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Detour Delays Vote After Early Tallies Show Paulson Majority
" Bloomberg (12/10/18) Deveau, Scott; Bochove, Danielle"

Detour Gold Corp. (DRGDF) has delayed a special meeting scheduled for Dec. 11 by two days after early tallies revealed that Paulson & Co. won a majority of seats on the miner's board. John Paulson's hedge fund has been pushing to replace the bulk of Detour's directors since June. In a Dec. 10 statement, the miner said it wanted to make shareholders aware that a bloc of investors, including Paulson, amounting to about 24% of its shares, voted with the hedge fund to replace all eight directors. According to Detour, only a minority of shareholders voted for a change of control, but the total ballots cast would cede control of the board to the Paulson nominees. "That would be inconsistent with the intentions expressed to Detour Gold by the vast majority of shareholders we have spoken with," said James Gowans, a board member who was not nominated for removal. "If shareholders have concerns about this vote leading to a change of control, they can seek to change their votes." Among other things, the company is urging shareholders to vote against the removal of interim CEO Michael Kenyon from the board.

Nutella Maker Ferrero in Race to Buy Campbell's International Business: Sources
" Reuters (12/10/18) Landini, Francesca"

Sources said on Dec. 10 that Ferrero SpA is interested in buying Campbell Soup Co.'s (CPB) international business, which includes biscuit brand Arnott's. According to Italian newspaper Il Sole 24 Ore the deal could be worth more than $2 billion. The speculation comes after Campbell settled a proxy battle with Daniel Loeb's Third Point, which had pressured the company to sell itself. Campbell started the process of selling its international and fresh refrigerated-foods units in August following a strategic review.

Alico's CEO Looks to Shake Up Its Board of Directors
" Naples Daily News (FL) (12/08/18) Layden, Laura"

The board of Fort Myers, Fla.-based Alico (ALCO) has placed President and CEO Remy Trafelet on administrative leave and is considering removing him for cause. The deliberation follows a move by Trafelet and affiliates to take action by written consent to shake up the board. As the owner of 56% of Alico's stock, the group of shareholders voted to remove four board members "without cause," reduce the size of the board by two members, and fill the two remaining vacancies with its chosen replacement. The other board members are fighting the consent solicitation, saying it doesn't follow Alico's required procedures and doesn't comply with Florida law. Board members are also challenging the date of the consent action, which could potentially negate the action if the shareholder group owned less than 50% of the company's stock at the time of the move. Trafelet and his affiliates have responded by filing a lawsuit against Alico and the four directors he wants removed. They are seeking a declaration that the action by written consent is valid and binding, the directors were properly removed, and that the actions the board took in connection with the consent procedure are null and void.

ASG Raises Offer to Buy Mitek to $11.50 Per Share
" Reuters (12/10/18) Baker, Liana B.; Panchadar, Arjun"

Elliott Management Corp.’s ASG Technologies Group Inc. has sweetened its bid for Mitek Systems Inc. (MITK) to $11.50 per share from $10. ASG said it publicized the offer because Mitek refused to engage with the hedge fund on “reasonable terms.” The newest offer, in a letter dated two weeks ago but only made public Monday, marks a 28.2% premium to the stock’s closing price on Friday. Elliott Management noted separately that Mitek “refused to engage” with ASG about the $11.50 per share offer unless Elliott “agreed to give up its right as shareholders.” That shareholder “right” reportedly refers to Elliott’s ability to nominate its own slate of directors ahead of the company’s 2019 annual meeting. The deadline to nominate directors was Dec. 7. ASG had revised its offer from $10 a share in cash on Oct. 31. The company reportedly spurned the hedge fund's first takeover approach. ASG said Monday it expects to finance the deal with cash from its balance sheet, debt financing, and an investment by Elliott and other shareholders. The company said its proposal has no financing condition because Elliott would commit to provide the equity if needed.

Longtime Yelp Holder Seeks Board Overhaul at Business-Review Company
" Wall Street Journal (12/09/18) Lombardo, Cara"

Yelp Inc. (YELP) shareholder SQN Investors LP has declared that years of bad decisions are affecting the business-review company's stock price. In a letter to Yelp's board, SQN said it plans to publicly urge the company to install new board members and consider all options to get the business back on track, including a possible sale. The hedge fund is one of Yelp's top five shareholders with a more than 4% stake. In the letter, SQN added that Yelp has displayed a "consistent pattern of operational blunders, poor forecasting, and sharp guidance revisions" and is "ceding turf" to less established review services, such as those of Google (GOOGL) and Facebook Inc. (FB).

