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4/29/2029

Shareholder Activism in Asia Drives Global Total to Record High

Nikkei Asia (04/29/29) Shikata, Masayuki

Activist shareholders had their busiest year on record in 2024, with the Asia-Pacific region making up a fifth of campaigns worldwide, pushing some companies higher in the stock market and spurring others to consider going private. The worldwide tally of activist campaigns rose by six to 258, up by half from three years earlier, according to data from financial advisory Lazard. Campaigns in the Asia-Pacific tripled over that period to 57, growing about 30% on the year. Japan accounted for more than 60% of the regional total with 37, an all-time high. Activity is picking up this year as well in the run-up to general shareholders meetings in June. South Korea saw 14 campaigns, a jump of 10 from 2023. Critics say South Korean conglomerates are often controlled by minority investors that care too little about other shareholders. Australia and Hong Kong saw increases of one activist campaign each. North America made up half the global total, down from 60% in 2022 and 85% in 2014. Europe had 62 campaigns last year. The upswing in Japan has been fueled by the push for corporate governance reform since 2013 and the Tokyo Stock Exchange's 2023 call for companies to be more mindful of their share prices. The bourse has encouraged corporations to focus less on share buybacks and dividends than on steps for long-term growth, such as capital spending and the sale of unprofitable businesses. Demands for capital allocation to improve return on investment accounted for 51% of activist activity in Japan last year, significantly higher than the five-year average of 32%. U.S.-based Dalton Investments called on Japanese snack maker Ezaki Glico (2206) to amend its articles of incorporation to allow shareholder returns to be decided by investors as well, not just the board of directors. Though the proposal was rejected, it won more than 40% support, and Glico itself put forward a similar measure that was approved at the following general shareholders meeting in March. U.K.-based Palliser Capital took a stake last year in developer Tokyo Tatemono (8804) and argued that more efficient use of its capital, such as selling a cross-held stake in peer Hulic, would boost corporate value. Activist investors are increasingly seeking to lock in unrealized gains from rising land prices, reaping quick profits from property sales that can go toward dividends. Companies in the Tokyo Stock Exchange's broad Topix index had 25.88 trillion yen ($181 billion at current rates) in unrealized gains on property holdings at the end of March 2024, up about 20% from four years earlier. After buying into Mitsui Fudosan (8801) in 2024, U.S.-based Elliott Investment Management this year took a stake in Sumitomo Realty & Development (8830) and is expected to push for the developer to sell real estate holdings. This month, Dalton sent a letter to Fuji Media Holdings (4676), parent of Fuji Television, calling for it to spin off its real estate business and replace its board of directors. Activist campaigns have sparked share price rallies at some companies. Shares of elevator maker Fujitec (6406) were up roughly 80% from March 2023, when it dismissed Takakazu Uchiyama -- a member of the founding family -- as chairman under pressure from Oasis Management. The rise in demands from activists "creates a sense of tension among management, including at companies that don't receive such proposals," said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities. Previously tight cross-shareholdings are being unwound, and reasonable proposals from minority investors are more likely to garner support from foreign shareholders. Some companies are going private to shield themselves from perceived pressure. Investments by buyout funds targeting mature companies in the Asia-Pacific were the highest in three years in 2024, according to Deloitte Touche Tohmatsu. Toyota Industries (6201) is considering going this route after facing pressure from investment funds last year to take steps such as dissolving a parent-child listing with a subsidiary and buying back more shares. Toyota Industries holds a 9% stake in Toyota Motor (7203). The automaker "may have proposed having [Toyota Industries] go private as a precautionary measure," said a source at an investment bank.

