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A new searchable database featuring the comprehensive voting records of all top institutional investors. This includes every proposal that was up for a vote and how the investor voted.
Elliott’s Stake In Softbank
CNBC's David Faber takes a closer look at the Activism in 2017 and what to expect in 2018. With Ken Squire, 13D Monitor founder.
In response to calls from Quarz Capital Management to raise dividend payouts, Singaporean packaging and logistics firm Teckwah Industrial has stressed the need for a sound cash management policy. In a July 28 open letter to Teckwah, Quarz had urged the firm to increase annual dividends to 80% of net income to address issues of cash discipline and operational efficiency. Teckwah paid out 32% of net profit as dividends in 2019. Quarz is the fourth largest shareholder of Teckwah with a 6% stake. Responding to the letter, Teckwah said in a Tuesday filing that it seeks to pursue long-term, sustainable growth which is especially important in the current economic environment. Teckwah said that its financial position allows it to invest in new plants and technology while pursuing its digital transformation and innovation program.
Commerzbank (CRZBY) has appointed Hans-Joerg Vetter as its new chairman despite objections from Cerberus Capital Management, the most vocal shareholder of the German lender. Cerberus partly opposed Vetter because he refused to meet with the private equity firm ahead of his appointment. Cerberus' 5% stake in Commerzbank trails only the 15.6% holding of the German government. The supervisory-board members of Commerzbank settled on Vetter partly because of his reputation as a strong-willed and even stubborn leader. Vetter will need to find a common ground with Cerberus, hire a new CEO for Commerzbank, and set a new strategy for the lender. Martin Zielke stepped down as CEO in July after Cerberus and the German government said his efforts to boost profitability had fallen short of expectations. The new CEO will need to appease Cerberus and the German government on cost-cutting goals.
Evergy Inc. (EVRG), a utility being pressured by Elliott Management Corp., has decided to stay independent after talking with a number of possible purchasers, according to sources. The stock declined more than 13% on the news. Evergy had approached several potential suitors but decided there was more value to be extracted for shareholders via the implementation of a new operating plan, which it has been crafting alongside weighing a sale, the sources said. The company likely will issue details of the plan Aug. 5 along with earnings, they said. Elliott revealed a $760 million stake in Evergy in January and called for it to revamp its leadership and consider a merger. As part of a March settlement with Elliott, Evergy selected two new board directors and created a special committee to weigh ways to extract value, including exploring a possible sale. The call for changes came less than two years after the utility was created from the merger of Westar Energy Inc. and Great Plains Energy Inc.
The Securities Exchange Board of India (SEBI) says that proxy advisory firms will need to follow some "procedural guidelines" in engaging with clients and companies. The proxy advisory firms must ensure that the policies be reviewed at least once annually, SEBI said. Proxy advisors must disclose the methodologies and processes of their research and corresponding recommendations to their clients. Clients shall be alerted within 24 hours of receipt of information about any factual errors or material revisions to the report. There must be a stated process for the proxy advisory firms to communicate with their clients and companies. The reports by advisors must be shared with their clients and the companies at the same time. SEBI also said proxy advisors should disclose any conflicts of interest when they are giving their advice.
Commerzbank AG (CRZBY) has appointed Hans-Joerg Vetter as supervisory board chairman. Cerberus Capital Management had argued against hiring Vetter in a Monday letter, but the group that picked him, led by government representative Jutta Doenges, prevailed despite its objections. This marks a setback for Cerberus, the company's second-largest shareholder with a 5% stake, in its campaign for change at Commerzbank. Launched in June, this campaign has so far led to the departures of Chairman Stefan Schmittmann and CEO Martin Zielke. In its letter Monday, Cerberus suggested it wasn't consulted on the decision to make Vetter a leading candidate for the job and it offered two alternatives for the post. Cerberus was brushed back earlier when it issued a demand for two seats on the supervisory board. Cerberus owns 5% in Commerzbank, compared with the government's stake of 15.6%. The bank's share price has dropped more than 60% since Cerberus took the stake three years ago. Doenges joined the bank's supervisory board in May, and her first task has been to find a new board chair. Vetter's most urgent task as new chairman will be to find a CEO who will carry forward a new cost-cutting plan that Zielke had been working on before he quit.
