fund's director nominees to the board.

Marcato Capital Management LP penned a letter Thursday to shareholders of Buffalo Wild Wings Inc. (BWLD) calling for the resignation of CEO Sally Smith, in addition to the four board seats it was already seeking. The move steps up Marcato's campaign at the restaurant chain, which it is urging to franchise more stores, improve profit margins, and boost sales. The hedge fund, which owns a 6.1% stake, has not proposed its CEO pick. Marcato said it believes that Smith is too optimistic about the company's outlook and has not outlined a plan to improve stunted growth. Although Buffalo Wild Wings shares have skyrocketed since the initial public offering (IPO) in 2003, the stock began to stall in 2015. It has risen about 4.8% over the past year, compared to the S&P 500's 12% gain. Marcato also has publicly complained about Smith's personal stock sales. Buffalo Wild Wings defended Smith in a statement Thursday, saying the company has generated total returns for shareholders of 1,697% since its IPO. Marcato nominated four directors to the company's board in February, but a shareholder meeting has not been scheduled yet.

Sarissa Capital Management LP declared Wednesday that Innoviva Inc. (INVA) went back on its promise to settle a proxy contest ahead of the shareholder vote scheduled for Thursday.  A statement claimed that Innoviva agreed to appoint two Sarissa-nominated directors to the board; but after Sarissa signed and returned the settlement contract Wednesday afternoon, Innoviva continued to lobby shareholders to vote for its own nominees without disclosing its agreement.  Innoviva then called off the deal, the hedge fund reported.  Based on shareholder votes that had come in as of late Wednesday, the drug company believed it had enough support to beat Sarissa's director nominees, according to sources.  Sarissa, which owns a 2.72% stake in Innoviva, had criticized the company for excessive executive pay and board compensation.  Earlier this month, Innoviva announced plans to launch a review of cost and executive compensation structures that it said could lead to meaningful savings and improve its financial performance.

Ecology and Environment, Inc. (EEI) on Wednesday announced an agreement with Mill Road Capital and its affiliates to resolve a proxy contest.  Per the terms, two individuals previously nominated by Mill Road—Justin Jacobs and Michael El-Hillow—will join the board as Class A directors following the annual shareholders meeting scheduled for April 20.  Jacobs will also join the Governance, Nominating and Compensation Committee; and El-Hillow will become a member of the Audit Committee.  Mill Road owns about 15.43% of outstanding shares of E & E's Class A common stock.  "We are pleased to have reached a resolution with Mill Road as we continue to focus the Company on achieving profitable growth," said E & E Chairman Frank J. Silvestro.  Justin C. Jacobs, managing director of Mill Road, added, "We believe in the tremendous opportunity represented by E & E and are committed to working constructively on the Board to continue to focus on initiatives aimed at enhancing growth and efficiency."  Mill Road has also agreed to certain standstill restrictions and other customary provisions.

Horton Capital Partners Fund is urging CPS Technologies Corp. (CPSH) shareholders to vote down the company's incumbent slate of directors at the annual meeting of shareholders on May 5.  Horton believes CPS has significant potential but is concerned because it has consistently and significantly underperformed its comparable peer group over the past decade.  Even so, the investor said its efforts for the last several years to offer assistance and insight have been consistently rejected.  Since publicizing its concerns late last year, Horton said it has received positive feedback from about one-fourth of the shareholder base who also want meaningful change.  Horton noted that this year's shareholder vote is especially important because the company recently adopted Horton's majority voting proposal for the election of directors.

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The Error at the Heart of Corporate Leadership
" Harvard Business Review (06/01/17) Bower, Joseph L.; Paine, Lynn S."