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6/23/2025

Texas, Oklahoma, and Nevada Make Changes to Lure Business amid Delaware’s ‘Dexit’ Concern

Associated Press (06/23/25) Lau, Mingson

Lawmakers in Texas, Oklahoma, and Nevada have recently approved changes aimed at helping their states dip into the lucrative side of corporate litigation that Delaware, with a specialized court and business-friendly laws, has dominated as the world’s incorporation capital. Concerned that these changes may lure corporations away from Delaware, thereby causing the small state to lose millions in corporate franchise taxes, Delaware officials have responded with their own changes to solidify their status in the business world. In Texas, which opened a business court last year, there was bipartisan support for legislation diminishing shareholder powers and giving businesses more legal protections against shareholder lawsuits. Nevada lawmakers approved a corporation-friendly update to its business laws, also with bipartisan support, and separately moved toward asking voters to consider changing the state constitution to create a dedicated business court with appointed judges. Elon Musk had advocated both states as better options for incorporation after a Delaware judge struck down his shareholder-approved $56 billion compensation package from Tesla (TSLA). Musk’s businesses have also changed where they’re incorporated: Tesla and SpaceX relocated to Texas, while Neuralink moved to Nevada. Oklahoma also took action to get in the mix, as the Republican-led Legislature sanctioned the creation of business courts in its two most populous counties, a move the governor said would help Oklahoma become the most business-friendly state. “This is an area in which states, in many ways, are behaving like businesses,” said Robert Ahdieh, dean of the Texas A&M University School of Law. “Delaware is selling something. Texas is selling something that they hold out to be better. So it is very much a comparative exercise.” Since 2024, several billion-dollar companies including TripAdvisor (TRIP) and Dropbox (DBX) have relocated to Nevada. More than a dozen others, including the AMC (AMC) theater chain and video game developer Roblox Corporation (RBLX), have announced plans to incorporate there this year. Latin American e-commerce giant MercadoLibre (MELI) filed a request for shareholders to approve a Texas relocation in April, citing Delaware’s “less predictable” decision-making process — a common thought among exiting companies. Amid concerns about more companies reincorporating elsewhere in a so-called “Dexit,” Delaware passed its own legislation to help protect its status as the corporate capital, limiting shareholders’ access to records and increasing protections for leadership. Opposition dubbed it “the Billionaire’s Bill.” “Ultimately, I think the damage is done because businesses successfully undermined shareholder rights in Delaware,” said Corey Frayer, director of investor protection at Consumer Federation of America, who argues that the Delaware bill was a rash acquiescence to “Dexit” concerns. However, some business law experts, like Ahdieh, say the average shareholder is focused on increasing their returns and does not care about shareholder power or where the company is incorporated. Delaware Gov. Matt Meyer has vowed to win back companies that leave, arguing his state’s experience “beats going to Vegas and rolling the dice.” Companies flock to Delaware for its well-respected Court of Chancery, a sophisticated and separate forum focusing on equity, corporate and business law. This incorporation machine generates $2.2 billion annually, about one-third of the state’s operating budget. There is comfort in working in the familiarity of Delaware law, said Ahdieh, but that predictability has come into question in the last decade as corporate leaders grew unhappy over losing precedent-setting court decisions governing corporate conflicts of interest. Widener University Commonwealth law school professor Christian Johnson acknowledged a shift in Delaware but said reincorporating elsewhere might be “a bit of an overreaction.” Although a few big-name companies have moved, there are still more than 2 million legal entities incorporated in Delaware, including two-thirds of the Fortune 500. Statutes in Texas and Nevada may appear more flexible, but they have not been extensively tested, and their courts are not as experienced working with the larger entities that favor Delaware, Johnson said. In May, Texas Gov. Greg Abbott signed legislation providing greater securities for corporate officers and adding restrictions to shareholder records requests. The bill also allows corporations to require an ownership threshold, no more than 3% in outstanding shares, before a shareholder can initiate a derivative lawsuit, typically on behalf of the company and against its own board or directors. Restrictions on who can initiate such lawsuits are not uncommon, but Texas’ implementation imposes a “far higher barrier than the norm,” Ahdieh said. Consumer advocates worry the changes endanger shareholder and investor protections by giving owners and directors more protection against lawsuits that could hold them accountable if they violate their fiduciary duty. For businesses, the changes mean potentially saving millions of dollars in shareholder lawsuit settlements and legal fees by mitigating the likelihood of those costly cases reaching court. For the states, attracting the companies means millions in business activity and revenue from regulatory filing and court case fees and taxes. Eyeing a piece of that, Oklahoma is on pace to establish its recently approved business courts in 2026. “I’m trying to take down Delaware,” said Oklahoma Gov. Kevin Stitt, a Republican. “We want to be the most business-friendly state.” Nevada wants to compete, too. It has run business dockets in Washoe and Clark counties since 2001, and it’s in the state’s interest to expand operations considering its fast-growing economy and population, said Benjamin Edwards, a University of Nevada, Las Vegas law professor who studies business and securities law. But he said it could take decades to build up a court comparable to Delaware, which has a valuable reputation for handling cases relatively quickly. Nevada’s proposed business court wouldn’t take effect until 2028 at the earliest and would require amending the state constitution, which would need approval by the 2027 legislature and voter approval in 2028 to allow for the appointment of judges.