Last week's shareholder meeting at Toshiba (TOSYY) found support for CEO Nobuaki Kurumatani plunged from 99% a year ago to 58%. Although two funds failed to add five nominees to the board, nominee Yoichiro Imai, co-founder of top Toshiba shareholder Effissimo Capital Management, secured 43% of the vote. These results signal that funds' pressure on Toshiba is unlikely to dampen anytime soon. Effissimo, which controls a 9.9% stake in Toshiba, had lobbied for additional directors, citing bogus transactions the conglomerate disclosed this year as proof of little progress in corporate governance since a major accounting scandal in 2015. Proxy advisers Institutional Shareholder Services and Glass, Lewis & Co took Toshiba's side, claiming the current management team is relatively new and diverse. Toshiba has been facing pressure from activist funds since it sold 600 billion yen ($5.6 billion) of stock to dozens of foreign hedge funds following the bankruptcy of its U.S. nuclear power unit in 2017. Effissimo and other funds own approximately 30% of Toshiba's voting rights, and foreign shareholders constitute about 60%. Toshiba added seven new independent directors last year at the urging of U.S. hedge fund King Street Capital.
In the biggest U.S. energy-related deal of 2020, Ohio-based fuel maker Marathon Petroleum Corp. (MPC) has agreed to sell its gas stations to the owners of the 7-Eleven convenience store chain for $21 billion. The all-cash transaction comes less than one year after Marathon agreed to spin off its Speedway convenience-store chain under pressure from such investors as Elliott Management Corp. Marathon had been close to a deal with Seven & I Holdings Co., the Japanese parent of 7-Eleven Inc., earlier in the year. However, negotiations crumbled in March when the Covid-19 crisis took hold. Sales talks were revived months later with other suitors including Canada's Alimentation Couche-Tard Inc. (ANCUF). The Speedway deal, which includes approximately 3,900 convenience stores, would bring 7-Eleven's retail footprint in North America to nearly 14,000 locations. The agreement is on track to close in 2021's first quarter. Elliott has repeatedly called on Marathon to divide into three businesses—a gas-station chain, a pipeline business, and a fuel-making operation—arguing the integrated model left the company undervalued.
Swedish-based Cevian now owns 8.5% of British education publisher Pearson (PSO), up from 7% two weeks ago, making it the company's third-largest investor. Cevian looks to invest in companies like Pearson that seem to be either undervalued or underperforming compared to their full potential. The investor has said Pearson is yet to fulfil its full potential under outgoing boss John Fallon. Pearson has seen its shares decline 56% since Fallon took over in 2013. The company last week said its search for a new chief executive was "well advanced" as it seeks to reassure investors ahead of a leadership change in December. Due to pandemic-related school closures, Pearson has seen a 17% plunge in sales for the six months to June 30. Pearson recorded an adjusted operating loss of £23 million for the first half of 2020, down from an operating profit of £144 million a year earlier. Cevian hopes that growth in Pearson's digital operations could portend well for future strength. The publisher saw higher demand for digital learning products such as online degrees during lockdown, and now predicts a bounceback in the second half of the year as demand for educational resources rebounds. Cevian has said Fallon's successor should have a "clear track record of shareholder-value creation," suggesting it would not back an insider candidate.
Quarz Capital Management has been engaging with several listed companies in Singapore, including Sabana REIT (SBBSF). The fund manager recently increased its stake in Sabana REIT, which is merging with ESR-REIT, to 5%, but also implied in a Business Times report that the offer price was too low. Quarz wants Teckwah Industrial to return more cash to shareholders to address its lack of cash discipline and operational efficiency. The investor boosted its stake in Teckwah to more than 6% in April after pushing it to more than 5% last December. Last April, Quarz called on CapitaLand (CLLDY) to merge its two hospitality trusts because Ascendas Hospitality Trust was undervalued due to its "suboptimal size." Ascendas completed its merger with the larger Ascott REIT in December to form Ascott Residence Trust. Also last April, Quarz recommended that Singapore Post (SPSTF) sell its U.S. e-commerce businesses, but after failing to find acceptable offers, Jagged Peak and TradeGlobal have filed petitions for Chapter 11 relief. At Sunningdale Tech, Quarz has called for the reporting of one-off costs separately from core net profit and returning more cash to shareholders. The investor says its less than 5% stake in Sunningdale, when combined with affiliates, gives it a "sizable position" in the company.