Brothers Who Sold Rice Energy to EQT Frustrated With EQT’s Operations
" Wall Street Journal (12/09/18) Lombardo, Cara; Dummett, Ben"

Rice Energy Inc. co-founders and brothers Derek and Toby Rice, who sold the company to EQT Corp. (EQT) last year, say the $4.7 billion oil-and-gas company is mismanaging its assets and they want to take over running it. The brothers argue a lack of operational experience is damaging EQT’s stock price and the company needs new board members and a proven management team, according to a draft of a letter to EQT’s board. “The Rice team has a demonstrated track record of delivering basin-leading results on the exact same assets that EQT is operating today,” the two brothers write. The Rice family owns a more than 2.7% stake, according to the letter. The team of former Rice Energy executives has the support of several top shareholders including hedge fund D.E. Shaw Group, which owned 3.6% as of Sep. 30 and has been upping its stake, according to sources. In recent weeks, D.E. Shaw has urged EQT to replace its chairman and consider installing Toby Rice as CEO, the sources said. The Rice brothers say in the letter that they have a plan that includes lowering well costs and boosting productivity to help generate an additional $400 million to $600 million of pretax free cash flow a year above EQT's current plans. They say their ideas have so far been rebuffed by EQT and that they are prepared to launch a proxy fight for board representation if needed.

Bunge Is Open to Talks With Glencore, ADM as CEO to Leave
" Bloomberg (12/08/18) Parker, Mario; Blas, Javier"

Bunge Ltd. (BG) is set to announce the departure of its CEO Soren Schroder, according to a source, removing an obstacle to further talks with suitors. The pending exit of Schroder, who had resisted advances by Glencore Plc, among others, comes just over a month after the agricultural trading house reached a deal with investors seeking to boost performance, the source said. Bunge, which has struggled to navigate a years-long agricultural downturn and a recent U.S.-China trade war, is open to reengaging with both Glencore and Archer-Daniels-Midland Co., the source added. ADM and a unit of Glencore held merger talks with Bunge in 2017 and earlier this year without reaching a deal. While Bunge isn't actively seeking new talks, the fact that it doesn't plan to appoint a new permanent CEO immediately creates an opportunity for rivals to re-approach the company, the source said. In late October, Bunge reached a deal with D.E. Shaw & Co. and Continental Grain Co. to install new directors and launch a strategic review, often the precursor to a sale. The strategic committee has a mandate to look for "potential material mergers, acquisitions, divestitures and other key strategic transactions," according to its charter.

Travelport Agrees to Go Private in $2 Billion Deal with Siris, Evergreen
" Wall Street Journal (12/10/18) Chin, Kimberly"

Affiliates of Elliott Management Corp. and Siris Capital Group LLC will acquire Travelport Worldwide Ltd. (TVPT) in an all-cash deal valued at roughly $2 billion. Siris and Evergreen Coast Capital Corp., which is a private-equity affiliate of Elliott Management, said they would purchase all of Travelport’s common shares outstanding for $15.75 each. Travelport’s stock was last trading at $15.40 at Friday’s close. The private-equity firms will also assume roughly $2.4 billion in long-term debt. The deal is expected to close in the second quarter of 2019, subject to shareholder and regulatory approvals. Under the terms of the deal, U.K.-based Travelport will become a privately held company and its common shares will no longer be listed in the public market. In March, Elliott Management unveiled an 11.8% stake in the travel-commerce platform, called its shares were undervalued, and said it would urge the board to explore selling itself or certain assets, according to a filing.

Elliott Has Taken Position in Germany's Bayer: Sources
" Reuters (12/07/18) Schuetze, Arno; Roumeliotis, Greg"

Sources said on Dec. 7 that Elliott has taken a position in Bayer (BAYRY), marking the hedge fund's latest investment in a German company. The sources note that Elliott has held shares in the company for more than one year, but the size of its stake has not been disclosed. One of the sources said Elliott has tried to talk to Bayer's top management but has been unable to secure a meeting with CEO Werner Baumann or one of his colleagues.