The rise of hedge fund activists emphasizes a way of thinking pervasive in the business world that centers on the idea that management's objective should be to maximize value for shareholders. "At the theory's core is the assertion that shareholders own the corporation and, by virtue of their status as owners, have ultimate authority over its business and may legitimately demand that its activities be conducted in accordance with their wishes," say Harvard Business School professors Joseph L. Bower and Lynn S. Paine. "Attributing ownership of the corporation to shareholders sounds natural enough, but a closer look reveals that it is legally confused and, perhaps more important, involves a challenging problem of accountability. ... Over the past few decades the agency model has provided the rationale for a variety of changes in governance and management practices that, taken together, have increased the power and influence of certain types of shareholders over other types and further elevated the claims of shareholders over those of other important constituencies—without establishing any corresponding responsibility or accountability on the part of shareholders who exercise that power." They propose a company-centered model that holds at its core "the health of the enterprise rather than near-term returns to its shareholders." Furthermore, they offer eight propositions that together provide "a more realistic foundation for corporate governance and shareholder engagement": corporations are complex organizations whose effective functioning depends on talented leaders and managers; corporations can prosper over the long term only if they're able to learn, adapt, and regularly transform themselves; corporations perform many functions in society; corporations have differing objectives and differing strategies for achieving them; corporations must create value for multiple constituencies; corporations must have ethical standards to guide interactions with all their constituencies, including shareholders and society at large; corporations are embedded in a political and socioeconomic system whose health is vital to their sustainability; and the interests of the corporation are distinct from the interests of any particular shareholder or constituency group.

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Investors Eye Elliott's Plan B as BHP Shake-Up Push Falters
" Reuters (04/27/17) Jessop, Simon; Freed, Jamie"

Elliott Management's three-part call for change at BHP Billiton (BBL) is gaining little momentum among shareholders, prompting speculation that a second foray is on its way.  Shareholders said Elliott could view BHP's plans for further sales of marginal assets and boosting shareholder returns as potentially some small victories.  Earlier this month, Elliott told the Anglo-Australian miner it had failed to deliver "optimal" value.  It demanded BHP spin off U.S. oil assets, scrap a dual corporate structure, and return more money to shareholders.  BHP immediately countered that the costs of the changes would outweigh the benefits.  Investors say many of Elliott's ideas have already been tested within BHP.  BHP's reliance on commodities also restricts how much value could be unlocked from the sort of financial engineering proposed by Elliott, some shareholders added.  But investors and analysts noted that a BHP statement on Wednesday showed room for movement.  CEO Andrew Mackenzie said the miner had already been "fundamentally restructured" to increase returns through several steps. The company also announced it would put its Fayetteville shale gas assets in the United States back on the market.  Investors speculated that Elliott could make a second call for change at BHP by focusing on the company's next major executive appointment—a new chairman.  Incumbent Jac Nasser has said he will not seek re-election at this year's annual general meeting.  On April 10, Elliott said it owned about 4% of the London-listed shares, short of the 5% needed to call a shareholders' meeting.

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Boards Concerned About Rise of Activism, Study Finds
" IR Magazine (04/26/17) Ashwell, Ben"

According to a study by Deloitte and the Society for Corporate Governance, the number of boards that have discussed preparing for a shareholder activist rose from 55% in 2014 to 74% in 2016. However, the number of survey respondents targeted by activists dropped over that period from 31% to 27%. The survey indicates that 55% of respondents say their boards are being updated on shareholder sentiment and concerns more than once annually, 61% say the number of shareholder requests to speak directly with board members has held steady over the last two years, and 60% say at least one board member—most likely the chairman, followed by the lead director and the compensation committee chairman—have been in contact with shareholders or a shareholder group in the last year. In addition, 67% of respondents say they do not have a shareholder engagement policy beyond any stock exchange or regulatory filing requirement.

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Bank of America Addresses Gender Pay Gap Issue at Annual Meeting
" Charlotte Business Journal (04/26/17) Burns, Hillary"

All shareholder proposals at Bank of America Corp. (BAC) were voted down at the bank's annual shareholder meeting on Wednesday, including a request for a report on gender pay equity. Meanwhile, shareholders approved all four management proposals, which included electing BofA's board of directors and approving executive pay. All of the bank's directors received at least 90% of shareholder votes, according to preliminary results. The unapproved shareholder proposals included an amendment to the bank's clawback policy, splitting the CEO and chairman roles, and a request for a report on the gender pay gap issue. Roughly 15% of shareholders voted in favor of the proposal requiring the board to prepare a gender pay gap report, according to preliminary results. Arjuna Capital, which urged technology companies last year to disclose information about gender pay equity, recently asked big financial services companies to publish data surrounding pay equity. The boards of both Charlotte-based BofA and Wells Fargo (WFC) recommended their shareholders vote against Arjuna's proposals. "Our board believes preparing such a report is unnecessary in light of the annual disclosures regarding the diversity of our global workforce already made …" the 2017 proxy statement stated.

