Media Center

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

Harbert Discovery Fund Sends Letter to Fellow Enzo Biochem Shareholders
ISS Recommends Against Instructure's Proposed Sale to Thoma Bravo: Note
Shareholder Krupa Urges GAM to Form Panel to Attract Strategic Investor
SEC Investor Group Seeks Rework on 2 Proposals
Goldman's Diversity Pledge Won't Apply to Boards in Asia
SEC Advisory Committee Pans Proxy Advisory Proposals
Prompted by New Regulation, South Korean Firms Scout Outside Directors
Sysco to Outsource Customer Service Positions in Latest Cost-Cutting Move
Xerox Escalates HP Takeover Fight With Push to Replace Board
Goldman Sachs Pushes for More Diverse Boards of Directors
HP Calls Xerox Board Slate a Proxy Tactic to Benefit Carl Icahn
Mason Morfit Takes Charge at ValueAct — 13 Years After Being Tipped
Carl Icahn Driving Xerox's Hostile Takeover Bids, HP Claims
AT&T Finds a New Way to Help Grind Down Its Debt Mountain
Atlas and Blue Wolf Correct Verso's Misleading Comments Regarding Settlement Discussions
Proxy Solicitor Morrow Sodali Hires Schulman From MacKenzie
Keith Meister's Corvex Shot the Lights Out Last Year
Gender Diversity on Corporate Boards Boosts Environmental Performance: U of C Study
Activist Investors Regain Their Appetite for Japanese Stocks
BlackRock's Climate Announcement Pales in Comparison to Proxy Advisor Influence and Advocacy
Shareholder Activism in 2020: New Risks and Opportunities for Boards
Hedge Fund ESG Engagement Helps Managers Drive Change
Inside RBC's Efforts to Improve Corporate Governance
Compensation Season 2020
Hedge Fund Investors Pivot to ESG
Podcast: Everything Is ESG Now
The World's Most-Profitable Hedge Fund Is Now a Climate Radical
How Carl Icahn Got in a Legal Spat With This Natural Gas Tycoon Over a $30 Billion LNG Export Terminal

1/27/2020

Harbert Discovery Fund Sends Letter to Fellow Enzo Biochem Shareholders

Business Wire (01/27/20)

Harbert Discovery Fund LP and Harbert Discovery Co-Investment Fund I LP, the beneficial owners of more than 11.8% of the outstanding shares of Enzo Biochem Inc. (ENZ) on Jan. 27 sent a letter to shareholders in connection with its efforts to elect two highly qualified, fresh voices—Fabian Blank and Peter Clemens—to the company's board of directors at its 2019 annual meeting of shareholders, which will be held on Jan. 31, 2020. The letter says, "Enzo has indisputably destroyed value for its shareholders." Further, "in the context of this proxy campaign, the tactics Enzo's Board has resorted to in order to obfuscate, confuse, and distract shareholders are concerning, as well as disappointing. As Glass Lewis notes, the evidence, suggests 'there may be some foundational and atypical disconnect between the Company and investors.' First, Enzo has only addressed corporate governance issues when forced to do so. Nearly every single governance 'improvement' the Company cites occurred after public pressure from Harbert and other investors in the context of proxy campaigns. This includes the appointment of Rebecca Fischer to the Board on December 31, 2019, months after HDF launched its campaign and Barry Weiner stepping down as CFO so that he would not continue serving in that role while also being on the Board—a move Glass Lewis described as nothing more than 'another low risk, high optical upside modification intended to cultivate a more favorable impression of Enzo's governance.' Additionally, a close study of Enzo's filings reveals that the Company has only mentioned Board refreshment when under public pressure from shareholders. Enzo's 'proactive engagement process' with shareholders and the institution of a 'diversity policy,' as well as a proposed bylaw change to a majority voting standard, were first mentioned in December 2019, well after Harbert had gone public with its concerns. These facts demonstrate that the current Board does not take proactive, positive actions with regard to corporate governance unless it faces public criticism from large shareholders. That is at the root of the problem within this Company's boardroom."