Danske Bank's Board Elects Top Shareholder's Candidate as New Chairman
" Reuters (12/07/18) Jensen, Teis"

On Dec. 7, the board of directors of Danske Bank (DNKEY) elected Karsten Dybvad as its new chairman at an extraordinary general meeting following the ouster of former chairman Ole Andersen over a money laundering scandal. Dybvad was the candidate put forward by the company's top shareholder, A.P. Moller Holdings. In addition to restoring Danske's image, Dybvad will be tasked with finding a new chief executive to head the bank and ensure potential legal cases don't drag attention away from day-to-day business.

Russian Billionaire Wants Switzerland's Meyer Burger to Raise Cash, Renew Board
" Reuters (12/06/18) Miller, John"

On Dec. 6, Sentis Capital PCC called for Meyer Burger (MYBUF) to renew its board of directors and consider raising money to finance its own efforts to manufacture solar cells. The investment vehicle of Russian billionaire Petr Kondrashev is the Swiss solar machinery maker's biggest shareholder, with a 6.14% stake. Sentis said the company should consider raising cash "on the capital market or through a strategic partner," with the funds used to finance in-house production of efficient, so-called heterojunction and tandem solar cells using the company's own technology. Sentis board members Anton Karl and Mark Kerekes said, "Meyer Burger would thus be able to protect its own technology and benefit directly from future improvements in efficiency and throughput of the equipment. As Meyer Burger is currently not in a position to finance a production of at least 5 to 10 GW from its own funds, in our opinion this would have to be done through a capital increase."

Video: Japan's New Corporate Governance Champions
" Bloomberg (12/07/18)"

Katherine Rabin, chief executive officer of Glass Lewis; Takumi Shibata, president and chief executive officer of Nikko Asset Management; and Miki Tsusaka, senior partner, managing director and chief marketing officer of Boston Consulting Group, speak with Bloomberg's Stephen Engle at the Bloomberg The Year Ahead summit in Tokyo.

Del Frisco's Restaurant Group Issues Statement Regarding Letter Received From Engaged Capital
" Globe Newswire (12/06/18)"

Del Frisco's Restaurant Group Inc. on Dec. 6 issued a statement regarding a publicly released letter from Engaged Capital LLC to the company's board. It said: "Del Frisco's is committed to maximizing long-term value for all shareholders. While we do not agree with certain characterizations of events or of our business and operations contained in the letter that we received from Engaged Capital, the Company values constructive input toward the goal of enhancing shareholder value. The Board and management continually evaluate ideas to drive shareholder value and are committed to acting in the best interests of all of our shareholders. Del Frisco's will maintain an open and active dialogue with its shareholders, including Engaged Capital, as the Board and management continue to take actions to position the Company for growth and success."

Investor Takes Stake in Suez Ahead of Key Strategic Decisions
" Financial Times (12/07/18) Keohane, David"

Amber Capital has purchased just over a 1% stake in Suez and is prepared to make key decisions about the company's leadership and strategy. It is now urging the embattled French water and waste group to make moves on its governance, accelerate asset sales, and maximize shareholder returns. "We'd like new management to essentially pay a bit more attention to value creation for shareholders, return on capital employed, and use the opportunity of an ebullient infrastructure market to sell assets and de-lever the company," said Joseph Oughourlian, Amber Capital's founder. The London-based investor says its purchase makes it one of the French utility's top-10 shareholders. Suez has been facing scrutiny since a profit warning in January sent its shares falling 15% in one day. The investment by Amber also comes as Suez prepares to replace CEO Jean-Louis Chaussade and Chairman Gerard Mestrallet, who are scheduled to retire next summer due to statutory age limits. Chaussade is being considered as chairman, despite concern of some shareholders. The decision on the position will be determined largely by top shareholder Engie, which owns one-third of Suez after it was spun out of the energy group 10 years ago.

Keith Meister: Invest in Companies You Believe in and Leave Stock Trading to Computers
" CNBC (12/06/18) Belvedere, Matthew J."

Corvex Management founder Keith Meister recommends that stock investors "do what you do really well" in these turbulent times. "Everyone has different skill sets," said Meister on CNBC on Thursday. "There's people who are going to make a lot of money trading the market [short term]. There's people who are going to make a lot of money having duration." At Corvex, Meister puts himself among the latter, saying he seeks to "buy businesses in the form of public stocks." But he not only selects companies he believes in, he said, but aims to partner with companies to make them better. "I generally believe, if you don't have an edge in the public markets, something that you can do better, you're probably going to be replaced by a computer at some point," he said. "There's more and more of the market and the trading that'll be done by the quantitative players."