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Get Ready for More Shareholder Activism in Australia, Says Top Firm
" Australasian Lawyer (04/26/17) Dolor, Sol"

According to the Australian law firm Herbert Smith Freehills, corporates should prepare for shareholder activism, which is gaining momentum in the Australian market. The firm indicated in a note that public activism is emerging as a "prominent and enduring feature of the Australian market." It added that three factors will drive the longevity of shareholder activism in the country: cashed-up hedge funds seeking homes for their capital; the fact that the Australian market has not yet seen an influx of foreign activists, which makes it a more attractive investment opportunity; and a legal setup that is conducive to activism, because shareholders with 5% stakes in companies are able to demand meetings, among other things.

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The Morning Risk Report: Shareholders' Rights at Risk
" Wall Street Journal (04/26/17) Lemos Stein, Mara"

Corporate governance experts are concerned about the breadth of financial regulation roll-back proposed under the Financial Choice Act, arguing it would limit shareholders' ability to hold boards and management to account and damage trust in the country's capital markets.  "The Financial Choice Act would threaten prudent safeguards for oversight of companies and markets, including sensible reforms made in the wake of Enron and the financial crisis to close critical gaps in regulation," said Ken Bertsch, executive director of the Council of Institutional Investors in a letter to the committee reviewing the bill.  "[It] is akin to removing seatbelts from cars—it's just too risky."  The bill targets rules that let most shareholders submit resolutions on corporate proxy ballots.  It proposes to change the ownership threshold for proposals submission to 1% of shares held for at least three years, compared with the current Securities and Exchange Commission rules that allow submissions from those holding at least $2,000 in shares of a company for at least one year.  The proposal also bars shareholders from using a proxy to file a resolution in their names, which in practice would prevent so-called "gadflies" from making prolific submissions.  The new bill raises the threshold for proposal resubmission based on how much support it received and when it was last introduced. The changes in thresholds could "dramatically curtail the use of the shareholder proposal process," wrote Cydney Posner, special counsel at Cooley's public companies group.

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Mining Giants Race to Fill Board Leadership Gaps
" Reuters (04/26/17) Lewis, Barbara; Denina, Clara"

The chairmen of BHP Billiton (BBL), Rio Tinto (RIO), and Anglo American have all announced their intention to step down. Now, three of the world's biggest miners are searching for new leaders for their boards. The task to find the right candidates is particularly urgent for BHP Billiton and Anglo American due to the growing influence of major investors at both companies that have raised doubts over their future direction. Elliott, with a 4% stake in BHP's London-listed shares, is hoping to shake up the company as Jac Nasser leaves. Elliott wants to end BHP's dual company structure, spin off its oil and gas assets, and introduce a formula for delivering more money to shareholders, which BHP has said it cannot do because of the cyclical nature of mining. Both BHP and other investors are skeptical about Elliott's plans, but say Elliott's engagement underscores the need for a strong new chair to back up the CEO and unite a disparate shareholder base. Hanre Rossouw, portfolio manager at Investec Asset Management, which owns shares in Anglo American and BHP, says the companies need someone who can help management deal with the breakup of assets and strategic de-mergers. "You do need a chair that can think more creatively in terms of value creation with unbundlings and break-ups always options to consider," he says.

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An Investment in Whole Foods Exposes Shifting Power on Wall St.
" New York Times (04/25/17) Stevenson, Alexandra; de la Merced, Michael J."

Neuberger Berman, a steward of pension funds and retirement accounts, quietly approached some hedge funds last year and urged them to push for change at Whole Foods (WFM) as its roughly $200 million investment in the high-end grocer languished. Two weeks ago, Jana Partners announced that it was the second-largest shareholder in Whole Foods and took aim at the behavior of top executives, the company's financials, and even its employee scheduling, among other things. The company's shares rose 10% shortly after the announcement. The behind-the-scenes campaign by Neuberger Berman signals a new dynamic that is upending relations between public companies and the large investors that own their stock, as traditional money managers increasingly demand a seat at the table as they look to bolster returns. Some are turning to activist investors for help, while others are adopting activists' tactics. Meanwhile, activists have grown more comfortable working with institutional investors. "[Do companies] really listen to the feedback they get from their mainstream investors?" asked Michelle Edkins, global head of corporate governance at BlackRock. "I think they are certainly making an effort to listen more. [But activists] can act as an important 'check and balance' on management that has lost its way."