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1/27/2020

ISS Recommends Against Instructure's Proposed Sale to Thoma Bravo: Note

Reuters (01/27/20) Herbst-Bayliss, Svea

Four entities that oppose the sale of U.S. educational software company Instructure Inc. (INST) to private equity firm Thoma Bravo on Jan. 27 garnered some support when Institutional Shareholder Services (ISS) came out against the planned all-cash deal of approximately $2 billion. ISS recommended that Instructure shareholders vote against the company's intended sale to the private equity firm at a Feb. 13 meeting. "Given legitimate concerns regarding the conduct of the process, a seemingly uncompelling valuation, and a strong standalone case, a vote AGAINST the transaction is warranted under the proposed terms," ISS said in a note to clients. Hedge funds Praesidium Investment Management, Rivulet Capital LLC, and Lateef Investment Management, as well as Oberndorf Enterprises, have said they intend to vote against the deal. They criticized the price and how the company located a purchaser. Instructure said in early December it intended to sell itself to Thoma Bravo for $47.60 per share or about $2 billion, succumbing to pressure from one of its shareholders calling for a sale. Thoma Bravo had increased its price from $47.00 per share to $47.60. Market reaction to the proposed sale, which represented a 10% discount to Instructure's closing share price on Dec. 3, was poor when it was announced on Dec. 4. From the day the deal was announced through Jan. 22—the end of a 35-day go-shop period during which Instructure had sought alternative bids—shares traded above Thoma Bravo's offer, with an "average closing price of $48.27," according to ISS. The proxy advisory firm said the sales process "began with a stutter-step" and was limited to a handful of financial buyers during the first 10 months of 2019. Instructure said it "conducted a comprehensive and deliberate process, lasting eleven months and ultimately involving 40 parties." ISS said Instructure did not treat all potential buyers alike, permiting Thoma Bravo to sign a confidentiality agreement within six days while waiting five months before permitting another party to sign one.

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1/23/2020

Xerox Escalates HP Takeover Fight With Push to Replace Board

Bloomberg (01/23/20) Deveau, Scott

On Jan. 23, Xerox Holdings Corp. (XRX) said it plans to nominate 11 directors to replace the board of HP Inc. (HPQ). The move comes after HP rejected Xerox's $22-a-share takeover offer and refused to engage in talks. Xerox hopes that replacing HP's entire board through a proxy fight will push the deal through. "HP shareholders have told us they believe our acquisition proposal will bring tremendous value, which is why we lined up $24 billion in binding financing commitments and a slate of highly qualified director candidates," said Xerox Vice Chairman and CEO John Visentin. The deal has the support of Carl Icahn, who owns about 11% of Xerox and has a 4.3% stake in HP. HP responded that "these nominations are a self-serving tactic by Xerox to advance its proposal, which significantly undervalues HP and creates meaningful risk to the detriment of HP shareholders." Xerox's director nominees are Betsy Atkins, CEO of Baja Corp.; George Bickerstaff, co-founder and managing director of M.M. Dillon & Co.; Carolyn Byrd, CEO of GlobalTech Financial; Jeannie Diefenderfer, formerly of Verizon (VZ); Kim Fennebresque, former CEO of Cowen Group; Carol Flaton, who has served as a managing director at AlixPartners; Matthew Hart, former president and COO of Hilton Hotels; Fred Hochberg, chairman and president of the Export-Import Bank of the United States during the Obama administration; Jacob Katz, who was chairman of Grant Thornton; Nichelle Maynard-Elliott, who most recently served as executive director of mergers and acquisitions for Praxair Inc.; and Thomas Sabatino Jr., who most recently served as executive vice president and general counsel of Aetna Inc.