Mack-Cali Realty (CLI) dipped 6.7% after reporting a second quarter core FFO per share of 28 cents, missing the 31 cent consensus estimate and falling from 40 cents in the year-ago quarter. Office rent collections averaged 96% in the second quarter and 98% in July, while residential collections averaged 98% in the second quarter and 99% in July. Core office properties were 80.3% leased at the end of June, down from 81.1% on March 31 and up from 79.8% the year before. Second quarter office portfolio same-store GAAP net operating income fell by 3.6% year-over-year. Its Roseland multifamily stabilized operating portfolio was 92.6% leased at June 30, 2020, vs. 95.7% at March 31, 2020, predominantly due to a dramatic reduction in new lease traffic. The real estate investment trust is looking for a permanent CEO after the previous CEO, Michael DeMarco, resigned as part of an agreement with investor Bow Street, which had been pressuring Mack-Cali about its performance. "In the coming quarters, my focus will be to empower the organization to provide excellent service to our tenants, dispose of non-core assets, collect rents, retain tenants, and lease up our New Jersey waterfront properties in order to build long-term value for our shareholders," said chair and interim CEO MaryAnne Gilmartin.
Veteran dealmaker David Freedman will replace David Hunker as head of shareholder activism defense at JPMorgan Chase (JPM). Freedman, who also has capital markets experience, will lead the newly created global shareholder engagement and M&A capital markets group at JPMorgan. The new group will advise corporate clients on how to engage with shareholders to defend their company from an activist campaign. JPMorgan also has named regional heads for North America; Europe, the Middle East and Africa; and the Asia-Pacific region to support Freedman. The moves are part of a broader effort to help clients deal with activist investors as campaigns are expected to surge in the second half of the year. "One of the big differences of managing activism now is that institutional long-only shareholders are even more supportive of activist investors," says Freedman. As a result, companies will need to address all shareholders, not just those on the activist side, he adds. Hunker led shareholder activism defense at JPMorgan for 16 years.
Toshiba (TOSYY) has beaten back investors with a clean sweep for its board nominees, saying its 12 proposed directors were all elected at a shareholders meeting. Largest Toshiba shareholder Effissimo Capital Management had pushed for co-founder Yoichiro Imai to win a seat on the conglomerate's board. Toshiba's shares slipped by up to 2% in Tokyo trading following the vote. Toshiba has been plagued by scandal and missteps in recent years. It paid a record fine in an accounting fiasco and then saw billions lost on an investment into nuclear power. Toshiba sold its medical unit to Canon (CAJ), its home appliance business to China's Midea Group, and a piece of its memory chip business to a group led by Bain Capital (BCSF) to cover its losses. Effissimo and other investors have sought improved governance and management. The Singapore firm reported a stake in 2017 and was later joined by other investors. Effisimo says that it is open to "constructive engagement" with Toshiba management. "There were many individuals that have shared our concerns and agreed that the further growth in Toshiba and enhancement to its corporate value could not be achieved absent a fundamental improvement in its compliance and corporate governance," the firm states. Effissimo also this week cut its stake in Toshiba from about 15.4% to 9.91% to allay anxiety that its status as an overseas investor would hinder Toshiba's independence. It also aimed to ensure Imai's status as an independent director if he had been appointed to the board. "This stems from our belief that there are internal control-related problems at Toshiba," Effissimo said.
Windstream Holdings Inc. (WINMQ) is looking for $2 billion to exit bankruptcy as it tries to improve performance. The company plans to keep CEO Tony Thomas and CFO Bob Gunderman at the helm. Investors have already submitted enough orders to cover the roughly $1.65 billion of first-lien debt at a yield in the low 8% range. With the backing of Elliott Management Corp. and Oaktree Capital Management, Windstream is asking investors to give a second chance to the team that led the company through a controversial 2015 spinoff of Uniti Group Inc. (UNIT) that left it with $6.5 billion in debt. Thomas was in charge when the company spun its network assets into the separate Uniti entity; this sparked conflict with Aurelius Capital Management, which said the spinoff violated the company's debt covenants. Under Windstream's court-approved bankruptcy plan, its unsecured and second-lien creditors will effectively recover nothing, and its first-lien creditors will get about 60 cents back for every dollar they lent. While its reorganization takes care of more than $4 billion of debt, Windstream will still owe about $2 billion. Annual revenue is expected to stabilize at around $4.2 billion annually through 2026, according to materials released in February, down from about $5.5 billion in 2018. Windstream has reported steady operating income for its rural broadband internet service in recent quarters, but analysts say it needs to keep upgrading networks to ensure that demand keeps growing. The company is attempting a fresh start by appointing a new board of directors, which includes Elliott and Oaktree, which are both taking substantial stakes in new equity that will take Windstream private.