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6/20/2025

Editorial: ASX Should Keep Its Distance from Dual-class Shares

Australian Financial Review (06/20/25)

This Australian Financial Review suggests the dubious history of dual-class share activism in this country can be traced back to Rupert Murdoch. In November 1993, Murdoch announced plans to issue “super voting” shares in News Corporation (NWSA). The new shares would carry 25 votes apiece meaning he could cement control of News Corp by increasing his family’s stake from 33% to 60% without buying a single extra share. Murdoch's attempt to upend the “one-share one-vote” principle that underpins Australian shareholder democracy was a bombshell. As was the Australian Stock Exchange's openness to the idea. However, Murdoch suffered a rare defeat. Institutional shareholders were aghast and Murdoch was forced to wait 11 years before incorporating News Corp in Delaware, a jurisdiction more open to what corporate law boffin Jennifer Hill describes as “control enhancement mechanisms,” such as staggered boards, dual-class stock, and poison pills. "That could have been the end of it: shareholders 1, billionaires 0." the editorial notes. "But proving there is no such thing as a new idea we find ourselves again debating the merits of dual-class shares with the ASX playing the role of promoter-in-chief." The catalyst this time is the Australian Securities and Investments Commission's discussion paper on the evolving dynamics between public and private markets, released in February 2025. ASIC chair Joe Longo's willingness to tackle such a multi-faceted subject is "commendable," the editorial states. "The long-term health of our public markets is of utmost importance. They ensure that our savings find their way to the businesses that need them, and are vital for national prosperity. But the need to support a vibrant sharemarket cannot come at the expense of shareholder rights. Regulation can sometimes be burdensome yet listing rules are crucial to keeping markets transparent." The ASX has been misguided in its submission to ASIC's consultation process on private markets which argues the bourse “is out of step with other major global exchanges as it does not allow dual-class shares for primary listings.” Central to the ASX's argument is there would be more listed founder-led companies if it was allowed to give those founders shares with greater voting rights. "While an absence of dual-class shares might have disincentivized Scott Farquhar and Mike Cannon-Brookes, it hasn't prevented many other entrepreneurs from joining the ranks of the ASX, for better or worse," according to the editorial. "Nor does the ASX dwell on the benefits of having governance standards that do not preference a particular type of shareholder. Dual-class shares, by definition, lead to less accountability." Underpinning this latest attempt to introduce more US-style governance to corporate Australia is a concerted lobbying effort by the law firms and investment banks that service big companies. "They are entitled to represent the interests of their clients," the editorial says. "However, they should not be abetted by the ASX or, for that matter, ASIC, which allowed many investment banking submissions to its consultation process to be confidential. The Financial Review has already called out the uncomfortable degree of fawning by ASIC over the feedback its review has received. It is important institutional shareholders find their voice in this process and oppose measures that erode legitimate shareholder rights, just as they did with Rupert Murdoch more than 30 years ago."