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1/23/2020

Goldman Sachs Pushes for More Diverse Boards of Directors

Marketplace (American Public Radio) (01/23/20) Carino, Meghan McCarty

Goldman Sachs (GS) CEO David Solomon said Jan. 23 that beginning this year, his investment bank would refuse to help companies go public "unless there's at least one diverse board candidate, with a focus on women. He noted that almost 60 companies in the United States and Europe have gone public in recent years with all-male boards, adding that firms with at least one female director perform "significantly better." Erin Essenmacher, chief programming officer with the National Association of Corporate Directors, points out that a company's board of directors oversees major strategy decisions. Consequently having a diversity of perspectives in the boardroom often makes a difference. She reasons, "If you're not thinking differently about who's sitting around the table, then you're probably not thinking differently about other big questions that can really hurt your business." Although academic research on whether diverse boards boost company performance has been inconclusive, the move of a major firm like Goldman Sachs could change the calculus of many companies, says Allison Elias, senior fellow and lecturer at the University of Pennsylvania's Wharton School of Business. "I think that this Goldman decision is symbolic of the strength of the business case and the belief people have in it," notes Elias. As of 2018 less than a quarter of board seats at Fortune 500 companies were held by women, but things are gradually changing, says Lee Hanson, a vice president at executive search firm Heidrick & Struggles. "The market is clearly demanding it," she says. "It's the overriding thing we are being asked for, in boards."

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1/23/2020

Mason Morfit Takes Charge at ValueAct — 13 Years After Being Tipped

Financial Times (01/23/20) Fortado, Lindsay

Mason Morfit will become CEO of investment fund ValueAct Capital after 13 years with the firm. Morfit has spent years travelling the country with Jeff Ubben, the former head of the fund, to "crash analyst meetings together" and help run the business. As early as 2007, Ubben had told Morfit that he would be his eventual successor as the head of ValueAct. Morfit's influence can be seen in the fund's four biggest current stakes: Morgan Stanley (MS), Citigroup (C), private equity giant KKR (KKR), and Seagate Technology (STX). The firm's Master fund was up about 32% last year, roughly in line with the return on the S&P 500, enough to make ValueAct one of the best-performing shareholder activists. ValueAct pioneered a constructive style of activism, shunning public battles in favor of gaining board seats and working with management to turn around companies it considers undervalued, and under Morfit the firm may move even further in that direction. In 2013, the board of Microsoft (MSFT) negotiated a deal with ValueAct that it could join the board after then-CEO Steve Ballmer's successor was decided, and that the seat would go to Morfit. One board member spoke highly of Morfit, saying he was "pleasantly surprised" to find Morfit patient and fair as a director. Executives at some of ValueAct's portfolio companies, including Citigroup and KKR, say they have appreciated Morfit's input.

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1/26/2020

Activist Investors Regain Their Appetite for Japanese Stocks

Nikkei Asian Review (01/26/20) Miyamoto, Takenori; Noguchi, Tomohiro; Sakabe, Yoshinaru

Despite an overall decline in activist shareholdings around the world, activist investors held roughly 3.4 trillion yen worth of Japanese shares at the end of 2019, twice the level as when Japan introduced a corporate governance code in June 2015. Foreign investors are looking for value in Japan as stocks in the United States hover at record highs. This month, longtime Japan investor James Rosenwald will launch the Nippon Active Value fund in the United Kingdom with the aim of raising 200 million pounds. The fund will push for share buybacks, dividend increases, and more efficient use of capital at about 20 mid-size Japanese companies. Domestic institutional investors are also more willing to disagree with company executives, who are increasingly open to the kind of changes that investors favor. There is evidence that activism can be effective in Japan. According to a Nikkei analysis, among 37 companies that have been partly owned by activists for five years, return on invested capital has improved about two points to 12% from six years earlier, while shareholder returns rose 270% and interest-bearing debt rose 40%. This compares to flat return on invested capital and a 160% rise in shareholder returns at 2,664 companies that did not count activists among shareholders. Critics say U.S. shareholder activism has encouraged the pursuit of short-term profits, and some young tech companies have stepped up their defense against bids for larger stakes through dual-class shares. However, activism can serve as a catalyst for industrial consolidation and improved corporate governance, two areas where corporate Japan is said to need greater progress.