Sources report that George Weston Ltd. (WN), the Canadian grocery and baking giant, is exploring an acquisition of Swiss baking company Aryzta AG (ARYN). Aryzta is also attracting interest from potential private equity bidders including Apollo Global Management Inc. and Cerberus Capital Management. Aryzta shares rose as much as 3.1% Friday morning, having lost almost half their value this year. A shareholder group led by Swiss investor Veraison Capital and Cobas Asset Management own more than 20% in the company and have been pushing for management and strategy changes after years of what they called "significant and consistent value destruction." Aryzta CEO Kevin Toland, who took over in 2017, has been trying to turn around the company after a string of acquisitions under his predecessor left the company with about 1.3 billion francs of total debt. The company announced in May it had hired Rothschild & Co. to conduct a review of its strategic and financial options. The company said this month that several parties expressed unsolicited interest in acquiring the company, prompting it to push back a shareholder meeting to mid-September.
Singapore-based fund Effissimo Capital Management has cut its stake in Toshiba Corp. (TOSYY) from 15.36% to 9.91% amid a proxy fight to add three directors. Effissimo is calling for Toshiba to elect an Effissimo co-founder and two others as outside directors ahead of the industrial conglomerate's annual shareholder meeting on Friday. Effissimo said the stake sale will make its co-founder meet Toshiba's criteria for independent director.
An asset sale and share buyback plan announced March 23 has helped double SoftBank Group's (SFTBY) share price. The share-price surge came as portfolio companies like Alibaba (BAB) increased in value and CEO Masayoshi Son shifted his strategy under pressure from investor Elliott Management, selling assets and using the proceeds to buy back shares and reduce debt. The new focus has narrowed SoftBank's discount to net asset value to roughly 50% from more than 70% in mid-March. The author argues that this success strengthens the case for further dismantling SoftBank, whose equity is still undervalued. The best way to close the valuation gap is to keep shrinking the portfolio, such as by selling or floating U.K. chipmaker Arm Holdings or shrinking its holding in SoftBank's domestic telecom operation, which accounts for 13% of the group's portfolio. The most value lies in offloading Alibaba, as the company's 60% is worth more than SoftBank itself. SoftBank could hand it back to shareholders or sell shares back to Alibaba, or on the market.
Elliott Management has added some exposure to Bluewaters Power. The U.S. hedge fund has picked up some debt in the power station owner at a time when lenders are offloading their debt exposure. However, it is still unknown who Elliott bought the Bluewaters debt off, how much it purchased, and at what price. Distressed investors Oaktree Capital Management (OAK-A) and Davidson Kempner Capital Management also have become new debt holders of Bluewaters. Lenders have been looking to sell their debt exposure after Bluewaters' Japanese owners Sumitomo (SSUMF) and Kansai Electric (KAEPY) offered them 64¢ and 66¢ on the dollar for their loans. They rejected the proposal. ANZ Banking Group (ANZBY), National Australia Bank (NABZY), Westpac Banking (WBK), and offshore banks BBVA (BBVA), SocGen (SCGLF), Bank of Ireland, and Singapore's OCBC (OVCHF) were all involved in a selloff over the past week. Elliott is expected to be a vocal member of the embattled Bluewaters' revamped lending syndicate.
Windstream Holdings (WINMQ) has reported a net loss of $162.4 million for the second quarter. In what will likely be its last earnings report before becoming a privately held company, Windstream reported that its quarterly revenues were $1.185 billion, down from $1.286 billion a year ago, while its quarterly net loss was a marked improvement from last year's $544.1 million. Windstream added 22,000 Kinetic broadband subscribers in the second quarter, its highest quarter net subscriber additions in over a decade. Based on first-half results, Windstream increased its 2020 full-year guidance to 60,000 net new broadband subscribers. On the pre-recorded earnings call, Windstream CEO Tony Thomas said more Kinetic broadband subscriber opportunities were ahead across its ILEC footprint. Windstream is also aggressively building out its fiber footprint with the addition of $2 billion in capital to offer its broadband service in rural areas. Thomas said 56% of Windstream's Kinetic customer base now has speeds of 25 Mbps or greater, which was up from 47% a year ago. For the first six months of this year, Windstream Enterprise's revenues increased 24% compared to the first half of 2019. Windstream has lightened its debt load by $4 billion since a federal bankruptcy judged approved its reorganization plans in June. Windstream also reorganized its governance, which included naming some of its creditors to its new board. The reorganization plan eliminated junior bondholders who were owed close to $2.4 billion, converted some senior debt to equity, and made Elliott Management Windstream's largest shareholder. Windstream also recently settled a lease conflict with Uniti Group, enhancing its cash flow profile by nearly $300 million per year until 2024. "I am excited to report that our path to emerge from restructuring is clear," Thomas said on the Q2 earnings call. "As a private company, Windstream will have increased flexibility to invest in our network, accelerate our transformation, and return to growth."