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6/19/2025

Opinion: London Didn’t Relax Its Governance Rules for Dan Loeb’s Benefit

Bloomberg (06/19/25) Hughes, Chris

Bloomberg columnist Chris Hughes writes that last year’s relaxation of the UK listing regime left investors more reliant on company boards to protect them from dominant shareholders. That safety mechanism is now being tested at the London-listed investment vehicle of hedge fund manager Dan Loeb. Third Point Investors Ltd. (TPIL) invests shareholder capital in the main strategy of Loeb’s US-based hedge fund Third Point LLC. The idea is that UK investors get access to Loeb’s expertise, with the daily liquidity of a tradable stock. But like other “closed-end funds,” TPIL trades at a discount to its net asset value. The gap’s recently been around 20%. To fix the problem, TPIL’s board is proposing a radical change. The firm is to become an annuity insurer. The transformation will come through buying one of Third Point’s insurance ventures, Malibu Life Reinsurance SPC. The all-share deal values each side at their respective NAVs (TPIL, more than $500 million; Malibu, just $68 million.) Who wins? TPIL’s biggest shareholder, with 25%, is Third Point itself. As Malibu’s backer, it clearly benefits. TPIL’s assets would support the reinsurer’s expansion. Indeed, possessing an insurer is all the rage in the alternative investment industry, given this provides a captive customer for asset management services. Apollo Global Management Inc.’s purchase of annuity provider Athene is the case study. What of TPIL’s ordinary shareholders? Owning an insurer isn’t what they signed up for. Some may be subject to restrictions on holding such shares. The upside is speculative. Malibu’s profit comes from clipping the difference between the yield on its investment portfolio and payments on its annuity contracts. Sounds simple. But Malibu is a minnow facing stiff competition from the scale players. Growing without taking on riskier liabilities or investing in riskier higher-returning assets will be a challenge. Moreover, the deal would cement Loeb’s control by pushing his shareholding through 30%. That’s the level where the UK Takeover Panel would require him to offer to buy out other shareholders. But he’s dodging that obligation as TPIL is adopting Malibu’s Cayman Islands domicile, so escaping London’s takeover regime. The vote on this kind of transaction would have been restricted to independent shareholders were it happening a year ago. But in July, the UK moved to bring its listing rules closer in line with the US. The reforms mean Third Point can now vote its stake in support of buying Malibu despite being on both sides. Loeb also has the backing of ubiquitous investment trust activist Boaz Weinstein. If turnout is low, the vote could well pass. You may say shareholders are getting no more or less than they bargained for. Loeb’s shareholding was plain to see, the new UK rules well flagged. But they could still reasonably expect the board to have delivered something better than this. Asset Value Investors branded the transaction a “horror show,” saying the “egregious related-party deal” cemented TPIL’s reputation as “the poster child for appalling corporate governance.” Along with other shareholders, AVI wants the company to offer a full exit at net asset value. TPIL recognizes the principle of providing an off-ramp given the major strategic shift. But it’s proposing a meager tender offer, set at a minimum of $75 million and priced at a discount of 12.5%. The market capitalization is $426 million. To be fair to the board, there aren’t any easy fixes for TPIL’s discount. A full liquidation would require 75% shareholder support. Third Point has the motive and power to block any such move. Further share buybacks would shrink the company, concentrate Loeb’s influence and reduce efficiency. Still, it really ought to be possible to assuage shareholder demands for a proper cash exit. If Malibu is the exciting prospect TPIL says it is, the board should be able to find new specialist insurance investors keen to put money into the business. Some have emerged, more are needed. Their cash could fund a more generous tender. Meanwhile, Third Point could up its existing commitment to partly fund the exit offer. Loeb, and indeed all dominant shareholders, should aim to cultivate a reputation for making money for their co-investors. As for the UK’s new listing regime, this aimed to improve London’s attractions for initial public offerings and thus give investors more choice. But the changes didn’t address the main reason the UK stock market is struggling: pension funds’ exit from equities. And this episode is a reminder that the reform came at the cost of weakened investor rights. Boards must recognize that this means they now have an even greater duty to ensure deal-making is a payday for all shareholders — big and small.