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1/24/2020

BlackRock's Climate Announcement Pales in Comparison to Proxy Advisor Influence and Advocacy

Forbes (01/24/20) Brannon, Ike

BlackRock (BLK) has announced that sustainability and climate change will be the focus of its corporate strategy and mission.  The shift in policy will have a big impact on BlackRock's portfolio, considering the firm is the world's largest asset manager, according to this opinion piece.  But BlackRock's sway over corporate America does not compare to the influence of proxy advisory firms on shareholder resolutions. Large asset managers like BlackRock and proxy advisory firms like Institutional Shareholder Services and Glass Lewis appear to share an agenda of pressuring companies to take steps to address climate change and advance various social agendas.  This agenda is one reason why the Securities and Exchange Commission (SEC) introduced new guidance along with a proposed rule to make sure that asset managers are not simply relying on these advisors without ensuring that their recommendations are in the best interest of their investors.  According to a recent survey of more than 5,000 investors with $10,000 or more in the U.S. stock market by the Spectrem Group and George Mason University law professor J.W. Verrett, the vast majority of investors stated that their return on investment was the most important factor in their investment and other related financial decisions and supported the SEC's proposed rules.  The SEC is correct in examining such advocacy and proposing rules that give retail investors the best possible return on their savings, according to the opinion piece.

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1/24/2020

Shareholder Activism in 2020: New Risks and Opportunities for Boards

Harvard Law School Forum on Corporate Governance and Financial Regulation (01/24/20) Langston, James E.

James E. Langston, a partner at Cleary Gottlieb Steen & Hamilton LLP, expects stakeholder activism—or the convergence of shareholder activism and social activism—to move beyond the realm of environmental, social, and governance (ESG) issues, and at the same time, he notes that activism by traditional long-only investors also has increased. "The takeaway for directors from this sort of activism is clear—no longer will institutional investors be content to sit on the sidelines or express their views privately," he says. "The question for boards in this new environment is not just whether institutional investors will be a source of ideas for an activist or side with the board or the activist in the event of a campaign, but also whether its institutional investors are likely to themselves 'go activist.' Shareholder engagement efforts will continue to be crucial in building support for a strategic plan and counteracting activist tendencies among long-only investors. But in the course of such efforts, directors must be mindful of the fact that not all institutional investors will have the same objectives and be careful to structure their interactions with investors accordingly." Among other trends, Langston expects certain brand-name activists to succeed in "settling" large-cap campaigns without committing to a settlement agreement with a standstill undertaking, and he anticipates that shareholder activism will continue to expand globally.

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1/23/2020

Inside RBC's Efforts to Improve Corporate Governance

Corporate Secretary (01/23/20) Maiden, Ben

Revised corporate governance guidelines issued by Canada's Office of the Superintendent of Financial Institutions in September 2018 granted boards at financial services firms greater discretion over how they meet its corporate governance expectations. In response, Royal Bank of Canada's (RY) corporate secretariat and the corporate and oversight functions used this increased flexibility to improve board oversight of strategy and corporate governance practices. Martin-Pierre Boulianne, senior legal counsel, special governance adviser, and assistant secretary, said the secretariat reviewed what is required of the board and each committee and interviewed committee chairs and other board members to determine where they wanted to make improvements. The result was enhanced board and committee effectiveness via meetings, forward agendas, and materials; an increased focus among directors on key issues like strategy, risk, and talent; and continued improvements in board and committee reporting on conduct and culture matters. For instance, in the past year, the board has overseen improvements in RBC's approach to climate change, including the creation of an enterprise climate-change strategy and enhancing climate-related disclosures. RBC also performed a significant revamp of its proxy circular to engage institutional investors and make the circular more accessible to retail investors.

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1/23/2020

Compensation Season 2020

Harvard Law School Forum on Corporate Governance and Financial Regulation (01/23/20) O'Brien, Jeannemarie; Wahlquist, Andrea; Shapiro, Adam