Front Yard Residential Corp. (RESI) should sell itself or the real estate investment trust (REIT) will be subject to a director contest in 2021, said Snow Park Capital Partners LP's Jeffrey Pierce, speaking July 27 on a panel at The Deal Economy: Middle Market Week digital conference. Pierce said Snow Park Capital would initiate a director contest if the REIT isn't sold. "We obviously put two directors on the board last year," Pierce noted. "The nice thing about that situation is that there are a lot of buyers, a number of private market participants, some of which participated in the first process and also new ones have reached out to us," he added. Front Yard Residential chose in May to cancel a $2.3 billion sale to privately held Amherst Residential LLC. Rather than take an initial $48 million termination fee, Front Yard agreed to take a $25 million termination fee plus a loan from Amherst and the sale of 4.4 million shares. Amherst has approximately a 7.5% stake in the REIT. Luxembourg-based Altisource Portfolio Solutions, a service provider for the real estate and mortgage industries and former Front Yard parent company, said in a securities filing in May that it questioned Front Yard's decision to end the Amherst deal without requiring the full $48 million termination fee that was part of the merger agreement. Altisource, which has a 5.9% stake in Front Yard Residential, said it no longer supported the REIT in its current direction. Altisource and Snow Park in June initiated a "vote no" campaign against Front Yard director George McDowell and Chairman Rochelle Dobbs at the REIT's 2020 annual meeting. Some 32% of voting shares opposed McDowell and 30% voted against CEO pay. However, the percentage opposed was bigger, and Amherst supported the incumbent board. Front Yard, previously called Altisource Residential Corp., was spun off Altisource Portfolio in 2012.
Crown Castle International (CCI) has established a mandatory retirement policy for its board of directors. Less than a month ago, Elliott Management said some changes needed to be made at Crown Castle, according to a letter to the Houston-based company's board that was released to the public. As a result of the new policy, nearly half of the board of the communications infrastructure giant will turn over in the next couple of years. Under the new policy, the board will not nominate any non-employee director who has reached 72 years of age. Five of Crown Castle's 12 directors are already older than 72, according to the company's 2020 proxy statement. The board is now working with a search firm to find independent directors who can bring the right mix of skills, diversity, and experience to Crown Castle, says Ari Q. Fitzgerald, chairman of the Nominating & Corporate Governance Committee. "Our work here is underway, and we look forward to adding highly qualified, independent directors with new perspectives to help our board further drive sustained value creation," Fitzgerald said in a news release.
Comments continue to be filed with the Securities and Exchange Commission (SEC) regarding its plans to reform Rule 14a-8 despite the official February deadline for feedback. The SEC aims to reform the process by which shareholder proposals reach a vote or companies exclude them from the proxy statement. Specifically, the SEC's plan would update the "one proposal" rule to clarify that a single person is not permitted to submit multiple proposals at the same annual general meeting on behalf of different shareholders. Further, the SEC's plan would make it more difficult for shareholders to bring unsuccessful resolutions in successive years, raising the threshold for companies to exclude a proposal if one substantially on the same topic received 5%, 15%, and 25% of the vote for matters voted on once, twice, or three or more times, respectively, in the last five years. At a recent panel discussion during Corporate Secretary and IR Magazine's virtual ESG Integration Forum, Andrew Behar, CEO of As You Sow, said, "This is intended to crush new ideas." However, Patrick Foley, securities counsel with General Motors (GM), voiced support for the new thresholds. He said, "We think if a proposal is overwhelmingly rejected by our shareholders then there's no good reason to put it back to a vote again immediately."
More companies are making environmental, social, and governance (ESG) disclosures in response to pressure from investors. However, the disclosures have led to an increase in shareholder litigation over ESG issues. Thus far, claims brought under federal securities laws covering material misstatements and omissions in securities offering documents have been largely unsuccessful. However, courts have found in favor of plaintiffs alleging anti-fraud violations for statements made in a company's code of conduct. Claims under U.S. state consumer protection laws also have not been very successful. Nonetheless, more companies are starting to include disclaimers on forward-looking statements in their ESG reports, which may or may not provide protection against potential litigation risks. ESG disclosure still can be beneficial for companies because such reporting may provide an incentive to improve internal risk management policies, may increase legal and protection when there is a duty to disclose, and may be helpful for attracting potential investors.