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David Einhorn Is Settling in for a 'Tough Fight' With GM
" Business Insider (04/25/17) Levy, Rachael"

Greenlight Capital's David Einhorn sent a letter to shareholders on April 25 explaining the hedge fund's campaign at General Motors (GM). The investor, which boosted its position in the car company earlier this year, proposed that GM create two classes of stock and accused the company of misleading credit-rating agencies about the plan. In his letter, Einhorn noted that his firm had "made more noise than usual (and more than we'd like) by making public our idea for General Motors Company." He said Greenlight felt the need to step in "as we believe there is a lot of value to unlock and the company did not fairly evaluate our idea." He added: "We know this is a tough fight. Fortunately the math is on our side (if GM does what we suggest, we believe the stock will go up a lot) and the ultimate decision will be made by our fellow shareholders. We believe others recognize that the stock is deeply undervalued and when shareholders grasp the math and the extent of GM's behavior, they will vote with their wallets and for needed change at the Board level." Einhorn noted that the last time the firm engaged a company publicly was with Apple in 2013.

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A Showdown Over Wells Fargo's Board of Directors Looms
" New York Times (04/24/17) Cowley, Stacy; Corkery, Michael"

Wells Fargo's (WFC) directors could be ousted April 25 at the bank's annual shareholder meeting. Such large pension funds as Calpers, which manages the retirement funds of California's public employees, are planning to vote against most of the bank's 15 board members, saying they failed in their oversight duties of the San Francisco-based company. "If there is a serious failure in oversight, directors need to be held accountable," asserted Scott M. Stringer, the New York City comptroller who helps oversee the city's pension funds, which are planning to vote against most of the bank's 15 board members. Wells Fargo contends that ousting most of its board would be extreme and unnecessary because aggressive steps have already been taken like clawing back executive compensation. The board has defended itself, noting that bank executives were not entirely forthcoming with directors about the extent of the fraud, according to an internal investigation that was commissioned by the board and released earlier in April.

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Ackman: 'A Good Time to Buy a Great Business Is When it Is in Temporary Trouble'
" Yahoo! Finance (04/24/17) La Roche, Julia"

In an April 24 investor presentation in London, Pershing Square Capital CEO Bill Ackman said long-term investors in Chipotle Mexican Grill (CMG) will be "rewarded" as the restaurant chain emerges from its recent troubles. He said, "We believe that a good time to buy a great business is when it is in temporary trouble." The presentation indicated that "while Chipotle's reputation has been bruised, we believe that the business will ultimately recover and become stronger aided by: improved governance, increased focus on operations, appropriate marketing and technology initiatives, [and] passage of time," but that timing for the recovery can be "difficult" to predict. Pershing Square is Chipotle's second-largest shareholder, with an approximately 10% stake in the company. It last owned more than 2.88 million shares, valued at more than $1.36 billion. Pershing Square also indicated that it sees a "significant" growth opportunity for the company, with some key drivers including mobile and online ordering, catering, store unit growth, and the continued growth of the fast-casual category.

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Perrigo CEO Faces Mounting Pressure as Investors Sound Alarms
" Wall Street Journal (04/24/17) Monga, Vipal"

Perrigo Co. (PRGO) CEO John Hendrickson must convince shareholders, including Starboard Value LP, he can turn things around at the beleaguered company. Shares at the company peaked at $203.69 two years ago, but since then the stock has lost about two-thirds of its value. Shares closed Friday at $66.43. Starboard has placed three directors on the board, and plans to nominate two more independent directors. Starboard's Jeff Smith has urged the company to sell assets. "They're in a tough spot," says Randall Stanicky, an analyst at RBC Capital Markets. Selling off units could make the company more efficient, he says, but it would also lose revenue and its stock could continue to drop. "It's a bit of a conundrum." Hendrickson has been CEO for a year, and Starboard began applying pressure less than five months into his tenure. "Although we recognize you are new to the CEO role and hope you will have fresh ideas, we also know that you have been at Perrigo for approximately 27 years, and, to date, no new plans have been announced for a meaningful change in strategic direction or operational excellence," Smith wrote in a September letter to Hendrickson. At the behest of Starboard the company is now reviewing its generic drugs business.