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6/19/2025

Japan Firms Exit Tokyo Exchange at Record Pace in Delisting Rush

Bloomberg (06/19/25) Tsutsumi, Kentaro

Japanese companies are leaving the Tokyo Stock Exchange at the fastest pace in over a decade, reflecting a surge in deals and management buyouts as they face more pressure to make better use of their capital. The number of firms that delisted their shares from the TSE or announced plans to do so has reached 59 in the first half, rising from 51 a year earlier and marking the most on record for a comparable period, according to exchange data going back to 2014. If firms continue to exit the TSE at this pace, the figure for 2025 will exceed last year’s annual record of 94 companies. The trend reflects the Tokyo bourse’s broad push to make the Japanese market more appealing for foreign investors by ensuring that listed companies offer high shareholder returns, while firms that aren’t meeting their goals face the threat of being taken off the exchange. The TSE has called on companies to pursue goals including improving their valuations and cutting overly close ties with other companies in the form of cross-shareholdings. Those reforms made Japanese shares one of the world’s best performers in recent years, while encouraging activist shareholders to demand even more changes from company managers. For investors, increased activism has boosted calls to raise returns with measures such as stock buybacks, while mergers and acquisitions have soared. “The decrease in the number of listed companies as a result of the activation of the capital market is a welcome development,” said Hiroshi Matsumoto, senior client portfolio manager at Pictet Japan. Japan is following in the footsteps of overseas markets like the U.S. and U.K., where more companies have gone private over the last 20 years on stricter rules to stay listed as well as growth in private market financing. The Tokyo exchange has emphasized since last year that its priority for listed firms is quality rather than a big numbers of companies. “The TSE’s intentions are going as planned,” said Hajime Nakajima, managing director at Deloitte Tohmatsu Equity Advisory. Companies whose shares are considered cheap will increasingly become targets of M&A and management buyouts, and “more and more of them will exit the market,” he said. The number of listed companies on the Tokyo bourse fell to 3,842 last year, marking the first decrease since the merger of the TSE and the Osaka exchange in 2013, according to TSE data excluding figures from the Tokyo Pro Market. The number will likely fall further to 3,808 by the end of June, based on Bloomberg calculations of data including figures from the exchange. The TSE reorganized in 2022 its equity market into Prime — with the biggest firms, Standard, and Growth — listing the smallest companies. Since then, the TSE has urged listed companies to improve corporate governance and take steps to bolster their value. In addition, the transition period for companies that fail to meet listing standards expired at the end of March, and if they continue to fall short, they’re scheduled to be delisted in October 2026 at the earliest. Many companies left the Tokyo exchange after getting bought out by other firms and investment funds. ID&E Holdings, a construction consulting firm, became a wholly owned subsidiary of non-life insurer Tokio Marine Holdings Inc., who saw business opportunities in its new unit’s disaster prevention and mitigation tactics. Guidelines that Japan’s Ministry of Economy, Trade and Industry released in 2023 suggesting best practices for corporate takeovers have helped fuel the M&A boom. In cases where both a company and its subsidiary were listed, a not uncommon arrangement in Japan’s share market that’s been criticized as leading to conflicts of interest, parent firms have bought out units to steer clear of governance concerns. As the costs of maintaining a public listing rise and activist shareholders push for more payouts and policy changes, takeovers of companies by management are climbing.

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6/19/2025

Victoria’s Secret is Struggling to Reinvent Itself

The Economist (06/19/25)