Experts say the success of annual general meetings (AGMs) taken virtual due to the pandemic will likely mean more options for remote participation at future events. The online migration was a scramble for most, but most of the response to the virtual meetings has been positive. Kevin Thomas, CEO of the Canadian nonprofit proxy advisor Shareholder Association for Research and Education, said the virtual events lack some intangible benefits versus attending a meeting in person, such as being able to have informal chats with executives and shareholders. As of July 28, 583 AGMs had been held by companies listed on the Toronto Stock Exchange, down 22% from last year, as some companies took advantage of pandemic-related deadline extensions offered by regulators. One observer expects virtual AGMs to become more common because people may be hesitant to attend crowded events even when the pandemic is under control, and the convenience of remote attendance has been well demonstrated. In Canada, 54% of the meetings were virtual only, with votes collected ahead of meetings, while 26% were traditional physical AGMs. Thirteen percent were "limited hybrid" meetings, where participants could remotely ask questions but couldn't vote, and 2% were "full hybrid" meetings, where participants could vote and ask questions at the meeting, whether in person or remotely. Shareholders who sponsor proposals are split on the subject of remote meetings. Virtual AGMs in Canada and the U.S. were generally well operated and well-received by shareholders, but there were also a few instances where technology failed or meeting organizers "turned off the mic" to stymie troublesome input.
Wirecard (WCAGY) is a cautionary tale for investors because it never received the baseline level of scrutiny that private companies face when they first enter the public markets. The German company reversed into a defunct shell company in 2005 instead of launching an initial public offering (IPO) with a comprehensive prospectus. Reverse listings are in fashion these days, with special purpose acquisition companies (SPACs) accounting for 25% of IPOs in the U.S. last year. This year, SPACs are attracting bigger names, and Bill Ackman's Pershing Square (PSHZ) hedge fund group launched the largest SPAC in history, raising $4 billion. Even before Ackman's deal, SPACs had raised $13.5 billion this year, making it a record year, according to Refinitiv. However, investors should be concerned about the scant information on reverse listings, the dilution effect for company owners and investors, and the conflict of interest in tying sponsor payback to the price paid for a merger.
An academic study finds that hedge funds are more likely to engage businesses with high corporate social responsibility (CSR) rankings, as some shareholders consider CSR an indication that a company is wasting money rather than focusing on investor returns. Pennsylvania State University's Mark DesJardine, Erasmus University's Emilio Marti, and HEC Paris business school professor Rodolphe Durand determined this is especially relevant if hedge fund activists deem CSR efforts as little more than greenwashing. The researchers examined 506 U.S.-based activist campaigns between 2000 and 2016, and found that companies whose CSR ratings were above the industry average had a 5% chance of being engaged by activist hedge funds, versus the 3% industry average. Furthermore, hedge funds are more likely to engage companies in sectors with poorer average CSR ratings that highlight CSR issues more. "Activist hedge funds look at CSR as a signal of relative misalignment" with delivering shareholder returns, Durand explained. The researchers observed that concentrating on ethically oriented practices was seen as a sign of wasteful spending, which "prevent[s] firms from maximizing shareholder value in the short term." These findings dovetail with booming interest in environmental, social, and governance (ESG) investing in recent years, which is helping persuade businesses to strengthen their reputations for ethical practices. The Global Sustainable Investment Alliance estimated that local sustainable investing assets totaled more than $30 trillion in 2018, compared to $22.8 trillion in 2016. Many industry insiders expect demand for CSR investments to continue growing despite outside shareholders' hostility, including former Unilever (UN) CEO Paul Polman. After staving off an unsolicited $143 billion takeover bid from Kraft Heinz (KHC) and its private equity investors in 2017, Polman called the failed attempt "a clash between people who think about billions of people in the world and some people that think about a few billionaires." Durand thinks the report's conclusions remain valid despite a recent uptick in ESG investing, noting that activist hedge funds are not fundamentally against a company focusing on CSR, but rather concerned that it is a sign of greater waste. Yet there have been indications that segments of the hedge fund industry have begun to view ESG as being aligned with shareholder returns. Atlas Global Investors founder Quentin Dumortier said robust CSR performance generates shareholder value and is "fully aligned with shareholders' interest," adding that "an activist today should actually aim at pushing companies toward best-in-class and authentic CSR strategies as a powerful driver to create shareholder value." However, Durand et al point out that unwitting attention from hedge funds concerned by CSR distractions can incur costs for targeted businesses, such as hiring lawyers or a public relations specialist, or diverted focus as top management respond to opposition. Durand also contends that a clear explanation of how CSR integrates within the company's business model lessens the chances of activist hostility.
