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Featuring all breaking news and in depth articles and editorial press coverage pertaining to shareholder activism and corporate governance.

Amber Capital Tells French Utility Suez to Rethink Strategy
Nordea Sinks After Signaling It Will Cut Shareholder Rewards
Ebay Boosts Outlook as Customer Accounts Grow
Hedge Fund Elliott Buys Stake in Saga
EBay Moves Forward With Potential StubHub Sale: Sources
Money Printer De La Rue Calls Shareholder Proposals 'Destabilizing'
Sweet Start to the Year for Mr. Kipling Cake-Maker
After Years of 'Glacial Change,' Women Now Hold More Than 1 in 4 Corporate Board Seats
Top Delaware Defense Lawyer Switches Sides, Joins Shareholder Shop
Carl Icahn's Herbalife Tumbles to Near 52-Week Low
Aratana Shareholders Approve Company's Sale for $245M
ValueAct Surges in First Half
Aimia's Biggest Shareholder Says It Wasn't Consulted on 2 New Board Members
CRH to Sell European Distribution Arm to Blackstone
U.K.'s Largest Companies 'Systemically Failing' to Improve Gender Diversity
Land & Buildings Sends Open Letter to Brookdale Senior Living Shareholders
Ackman's London-Listed Pershing Square Gets Its Own Engagement
Investor 'Threatens to Oust Chair' at Troubled De La Rue
U.S. Investor Caps Torrid Day at Ashley's Sports Direct
Boss of First Group's U.S. Cash Cow Quits
First Group Peace Talks End in Acrimony as Hedge Fund Pushes for Break-Up
Sebi, SBI Differ on Corporate Governance Norms
Investor Pressures Scandal-Hit GAM Over Compensation
Symantec Falls as Deal Talks With Broadcom Are Said to Stall
Anadarko to Vote on Oxy Takeover in August
Did Elliott Management and the Oracle-Microsoft Deal Impact SAP's Q2 Results?
America's Hottest Shale Play Is Slowing Down
Can the R-Factor Help Lead to a Market-Based Solution for ESG Reporting Standards?
The Increased Politicization of Proxy Votes
Hermes: Industry ESG Scores for Small and Mid-Cap Companies Can Be Misleading
Why Is India Trying to Kill Off the Industry of Domestic Hedge Funds?
Theory, Evidence, and Policy on Dual-Class Shares: A Country-Specific Response to a Global Debate
Ackman Builds on His 2019 Rebound as Chipotle Rallies to Record
Increased Shareholder Activism at Banking Organizations?
What Will United Technologies Stock Be Worth After Its Transformation? It's Complicated.
A Curious Case of a Fracking Coup
Opt-In Stewardship: Toward an Optimal Delegation of Mutual Fund Voting Authority
When the Heir Apparent Is the Wrong Choice for CEO
Everything You Need to Know About the State of the Proxy Firms

7/17/2019

After Years of 'Glacial Change,' Women Now Hold More Than 1 in 4 Corporate Board Seats

Washington Post (07/17/19) McGregor, Jena

ISS Analytics reports that the percentage of women-held board seats in the S&P 500 has risen to nearly 27% from 16%, where it had hovered for several years. Only one firm in the S&P 500—Dallas-based Copart (CPRT)—had an all-male board as of June 28, down from 56 in 2009. However, Copart said it plans to fill a board vacancy with a "highly qualified, accomplished woman this year." The number of all-male boards is higher among small companies, with 329 firms in the Russell 3000 index having no women on the board. Best Buy (BBY) is one of the six companies in the S&P 500 where women make up the majority of board members. The company has added six board members, five of whom have been women, since it made a commitment five years ago to increase board diversity, and four of the past five new directors have been people of color. Some say the increase in diversity in recent years has been fueled by investor scrutiny and the fear of being called out in the media or by an advocacy group. Meanwhile, ISS data show that the number of proposals filed by shareholders on the topic of board diversity increased to 40 this year from eight in 2007. California passed legislation in 2018 to require public companies with their main offices in the state to eventually have between one and three female directors, depending on board size, and New Jersey is considering a similar measure. "I think norms would not have changed nearly as much if there had not been this drumbeat that gender diversity on the board improves corporate performance," said Katherine Klein, a management professor at the Wharton School at the University of Pennsylvania.