In an open letter to Victoria’s Secret (VSCO) published on June 16, Barington Capital told Donna James, the brand’s chairwoman, that the company is failing its shareholders. Hillary Super, chief executive since August, has not “gained the confidence of employees.” Barington, which has a stake of just 1%, is not the only activist engaging the company. BBRC International, which has amassed more than a tenth of the underwear-seller’s shares, has denounced “disastrous” board decisions and demanded a change of leadership. The brand’s management has dug in its heels, and is seeking to maintain control with a so-called poison pill: it will dilute the company’s shareholders if any of them acquires more than 15%. Yet the critics have a point. Over the past decade Victoria’s Secret has lost much of its sparkle. Sales last year were $6.2 billion, down from a peak of $7.8 billion in 2016. Its market value, at $1.5 billion, has fallen by more than half since it was spun off from L Brands, its parent company, in 2021. New competitors such as Skims, an apparel firm co-founded by Kim Kardashian, have pinched market share. Super is the third CEO in four years appointed to turn the struggling company around. In the 2010s Victoria’s Secret, founded half a century ago as a place for men to buy underwear for their wives and girlfriends, became emblematic for its detractors of all that was wrong with the fashion industry. In its heyday millions watched pale, stick-thin, feather-clad models (or “angels”) flutter down the runway at its annual fashion show. Emboldened by the #MeToo movement, those same angels went on to recount unholy tales of starvation and abuse. Viewership was already dwindling when in 2018 the show’s organizer told reporters he would never have a transgender model, or a fat one. He apologized. The event was cancelled the following year. Since then, Victoria’s Secret has sought to redefine its image. Shops sell comfortable pajamas as well as elaborate push-up bras. The fashion show returned last year, but now also features models who aren’t so skinny, pale, or female. Yet the makeover has not returned the company to growth. The activists hounding Victoria’s Secret argue that it should go back to what once made it sexy. Bring back the angels, writes Barington, and focus on bras. Super, by contrast, wants to move into areas such as fitness. Despite all its troubles, the company is still the world’s biggest seller of lingerie, helped by frequent promotions. “Victoria’s Secret is one of the best instances of a brand people supposedly don’t like and yet continue to buy,” points out Simeon Siegel of BMO Capital Markets, an investment bank. Raising prices and forgoing lower-value shoppers, Siegel suggests, could be a path back to success. Most important for the company, however, is to decode the desires of younger consumers, whom Super has made her priority. Surveys suggest that Gen Z has less sex than preceding generations. But that does not mean it does not want to feel sexy, at least on occasion. Sabrina Carpenter, a 26-year-old popstar, sported sparkly lingerie on her recent sell-out tour. Her mostly female fans joined in. Victoria’s Secret may yet find its stride again.

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6/19/2025

Opinion: Why Private Equity and Activist Investors are Coming For Casual Dining

Forbes (06/19/25) Osman, Jim

Forbes contributor Jim Osman says the era of casual dining has come to an end. Nostalgia isn’t enough to keep the doors open, and the cracks are turning into collapses. TGI Fridays just filed for bankruptcy. Jack in the Box (JACK) is flailing. Others are quietly shrinking, stuck between rising costs, outdated models, and changing consumer expectations. To most, it looks like an industry in terminal decline. However, investors who are paying attention perceive a sector that is poised for transformation. Behind the failing units and flatlined comps lie brands with real equity, untapped assets, and inefficient structures screaming for reinvention. For private equity, activist investors, and special situation specialists, this isn’t a graveyard, it’s a treasure map. The restaurant industry is being repriced. And those who know how to restructure from the inside out are already sharpening their knives. Restaurant chains can be highly profitable when managed with discipline. Many operate on asset-light, franchise-heavy models that throw off steady income with minimal capital intensity. Others sit on under-monetized real estate or legacy leases that, if unlocked, can reshape the balance sheet. And while their operations may be stale, their brand equity still carries psychological weight with consumers. That’s a dream set up for private equity and special situation investors. Why? The sector is overflowing with fragmentation, inefficiency, and strategic bloat, which are the very traits that smart capital seeks when hunting for mispriced opportunities. Most public restaurant chains today are overly complex, mismanaged, or stuck in a strategic identity crisis. The stock prices reflect that. But behind the scenes, there’s real potential not for a revival of the old model, but for a reinvention of what these businesses could be with the right financial structure and operational reset. The gap between public market valuations and private market potential is again widening, and for those with the tools to execute it, the upside is being served right now. Many of these chains still have strong brand awareness, large franchise networks, and even hidden real estate value. However, high costs, outdated menus, and unclear strategic priorities conceal these strengths. A typical playbook shows the same problems: inadequate capital allocation, too many buybacks while innovation slows down, and franchising plans that aren't consistent or scalable. The chance? You don't have to come up with a new way to do things. You merely need to clean up the model, make operations more efficient, and put growth ahead of financial engineering. That includes changing the prices on the menu to match what customers want and to show how much money the business can really make with better management. This is not a consumer collapse, which is beneficial. The restaurant industry currently possesses all three of these characteristics. desire a clear, high-quality experience. Brands that simplify their operations, maintain focus, and deliver quality services will succeed in the future. They should refrain from trying to cater to everyone’s needs. In summary, the restaurant business remains intact. It just needs someone with the willpower to fix it. Even across the Atlantic, activist investor Irenic Capital has taken a 2% stake in SSP Group (SSPG), the operator of Upper Crust and other travel food outlets. The hedge fund is pressuring management to improve margins, suggesting the stock could be worth twice its current valuation. The move sets the stage for a potential private equity takeover, echoing a broader trend: undervalued consumer-facing brands with operational inefficiencies are now prime targets for strategic resets. The market hasn’t fully considered the value of many of these struggling restaurant brands yet. But that window won’t stay open for long. When private equity and activist investors start circling again, multiples will change, and the chance to buy before restructuring starts will go away rapidly. Smart investors are already looking for inefficiencies, poorly allocated cash, too many layers in a company, and assets that aren’t being used to their full potential. Only the most disciplined or forward-thinking capital will respond quickly when interest rates are high. Everyone else will be late and must pay more for something they could have had for less. What will happen to the businesses that refuse to change? They won’t simply vanish; instead, they'll undergo dismantling, sale, or render useless. This sector is already starting to change shape. The only question to consider is who will enter the market early enough to take advantage of it?