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Shire, Unilever, and Astrazeneca Face Another Shareholder Spring as Corporate Governance Consultants Slam Executive Pay
" City A.M. (04/23/17) Jolly, Jasper"

Several of Britain's largest companies are about to face a fresh round of shareholder revolts over high levels of compensation after influential corporate governance consultants advised investors to vote against remuneration reports. Pensions and Investment Research Consultants (Pirc) has expressed concerns about executive pay at FTSE 100 companies Shire (SHPG), Unilever (UN), and AstraZeneca (AZN), which will hold their annual general meetings (AGMs) this week. They plan to hold votes on pay awards for management. Recent PwC research found pay for top FTSE 100 executives had decreased in real terms, based on the first 40 blue-chip companies to reveal compensation levels. The advisers, though, have found multiple instances of pay they deem excessive. Pirc said increases in executive pay at Shire, for example, had outpaced the returns earned by investors. A previous compensation report from Shire received 48% percent of votes against it at last year's AGM. This week's vote will be non-binding.

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Survey Roundup: Boards Brush up on Activist Responses
" Wall Street Journal (04/21/17) DiPietro, Ben"

A new survey by Deloitte and the Society of Corporate Governance in which 189 of the latter's members were polled found that 74% said their boards have started preparing for activity from activist investors, up from 55% just three years ago. Furthermore, 27% acknowledged that their organization had been approached by an activist investor in the last year. Respondents ranked cybersecurity as the No. 1 board concern, with 14% disclosing that their board had added someone with cyber experience in the past couple of years. "It is vital for boards to work with management to navigate risks and opportunities with a comprehensive and adaptable strategy," concluded Darla Stuckey, president and CEO of the Society for Corporate Governance.

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High-Stakes Vote on Wells Fargo Board Also Tests Proxy Adviser ISS
" Reuters (04/21/17) Kerber, Ross; Freed, Dan"

An April 25 shareholder vote at Wells Fargo & Co. (WFC) will determine whether the bank has done enough to retain investor confidence following its phony-account scandal and whether Institutional Shareholder Services (ISS) has enough clout to oust most of the bank's board. Earlier this month, ISS recommended that investors vote against 12 of the 15 directors on Wells Fargo's ballot at the annual meeting, contending that they had all failed in their oversight duties. Observers note that it would be unusual for directors at a company the size of Wells Fargo to turn over suddenly without pressure from an activist investor, but ISS's recommendation—"among the harshest" that Okapi Partners President Bruce Goldfarb has ever seen—was rare. The largest proxy adviser, with about 1,700 clients, ISS has faced concerns that it wields undue influence over corporate elections, and activists have criticized big fund managers for blindly following ISS. However, Babson College finance professor Michael Goldstein said it could be difficult for fund firms to break with ISS and support the whole Wells Fargo board. "This may be one of those cases where you don't want to have to answer a lot of questions about why did you support these people," he said.

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Fitch: Arconic/Elliot Proxy Battle Underscores Activism Trend
" Reuters (04/21/17)"

Fitch Ratings reports that Elliott Management's proxy fight with Arconic Inc. (ARNC) could become one of the most notable examples of shareholder activism this year. U.S. companies have grown increasingly disposed to enter into amicable settlements with dissident shareholders instead of protracted and costly proxy battles. However, as Arconic's May 16 annual meeting comes closer, the possibility of a settlement agreement between Elliott and Arconic is becoming increasingly unlikely. Fitch has typically viewed the likelihood of success with proxy fights as 50/50, because the outcome is often dependent on the parties' ability to convince top shareholders. Investors have a great deal to reflect on when voting at the Arconic meeting, considering events such as Elliott's efforts to replace Arconic's now ousted CEO, after his decision to go rogue with a letter to Elliott; various discrediting presentations by both parties; vote-buying allegations; and Arconic's disclosure that its pension plan would require a significant contribution in the event of a change of control. Both parties are seemingly trying all options to gather shareholder support but there appears to be an overwhelming amount of conflict hindering any settlement. Elliott is eager to gain greater board representation in order to implement strategies to further optimize value for shareholders, but the incumbent board is refusing to budge.