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7/16/2019

Ackman's London-Listed Pershing Square Gets Its Own Engagement

Bloomberg (07/16/19) Deveau, Scott; Linsell, Katie

Asset Value Investors Ltd. (AVI), which owns a 3% stake in Bill Ackman's London-listed Pershing Square Holdings Ltd. (PSHZF), is fighting the firm's decision to issue $400 million of 20-year debt without consulting shareholders. In a letter to Pershing Square Holdings Chairman Anne Farlow, AVI said the firm already has more debt than most of its peers and noted that selling more bonds will constrain its ability to narrow the gap between its stock price and net asset value (NAV). AVI is calling on the firm to halt the debt plan and pursue a more aggressive share buyback program to close that gap. "We are staggered that the board has decided to further tie its hands in this way," said AVI executive director Tom Treanor. "This latest episode has confirmed to us that shareholders would likely benefit from a newly reconstituted board willing and able to properly defend and represent shareholders' best interests." Shares in Pershing Square Holdings have risen about 41% this year, and it has returned nearly 48% on its investments through July 9, according to its website. However, Treanor says its share price still trades at a nearly 30% discount to its net asset value, and its shares have fallen about 26% since it went public in 2014 while the S&P 500 has gained about 74% over the same time period. "Shareholders have suffered from a persistently wide and growing discount to NAV, which is even more remarkable given the company's investment portfolio is comprised of large-cap, liquid, listed securities," he said. AVI said in the letter that it is shorting some of its position.

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7/16/2019

Can the R-Factor Help Lead to a Market-Based Solution for ESG Reporting Standards?

Forbes (07/16/19) Eccles, Bob

The European Union (EU) is taking more of a regulatory approach to environmental, social, and governance reporting, while the United States is taking a more market-based approach, at least for now, writes Bob Eccles, visiting professor of management practice at Said Business School, University of Oxford. EU member states implemented the EU Accounting Directive for Non-Financial Information last year, but the U.S. House Financial Services Committee rejected similar reporting last week. Critics expressed concern about naming and shaming companies. Nonetheless, an increasing number of companies are doing voluntary ESG reporting, including in the United States, but the quantity and quality of ESG reporting is uneven. "The R-Factor: Reinventing ESG Investing Through a Transparent Scoring System" is a market-based attempt to address this issue. For industry-specific issues, the R-Factor uses guidance developed by the Sustainability Accounting Standards Board and constructs scores for material issues based on data from three ESG vendors. State Street Global Advisors plans to share these scores with all of the companies in its portfolio, enabling them to know how a major investor has evaluated them in ESG terms. Other major investors will also benefit from more consistent ESG reporting, considering what is proprietary is not the data, but how the data are used, according to Eccles.

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7/16/2019

Hermes: Industry ESG Scores for Small and Mid-Cap Companies Can Be Misleading

IR Magazine (07/16/19) Galpin, Hamish

Hamish Galpin, lead manager of the Hermes SDG Engagement Equity Fund at Hermes Investment Management, says, "As the integration of ESG factors into investment decision-making becomes increasingly mainstream, over-reliance on simple answers and third-party industry data, rather than assessing complexities and directly engaging with companies, could lead to smaller companies being unfairly penalized by investors on the basis of partially informed ESG criteria." According to Galpin, proactive engagement with company boards is crucial to generate profitable insights given the lack of readily available ESG information in the small and mid-cap segment. Off-the-shelf tools, like published databases, likely will not offer such information. "Given the need to create scale, off-the-shelf ratings are often constructed without analysts forming a fundamental understanding of businesses or specialist industries," Galpin says, "This can result in ESG ratings missing genuinely material factors influencing the performance of companies or taking a kitchen-sink approach and combining the meaningful with the trivial to form a confusing array of data points." There are four key failings of ESG ratings, which are amplified when applied to smaller companies: market cap bias, disclosure/geographic bias, industry bias, and reactivity. "Where it is available, investors should ideally consider ESG information alongside traditional fundamental analysis, with more detail on sustainability issues to be derived through direct contact with management. This latter process requires a rigorous approach aligning and integrating a range of variables, which is not easily outsourced to third parties," he adds.