Clayton Urges Change in Shareholder Voting, Investment Advisory Firms
" Politico Pro (12/06/18) Temple-West, Patrick"

In a speech in New York, Securities and Exchange Commisison Chairman Jay Clayton on Thursday said the agency should consider making it harder for investors to file shareholder proposals and that he supports stronger oversight of the advisory firms that investors use to make voting decisions at annual meetings. Clayton questioned the current thresholds that a shareholder proposal needs to clear to be put to a vote by corporate investors. An investor currently needs to own $2,000 worth of a company's stock for one year to submit a proposal. Clayton also called for considering new oversight of the investment advisory firms that shareholders use to make decisions on issues ranging from executive compensation to climate change disclosure. He indicated the agency is taking public comments about the issue. He is scheduled to testify before the Senate Banking Committee on Dec. 11.

Regulators Will Move to Rein In Proxy Advisers in 2019, SEC Chairman Says
" Wall Street Journal (12/06/18) Rubin, Gabriel T."

Securities and Exchange Commission (SEC) Chairman Jay Clayton said Thursday that securities regulators will evaluate changes to limit the influence of proxy advisors, including potential new disclosure requirements. The move follows complaints from corporate groups that proxy advisers have too much influence over shareholder votes at public companies, and calls for tighter regulation of the two main proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis & Co. Clayton said the SEC would also take up recommendations on the “plumbing” of the shareholder voting process, which some investors have said is opaque and error-prone. The commission will also consider increasing the ownership thresholds for shareholders to submit proposals for shareholder votes and for the amount of support a proposal must receive for it to be reconsidered in later years, in an effort to limit recurring proposals with little support. “It is clear to me that these issues will not improve on their own with time, and I intend to move forward with the staff recommendations,” Clayton said Thursday. Reining in proxy advisers has been a priority of corporate groups like the U.S. Chamber of Commerce, which took out advertisements earlier this year urging the SEC to limit their influence. At an SEC roundtable last month, leaders of ISS and Glass Lewis made clear they oppose the new regulations and that existing disclosures serve investors sufficiently well.

RELEVANT ARTICLES

Elliott's Best Bet With Bayer Is a Breakup
" NASDAQ (12/10/18) Proud, Liam"

It was recently revealed that Elliott Management has owned a stake in Bayer (BAYRY) for more than a year, during which time the company's stock has tumbled about 40%. Observers note that the hedge fund's best bet might be to engineer a breakup. Bayer CEO Werner Baumann has a plan to grow sales and EBITDA by 4% and 9% a year, respectively, through 2022, which if successful would result in earnings per share of about 10 euros in that year, or more than double their current value when using a 14 times forward earnings multiple. While Baumann wants EBITDA to reach 16 billion euros in 2022, analysts believe it will be just 15.1 billion euros. Observers note that Elliott could instead push Baumann to sell or spin off the different divisions, but breaking up the company would not be easy. Such a move would be hard to get past Germany's union-elected board members, and it would need the support of other shareholders, including Singapore's sovereign wealth fund Temasek, which owns 3.65%.

Pressure for Returns Will See Fund Managers Turn Activist
" Australian Financial Review (12/09/18) Thomson, James"

Australia's corporate boards should not expect relations with big shareholders to return to normal even though annual general meeting season is out of the way and the banking royal commission is in its final stages. Three of Australia's big banks are set to face historic first strikes against their remuneration annual reports in the weeks to come. The shift toward passive investing has increased the pressure on active fund managers to deliver better returns. Elliott Management's pursuit of BHP (BHP) has brought an aggressive style of activism to Australia. Activism in Australia has been concentrated in companies valued at under $1 billion, says Muir Paterson, global head of activism at Citi, adding that a number of specialist local funds have emerged in this space. "You're going to have shareholders being more scrutinous of execution, challenging on capital allocation, challenging on M&A," says Patterson. Still, he does not anticipate a sudden spike in engagement involving large companies.

Women Hold Fewer Than 5% of CEO Positions in U.S. and Europe
" Financial Times (12/09/18) Edgecliffe-Johnson, Andrew"

According to a study by Heidrick & Struggles, women account for less than 5% of the chief executive positions in the United States, United Kingdom, and Europe. Although awareness of the executive gender gap "is at a crescendo," change is taking a long time, said Anne Lim O'Brien, vice-chairman of Heidrick's global CEO and board practice. She said boards need to focus on helping women gain the experience necessary to become "CEO-ready" and called for a culture shift to address unconscious bias in board appointments. The report follows a study published in October which found that women made up 40% of all employees and 35% of all managers in the S&P 1500 U.S. companies that disclose diversity metrics, but just 20% of directors and 6% of chief executives. Some countries have set targets to increase their share of female directors. For example, France has set the pace for boardroom diversity in Europe, beating its target of having women hold 40% of CAC 40 directorships by 2017, according to a recent report.