A record number of Japanese public companies faced shareholder proposals during the June 2020 annual general meeting (AGM) season. Fifty-five public companies faced shareholder proposals, up from 54 companies in 2019 and 42 in 2018. Twenty-two companies received activist proposals, and 30 proposals received more than 20% of the votes and 14 proposals received more than 30%. There appears to be modest growth in the willingness of shareholders to support activists from the 2019 proxy season, when 17 companies received 10 proposals. A new amendment to the Foreign Exchange and Foreign Trade Act, which is aimed at inward direct investment and has been criticized as being designed to shut activists out of Japanese companies, has had little effect on the AGM season. Seventy percent of companies engaged by activists received proposals calling for stock buybacks, increased dividends, or decreased cross-shareholdings, compared with 75% a year ago. A Japanese public company received a climate-related shareholder proposal, but businesses are taking the initiative to respond to the growing environmental, social, and governance (ESG) concerns. Last month, 19 companies, including the three megabanks and the Big Four accountancies, established an ESG disclosure study group.
The Securities and Exchange Commission's (SEC's) final rule amendments on providing proxy voting advice, coupled with updated guidance for investment advisors, will hinder investors' ability to vote in a timely, cost-effective, and objective manner, according to this commentary by Lorraine Kelly, governance business head at Institutional Shareholder Services (ISS). The rule is based on the novel view that providing independent proxy voting advice constitutes a "solicitation," which ISS believes is inconsistent with the plain meaning of the federal securities laws. The SEC chose not to apply the fiduciary standards of the Investment Advisers Act, which would have governed all proxy advice rendered to U.S. investors, but instead chose to regulate proxy advice only if it relates to a public company registered with the SEC. Taking aim at proxy advisory firms, the SEC's thinking appears to be that stymieing their effort to do their work will limit investors' ability to express dissent. Meanwhile, the SEC's supplemental guidance for investment advisors will potentially hamper investors' ability to vote in a timely and unfettered manner. News reports raise concerns about the manner in which the commission arrived at the rule-making; the SEC chairman supported the rule-making by citing comment letters that were apparently fabricated or part of a corporate-funded lobbying effort to solicit and generate public support. The new rule upends the existing balance between public companies and their investor-owners in favor of corporate managers, the commentary says.
Investors don't need to sacrifice returns to invest in environmental, social, and governance (ESG) funds, according to a panel of ESG investors speaking at The Deal Economy: Middle Market Week on Wednesday. The investment community is realizing that ESG efforts are a way for companies to become more competitive in the long run, according to Lauren Taylor Wolfe of Impactive Capital. Morningstar data indicate that ESG funds drew $20.6 billion in investments in 2019, four times the net flows in 2018, and also outperformed conventional funds. Some hedge funds, such as Jeff Ubben's ValueAct Capital Partners LP, have expanded their own offerings into environmentally and socially focused investing. Meanwhile, some of the biggest passive funds all have ESG funds. Actively managed ESG funds are also more likely to have a better understanding of individual companies which puts them in a better position to influence management, said Ali Dibadj, partner at AllianceBernstein, while passive funds can drive change by pushing companies to meet ESG goals. Dibadj noted that if an active fund proposes changes a company should make to meet ESG goals, large passive funds can use their influence to drive those changes. The profitability of ESG investing is under a spotlight right now thanks to a recently revealed Department of Labor draft rule that would make it harder for employers to offer 401k plans that heavily invest in ESG funds. Nonetheless, the panel agreed that ESG is going to become a more important part of investing in the next five to 10 years.
Environmental, social, and governance (ESG) fund flows in the U.S. continued at a record pace of $10.4 billion in the second quarter, bringing net inflows for the first half to $20.9 billion, compared with the $21.4 billion of net inflows for all of 2019, according to Morningstar. According to a CoreData Research study of 500 global institutional investors, 51% now fully integrate ESG into their investment approach, up from 36% at the end of 2019. Institutions in North America are more skeptical, however, with those looking at a manager's ESG record falling to 35% from 38% in the fourth quarter. Such investors were most likely to cite issues about transparency and performance, said CoreData founder Andrew Inwood. To help clarify these issues, the Investment Company Institute is encouraging members to use consistent terminology when describing how ESG is integrated into a fund's investment process.