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7/12/2019

What Will United Technologies Stock Be Worth After Its Transformation? It's Complicated.

Barron's (07/12/19) Root, Al

United Technologies (UTX) plans to split into three companies—one focused on aerospace, one selling air-conditioning, and a third selling elevators—after which its aerospace division plans to merge with Raytheon (RTN). Investors are in limbo, having to wait until at least the first half of 2020 before they can buy shares of the newly separated companies. The waiting and the complexity has kept a lid on United Technologies' stock. However, Wall Street is offering separate valuations for the company's divisions. In a July 11 research report, Barclays analysts Julian Mitchell and David Strauss valued both Raytheon and United Technologies based on the pending deals. Mitchell believes United Technologies shares can hit $160 in the coming months, up 23% from recent levels, and Strauss thinks Raytheon stock should trade for $217 before the merger, up 22% from recent levels. If realized, those gains would be welcome news for shareholders of United Technologies, which has gained just 4.4% since investor Dan Loeb first suggested the split in March 2018. Wall Street seems to agree that United Technologies stock is trading at a discount to its underlying value and is worth between $150 and $160 a share. However, the timing of spinoffs and mergers is uncertain, as are the earnings produced by the separate companies in 2020 and beyond, but investors must decide now if the discount is big enough to jump into the stock.

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7/11/2019

Opt-In Stewardship: Toward an Optimal Delegation of Mutual Fund Voting Authority

Harvard Law School Forum on Corporate Governance and Financial Regulation (07/11/19) Griffith, Sean J.

Mutual fund voting can be problematic because it separates voting rights from economic returns, creating a potential rift between the interests of investors and firms. At the same time, mutual fund voting offers a solution to the problem of rational apathy, which refers to the tendency of investors to become lax monitors of corporate governance. Mutual funds emphasize the importance of proxy voting and allocate voting authority to internal “stewardship groups,” who manage voting on an industrial scale. In a forthcoming article in the Texas Law Review, the author argues that a rational investor will only delegate voting rights to a mutual fund on two conditions: one, if they believe the fund has some advantage around the information needed to vote rationally, and two, that the intermediary shares their purpose. The author argues from these principles that mutual funds ought to principally exercise voting discretion in “contests,” meaning proxy fights and M&A. For environmental and social proposals, he says that mutual funds should defer to management in voting, while providing investors with differing objectives with an opportunity to opt out through special funds or a form of pass-through voting. For governance proposals, where management may have a conflict of interest, mutual funds should abstain from voting because such conflicts do not produce meaningful information that would give them an advantage.

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7/10/2019

Everything You Need to Know About the State of the Proxy Firms

ValueWalk (07/10/19) Patch, Jeff

In this interview, Jeff Patch, an analyst with Capital Policy Analytics, discusses issues around proxy firms; corporate governance; and environmental, social, and governance investing. Patch has researched how state and federal policies impact investors and businesses. He says that, despite being subject to very little oversight, proxy advisory firms have grown to become the de-facto regulators of U.S. public companies. Patch takes issue with the fact that these firms are increasingly recommending votes based on environmental and social policy concerns, which he believes may reduce profitability. He argues that proxy advisory firms should have to register with the Securities and Exchange Commission (SEC) and clearly outline their methodologies, allowing the commission to create enforcement measures should these firms stray from their fiduciary duties toward investors and fail to prioritize value maximization. Regarding activism, Patch believes that older activists like Carl Icahn and Paul Singer share the same goals as management, merely taking another tactic on how to achieve value maximization. By contrast, he says, a newer breed of activist wants to use the corporate governance system to advance social or political initiatives, and ISS has actively promoted these kinds of issues. In his view, boards are sometimes "collateral damage" of such campaigns, leading to corporate governance malpractice. Patch argues that in addition to addressing proxy advisory firms, the SEC should look at shareholder resolutions, specifically the ownership requirements needed to introduce a resolution and the percentage of votes needed to reintroduce a proposal that has already been rejected.

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