Should 41's Legacy of Civility Extend to the Boardroom?
" Forbes (12/07/18) Peregrine, Michael"

Michael Peregrine, a partner in the Chicago office of international law firm McDermott Will & Emery, says the public discussion about President George H.W. Bush's dignity, honor, kindness, and rectitude in the aftermath of his death could apply to corporate governance, presenting a unique opportunity to consider the role of comity and cooperation in boardroom functions. "Governance experts such as Martin Lipton have long articulated a distinctly civil expectation for boardroom discourse. At its core, this envisions a tone at the top that establishes a corporate culture that gives priority to ethical standards, professionalism, and integrity. It describes the board/CEO dynamic in terms of a 'working partnership,' rather than an adversarial relationship. And it calls for a 'truly collegial' culture within the board, and in its relationship with management. More recently, the new Commonsense Principles 2.0 declares that collaboration and collegiality are critical for a healthy, functioning board, and urges directors not to be divisive or self-serving," he says. "These principles and guidelines signal a desire for productive, respectful boardroom engagement; that appropriate scrutiny of ideas and proposals can co-exist with decorum and fiduciary duty...The current, and possibly fleeting public conversation on civility offers a unique teaching moment for corporate boards. Pro-active board chairs and CEOs may use the opportunity to engage with their colleagues on proper boardroom discourse."

Old-School Activism Still Produces Results for Dan Loeb
" Financial Times (12/05/18) Fortado, Lindsay"

Although traditionally bruising proxy battles have fallen out of favor recently, Dan Loeb proved in two victories last week that such fights can still pay off. In one victory Campbell Soup (CPB) gave Loeb's Third Point hedge fund two board seats, plus additional concessions. In another, United Technologies (UTX) decided to split into three companies. Loeb is a throwback among a growing number of activists who are redefining their investing strategy as "constructivism," essentially "playing nice" and working with management behind the scenes. Funds like Cevian Capital, ValueAct, and Trian Partners have paved the way for a less aggressive style over the years. Still, Loeb and others such as Carl Icahn and Elliott Management seem to relish a fight. Even funds like Trian Partners, which prefers to be referred to as an "active shareholder" instead of an activist, has become more aggressive lately.

Activist Investors Are Spending More and Shifting Their Strategies
" Wall Street Journal (12/06/18) Whittall, Christopher"

Activist investors, spending more cash than ever, are shifting their attention to new companies and honing their strategies, according to a new report from Deloitte. Activist hedge funds currently have invested almost $300 billion, according to the report. About $74 billion was spent in the year that ended in September, more than twice the amount invested in all of 2016. Activists are increasingly engaging large companies, the research found, and board-related activism has the highest success-rate when the funds deployed have assets of more than $500 million, bringing about some kind of change in 70% of cases. Larger firms, such as Elliott Management and Cevian Capital, are also the most adept at driving the changes they want, according to Deloitte. New York-based Elliott manages $35 billion, while Swedish investment firm Cevian has about $15 billion in assets. The research found that Elliott Management invested the most in the last year, followed by Cevian Capital, ValueAct, Icahn Enterprises, and Third Point. Activists are also looking outside the increasingly saturated American market. Half the stakes activists have taken in the 12 months ending in September are outside the U.S., compared with just 30% in 2014, according to Deloitte. Activists are “here to stay in Europe and Asia,” said Jason Caulfield, head of value creation services at Deloitte.