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6/16/2025

Texas Bill Targets Proxy Advisory Firms’ Use of ESG in Voting Recommendations

Pensions & Investments (06/16/25) Luz, Esther

Texas lawmakers have advanced a bill requiring proxy advisers to provide detailed disclosures when their voting recommendations incorporate ESG factors, sparking warnings from investor groups and governance experts. Awaiting signature from Texas Gov. Greg Abbott after passing through both chambers of the state legislature, Senate Bill 2337 would require firms like Institutional Shareholder Services and Glass Lewis to state if their proxy-voting advice regarding Texas-based companies prioritizes nonfinancial goals over shareholder financial interests, such as environmental, social or governance factors. If recommendations do consider what the bill defines as nonfinancial reasons like ESG, diversity, equity or inclusion, a social credit or sustainability factors, proxy advisers would have to prominently disclose this information to clients and on their websites, and notify Texas companies and the state attorney general within 24 hours, among other provisions. The bill would authorize an “affected party,” such as a shareholder or company receiving proxy advice, to seek a declaratory judgment or injunctive relief. It also allows the Texas attorney general to intervene in such cases after receiving notice. The measure comes as Republicans have increased up criticism of proxy advisory firms, particularly over their influence on ESG-related shareholder votes. At a hearing of the U.S. House Committee on Financial Services’ capital markets subcommittee on April 29, lawmakers and industry representatives described proxy-advisory firms like ISS and Glass Lewis as having an outsized influence as well as conflicts of interest. SB 2337 is among a series of bills that the Texas state lawmakers have introduced — or adopted — aimed at bringing corporate reforms and promoting state-based businesses, including Senate Bill 29, which includes a provision that creates a mechanism to pre-assess corporate director independence and was signed by Abbott on May 14. Among supporters of SB 2337, law firm Foley & Lardner described the bill in a June 3 memo as “meaningfully regulating proxy advisers like ISS and Glass Lewis.” A legislative analysis of SB 2337 for the Senate Trade, Workforce & Economic Development Committee said the measure aims to address “conflicts of interest” and “deceptive practices” in the proxy advisory industry. It also raised concerns about proxy firms giving conflicting advice to different clients on the same proposal and offering corporate governance consulting services, which it said creates further conflicts. But critics of SB 2337 have warned that the bill could undermine fiduciary stewardship and conflict with federal securities rules. In a letter to lawmakers posted online in late May, Nichol Garzon, chief legal officer of Glass Lewis, urged lawmakers to reconsider the measure. "Most institutional shareholders today — who often have their own legal responsibilities as fiduciaries to safeguard pensioners’ and other individuals’ investments — believe that effective and robust oversight of environmental and social risks is critical to ensuring the long-term viability of companies and that a failure to mitigate these risks poses real risks to enterprise and shareholder value,' he wrote, citing the "$63 billion in costs borne by BP and its shareholders due to the Deepwater Horizon disaster' in 2010. An ISS spokesman also criticized the bill, calling it an attempt to “flip corporate law on its head” and impose “onerous and vague reporting requirements” on proxy advisers. “The bill creates hurdles to the timely and efficient delivery of proxy research services to retirement systems and other investors in Texas,” the ISS spokesman said, warning “this runs counter to Texas’ open business environment and ultimately may not be in the best interest of the burgeoning financial services ecosystem in the State of Texas.” The bill has also drawn criticism from investor coalitions like the Freedom to Invest initiative, which is supported by groups including Ceres, a sustainable investing advocacy organization. In a statement to P&I, Freedom to Invest said: “This bill, as written, would harm Texas investors, retirees and the state’s highly competitive marketplace by imposing vague and unconstitutional disclosure mandates. To protect free speech and preserve market competition, we urge Gov. Abbott to veto this legislation.” Nell Minow, chair of ValueEdge Advisors, which advises institutional investors on corporate governance issues, said the bill’s disclosure mandates violate the First Amendment. “It’s a pretty blatant violation of the First Amendment for the Texas Legislature to be telling private businesses what to say in their independently produced reports that nobody has to buy with recommendations nobody has to follow,” Minow said in an interview. “It’s an absolutely ridiculous bill … a banana’s waste of everybody’s time and money, and it’s clearly unconstitutional.” Minow added that while proxy-advisory firms would likely prevail if they choose to challenge the bill in court, they could also adopt minimal compliance strategies. “They may decide instead just to put on every page, at the bottom of the page, ‘100% of our recommendations are based exclusively on risk and return and financial metrics,’” she said. Despite concerns that the law could chill proxy advisers’ independence, Minow said that is unlikely. “Will there be chilling effects? Will it make them less likely to be rigorously independent in their advice? The answer is no, because that’s what their customers pay them for,” she said. The governor has until June 22 to sign or veto SB 2337. If he signs the bill into law or declines to veto it, it will take effect Sept. 1. A press secretary for the governor said he is "closely reviewing' all of the legislation awaiting his signature.