The article reviews several significant practices and trends in compensation arrangements that emerged or continued to evolve in the past year. Proposed rules issued by the Internal Revenue Service in December clarify, among other things, that the limitation on compensation deductibility (updated in 2017) will apply to executives of successor entities in merger and acquisition transactions if the executives were previously covered by these limits. Institutional Shareholder Services (ISS) made relatively few updates to its compensation-related voting guidelines for 2020, but it is worth noting updates to its policy on excessive director compensation. Starting in February 2020, ISS may issue a negative recommendation for board members responsible for approving non-employee director pay if it identifies a pattern of "excessive" non-employee director pay, defined as exceeding the pay received by the top 2% to 3% of directors within the same index and sector. Elective deferred compensation plans remain a staple of executive compensation programs at many companies, but the authors' recent experience has included several situations "in which directors and executives were surprised by the lack of flexibility to modify payment elections and the risks inherent in a deferred compensation arrangement." The upcoming proxy season will also be the first time that most public companies must comply with the new rule under Item 407(i) under the Dodd-Frank Act, which requires a company to describe any employee or director hedging policies or the absence thereof. Broadly there remains a strong focus on environmental, social, and governance issues, including as they relate to compensation and human capital, such as gender pay equity and diversity. While employee noncompetition covenants continue to come under pressure, reasonably tailored restrictions are still an appropriate way for an employer to protect its investment in talent.

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1/23/2020

Hedge Fund Investors Pivot to ESG

Institutional Investor (01/23/20) Whyte, Amy

A new Cerulli Associates report describes a small but growing niche of "hedge fund activists" that have adopted environmental, social, and governance (ESG) issues as a focus. It gives the example of Impactive Capital, launched last year by Blue Harbour Group alumni with a $250 million anchor investment from the California State Teachers Retirement System (CalSTRS), whose main strategy is ESG advocacy. Elsewhere, it notes, Jana Partners partnered with CalSTRS in 2018 to pressure Apple's (AAPL) board to address the potential negative effects of iPhone use on children, while Trian Partners has pushed several companies to promote workplace diversity, adopt supplier codes of conduct, and reduce emissions and waste. In addition, TCI Fund Management warned public company directors last November that it will vote against them if they do not disclose their carbon dioxide emissions. Hedge funds are taking up ESG issues as more institutional investors incorporate ESG factors into their investment process. A recent survey found that 42% of 89 U.S. institutional investors had included ESG in their investment decision-making process, nearly doubled from 2013. Cerulli found that 98% of asset managers expect moderate-to-high ESG demand from endowments and foundations. According to Cerulli director Michele Giuditta, "hedge fund activists are likely to play a particularly important role for large asset managers and institutional investors that...may not be positioned to engage, actively monitor, or have their voices heard at every company." Although ESG activism by hedge funds is currently "niche," Giuditta suggested that these existing players are likely to attain capital and shareholder support, which could encourage other hedge funds to follow suit.

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1/22/2020

How Carl Icahn Got in a Legal Spat With This Natural Gas Tycoon Over a $30 Billion LNG Export Terminal

Forbes (01/22/20) Helman, Christopher

Investor Carl Icahn is suing liquefied natural gas (LNG) tycoon Charif Souki. Icahn and Souki first tangled in 2015 when the investor acquired a 15% stake in Cheniere Energy (LNG), gaining two board seats and getting Souki fired from his position as CEO because he had "no interest" in reducing spending. Cheniere has alleged that on his way out, Souki stole early plans for a new megaplant called Driftwood LNG and used them to found his new company, Tellurian Energy (TELL), which exists to engineer, finance, and build Driftwood. When Cheniere fired Souki, it also broke off the joint venture Souki had made with consultancy Parallax Energy, owned by his friend Martin Houston, which had received $47 million to work on new ideas. Cheniere claims that Houston stole Parallax's nascent LNG projects when they launched Tellurian, and it also wants to be repaid the $47 million loan that it made to Parallax under Souki. Souki's side holds that the loan is void because Houston and Souki had already agreed on terms of a joint venture between Cheniere and Parallax, which would have recharacterized the loan into an equity investment. While the joint venture was not finalized by the time Souki was fired, the Cheniere board did agree to it, and Houston's attorneys believe he has a solid breach-of-contract claim against Cheniere for discontinuing funding without notice after Icahn got involved. A settlement is possible before trial—likely one wherein Houston would drop his claim against Cheniere in exchange for Cheniere walking away from its loan. Shares in Cheniere are up 150% since Souki was fired, and Icahn's 9% stake is worth $1.5 billion, but even so, Souki's firing may have cost Cheniere an important foothold in the growing LNG export market.

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