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A Radical Proposal For Shareholder Democracy
" Forbes (04/20/17) Baldwin, William"

Corporate proxies have been criticized by some as a costly waste of time, while others consider them a great resource for shareholder democracy.  Indications of late suggest that, after years of failures, dissident shareholders might actually enjoy some success at the ballot box.  At a congressional hearing last September, Manhattan Institute attorney James Copland described what he found after tracking the votes at 250 large corporations.  Over the course of a decade, he reported, there were 1,444 social-policy propositions at these companies.  Only one, tied to lobbying disclosures at Fluor Corp., passed.  One reason that cause-related propositions have struggled is that institutional investors have balked at engaging with management—until now.  BlackRock announced in early March that it will vote against the reelection of directors who delay on addressing climate change, and State Street said it would challenge companies that fail to put women on the board.  Conversely, Vanguard appears not to be doing enough to challenge insiders: Vanguard says it votes with management 92% of the time, without disclosing how much of the 8% represents absentions.  One "radical idea" is to have fund companies flow through voting power to their customers.  "On your account profile screen you'd have the option of directing proxies for all the shares you indirectly own to some player with the time and motivation to rattle directors' cages," writes Forbes contributor William Baldwin.  "You might select the Sierra Club or the Interfaith Center on Corporate Responsibility or, who knows, Carl Icahn."

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Kleinfeld's Leaving Arconic Shows Investors Like Everyone to Play Nice
" Wall Street Journal (04/20/17) Teitelbaum, Richard"

The events leading up to Arconic Inc. (ARNC) CEO Klaus Kleinfeld's departure shows how the nature of activist shareholder campaigns is changing.  "The side that goes on the low road is going to be less able to get the support of institutional investors," explains Ken Squire, founder of 13D Management LLC.  "They are looking for someone who is serious and professional, not someone throwing spitballs and insults."  Arconic said Monday that Kleinfeld had stepped down by mutual agreement after he sent an unauthorized, vaguely threatening letter to Paul Singer of Elliott Management Corp., which has waged a proxy battle to install new leadership. Arconic said its board determined the letter showed "poor judgment," and Elliott Management said it "read as a threat to intimidate or extort."  Such aggressive moves are less common these days.  "Hyperbole doesn't sit well.  Not only does it not persuade them, it turns them the other way," notes Charles Elson, a professor of corporate governance at the University of Delaware.  "If you look at the nature of the campaigns, they are much more financial."  Squire adds that it is unusual for a CEO to send a letter without the board's approval, calling it a "serious corporate governance issue."  As for activists, he says the most successful are those who keep emotions in check during a campaign.

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Independent Directors No Panacea for Corp Misdeeds
" Wall Street Journal (04/20/17) Lemos Stein, Mara"

Proxy access has been touted as means to improve boardroom accountability, but the presence of independent directors is no guarantee of effective corporate governance, according to a new study. Under the Sarbanes-Oxley Act of 2002, audit committees are to have only outside directors and to include a financial expert. However, that has not led to any notable decrease in the number of financial fraud incidents since the law's implementation, reports a study from the University of Michigan's Ross School of Business. Examining class action lawsuits for claims of financial fraud that settled for $10 million or more, the researchers found little change in the number of such settlements before and after the legislation. "The lack of a significant decrease in these claims seems to indicate that it may have been unreasonable to expect independent directors … to have enough incentives or information to ferret out complex, and likely hidden, fraud,” they wrote in a working paper. The authors also discovered that outside directors were involved "as much, if not more so, than the executives in compensation manipulation games" using options grants in the 2007 to 2015 period. Noting that many issues affect directors' ability to closely monitor corporate management, including imperfect flow of information, the study still calls for greater shareholders' power as a way of promoting better governance. One vote-one share, binding resolutions on the board, and plurality voting would help shareholders exercise greater oversight of executives, the study said.

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