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6/16/2025

South Korea Looks to MSCI Review With Renewed Hopes for Upgrade

Bloomberg (06/16/25) Hsu, Winnie; Cheng, John; Cha, Sangmi

South Korea’s efforts to improve corporate governance as well as end a controversial short-selling ban have strengthened the nation’s bid for an upgrade to developed-market status in MSCI Inc.’s indexes. That’s the view from money managers at Invesco Ltd. and London-based M&G Investments, who see a likelihood for the market to be added in MSCI’s watch list when the index provider decides on reclassifications later this month. Such an inclusion would pave the way for an upgrade in 2026, which could potentially attract as much as $30 billion in passive inflows, said strategists at Goldman Sachs Group Inc. “The probability of Korea making it to the watch list for reclassification to developed-market status is higher this year compared to previous years,” said Chang Hwan Sung, director of solutions research at Invesco. “This is due to improvements in ID registration requirements, longer trading hours for Korean won, and the lifting of the short sell ban.” Such optimism stems from the nation’s renewed efforts to boost valuations and improve shareholder returns since early 2024, as authorities seek to erase the so-called “Korea discount” — a long-standing grievance among global investors. This resolve is seen getting stronger in the coming months as newly elected President Lee Jae-myung has signaled that lifting corporate governance standards and improving stock-market returns are among his top priorities. South Korea’s hopes for an index upgrade were dashed last year when MSCI maintained its status as an emerging market, citing accessibility restrictions after the nation imposed a ban on short selling with a view to weed out unfair market practices. Authorities lifted the prohibition in March 2025 after revising related rules and developing a monitoring system to detect illegal trades. Foreigners have since piled into the nation’s stock market, helping the benchmark Kospi take its 2025 gain to almost 23% and become one of the world’s best-performing equity gauges this year. MSCI is due to announce the results of its annual classification review on June 24. One of Lee’s early priorities is to root out rubber-stamping directors by revising the commercial code to broaden board fiduciary duty to shareholders — and not just to the company itself. The ruling party’s officials are proposing new revisions, which include enhancing the nomination process for audit committee members and adopting electronic voting systems.

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