More than 200 S&P 500 companies have issued public statements in the wake of George Floyd's death, and many others have sent company-wide internal messages. The pronouncements show that companies have become more comfortable making political and social statements that may be polarizing among stakeholders. Attention to human resource issues internally and externally has only grown this year, with voting results on human capital management-related shareholder proposals demonstrating this shift. From July 1, 2016, to June 30, 2019, there were 63 such proposals at Russell 3000 companies, averaging roughly 22% support, and only three passed. This proxy season, many human capital management (HCM) proposals have settled, and in the last few weeks, shareholders voted on four proposals to disclose more HCM data and all passed with substantial support. Overall, HCM proposals have averaged 59% support this year. The Sustainability Accounting Standards Board (SASB) reporting framework has gained some momentum this year, with BlackRock (BLK) demanding disclosures aligned to SASB and State Street Global Advisors (STT) requiring disclosure as well as results. Meanwhile, a recent study by the Financial Times reveals that there are more environmental, social, and governance professionals at asset managers.
IsZo Capital Management, which owns 9.8% of the shares of Nam Tai Property (NTP), recently sent a letter to shareholders that calls on the Chinese company to "refresh" its board of directors. In an interview, IsZo Capital founding partner Brian Sheehy says ever since developer Kaisa Group Holdings bought 18% of Nam Tai's shares and replaced the CEO three years ago, the company has been a case study in mismanagement. Kaisa seized control of Nam Tai, packing the board with Kaisa affiliates and family members, according to Sheehy. He says total shareholder returns during Ying Chi Kwok's two-and-a-half years as chief executive officer is nearly -57%. IsZo has been in contact with Nam Tai's biggest shareholders, and Sheehy says they seem very enthusiastic about the idea of holding a special meeting and reconstituting the board of directors with the firm's six-member slate. Nam Tai investors include BlackRock (BLK), Vanguard, and State Street (STT). "We're looking forward to installing a China-based chief executive officer that is hands-on when it comes to implementing a value-enhancing strategy and engaging properly with shareholders," says Sheehy.
The Securities and Exchange Commission (SEC) proposed a rule change on July 10 that would increase the mandatory threshold for filing 13F reports to $3.5 billion in assets under management from the current minimum of $100 million. Jeremy Cohen and Jeff Zilka, senior executives with Edelman's Financial Communications practice, argue that the proposal will have two negative effects. "It will create much higher levels of vulnerability to under-the-radar activist investors who will be able to build positions in the shadows, putting executives and their companies in a bind with little warning," they say. "And it will remove a critical source of information companies use today to identify current investors and target potential new shareholders, which is the bedrock of an effective investor relations program." They contend that ValueAct, Third Point, Trian Partners, and the like will continue to report their holdings, but point out that "more than 60% of activist investors, including prominent activists JANA Partners and Sachem Head, manage assets below the SEC's proposed $3.5 billion cut-off and would no longer file quarterly reports," citing data from Activist Insight. "Ultimately, this burden will be felt not by America's biggest companies, but by smaller businesses with fewer resources to defend themselves. These are the issuers activists target most frequently, as 75% of activist campaigns in North America last year were waged against them, according to Activist Insight," they add. "We recommend companies engage with all investors, whether they have a history of activism or not, as soon as their investment becomes apparent. Removing notification through quarterly 13F filings, as the SEC proposes, will make this vastly more difficult, and will force companies to wait for the activist's 'knock on the door,' versus reaching out proactively, as is the best practice."
The Improving Corporate Diversity Through Diversity Act of 2019 (ICDTDA) would require issuers to disclose the racial, ethnic, and gender composition of their boards, nominees, and executive officers in their proxy statements. These disclosures would be based on "voluntary self-identification." The ICDTDA has raised questions about whether a person's self-identification could be wrong and, if so, whether they or the issuer could be held liable. It also raises questions about whether a director owes a fiduciary duty when self-identifying and, if so, what standard would be applied; whether the issuer would be liable if it knows, or should have known, that a director has incorrectly self-identified their race, ethnicity, or gender; and what level of "due diligence" issuers will be required to undertake to confirm the accuracy of the self-identifications.