Clearing the Bar: Shareholder Proposals and Resubmission Thresholds
" Harvard Law School Forum on Corporate Governance and Financial Regulation (12/04/18) Whitehill, Brandon"

The vast majority of shareholder proposals satisfy the current resubmission thresholds of 3%, 6%, and 10%, according to an analysis of a dataset of voted shareholder proposals between 2011 and 2018 at Russell 3000 companies by the Council of Institutional Investors. About 20% of proposals win majority shareholder support on the first attempt, but less than 5% of proposals that fail to win majority support the first time go on to pass in a subsequent attempt. Still, proponents can often successfully engage companies if their proposals win substantial—but less than majority—support, writes Brandon Whitehill, a research analyst at the council. The most common proposal subject matter is governance issues, which also win the highest levels of support. Raising the resubmission thresholds to 5%, 10%, and 15% would roughly double the number of ineligible proposals; a more substantial increase to 6%, 15%, and 30%, as called for in the Financial CHOICE Act, would triple the number; while doubling the current thresholds to 6%, 12%, and 20% would have an impact that falls between these two scenarios. Of the proposals that were eligible under existing rules but would fail to satisfy the increased thresholds, only about one-third were actually resubmitted between 2011 and 2018, and those that were gained two to four percentage points in support on average. Still, raising the resubmission thresholds could exclude anywhere from seven to 38 proposals that went on to win substantially higher support when resubmitted, depending on the scenario.

Quotas Are a Terrible Way to Promote Board Diversity. Companies Should Do This Instead
" CNN (12/04/18) Fiorina, Carly; Peterson, Joel"

According to Carly Fiorina, former chairman and CEO of HP (HPQ), and Joel Peterson, chairman of Jet Blue Airlines (JBLU), boards should become more diverse "because a variety of backgrounds, experiences, and skill sets leads to stronger, more rigorous, and significantly more effective corporate governance. And more effective governance means better performance for all stakeholders." However, they do not think California's one-size-fits-all quota system is the answer and "will inevitably lead to a box-checking approach that will further damage board credibility and performance." Instead, to increase board diversity, they recommend seeking out more angular expertise for the board, rather than having a CEO monopoly on board seats; grilling companies on how they recruit board directors; using blind resumes in the recruitment process; considering different evaluations for the next open director search; and evaluating and implementing team health and performance metrics for the board.

Opinion: Investors in Asia Need All the Help They Can Get
" Wall Street Journal (12/05/18) Peaple, Andrew"

The Asian Corporate Governance Association published a report Wednesday that declared a “more localist and divisive” approach is now undermining two decades of progress on shareholder rights across Asia. The not-for-profit watchdog's top concern is that increased competition among stock exchanges to attract high-profile listings is compromising the fair treatment of shareholders. One issue is the increased tolerance in major Asian markets for companies to list with dual-class shares, which enables small numbers of shareholders to retain majority control of company voting rights even after they go public. Having lost out on Alibaba's initial public offering to New York in 2014, Hong Kong this year changed its rules to allow dual-class shares, concerned it would miss other big tech stock listings. Dual-class shares are not ideal. However, for years large numbers of companies listed in Hong Kong and across Asia have had dominant shareholders—sometimes the state or controlling families—who do not always act in the interests of ordinary investors, writes the Wall Street Journal's Andrew Peaple. Changing this structural feature of Asian markets will not happen soon. Given that, it is on governments and regulators to show more determination to enhane corporate governance and the broader environment for investors, he writes.

For Companies, It Can Be Hard to Think Long Term
" Wall Street Journal (12/03/18) Stoll, John D."

Short-term versus long-term thinking on Wall Street is a key concern for chief executives attempting to support significant capital investments that can take years to pay off. Long-range strategies can be difficult to execute in an era when Wall Street is focused on three-month reporting periods. "Companies need to make a choice," says Tim Koller, a McKinsey & Co. partner. "Do I please investors who are in it for the long haul, or do I please investors who are playing the quarterly game?" The data behind the issue does little to answer the question. McKinsey says 75% of shareholders are considered long-term investors, meaning they should be more patient than sell-side analysts, and Koller says there isn't a lot of evidence that proves shareholders want executives to focus so heavily on the short term. Still, the number of publicly traded companies is trending down, partly because of the growing pressure on executives to put immediate performance before investing in the future. Many business leaders are weary of feeling forced to make short-term decisions that could negatively affect their companies' long-term health. Barnes & Noble Inc. (BKS) Chairman Leonard Riggio, for example, said in October the bookseller is weighing going private because public shareholders may not be sufficiently patient to support a costly and extensive turnaround plan. Many critics of short-term thinking on Wall Street say quarterly earnings is the area most in need of immediate change. Even if quarterly guidance holds executives accountable and fosters transparency, it may not be worth the detrimental behavior that sometimes results.

Should Dual-Class Shares Be Banned?
" Harvard Business Review (12/03/18) Govindarajan, Vijay; Rajgopal, Shivaram; Srivastava, Anup"

The use of dual-class shares has grown recently, and there have been calls to eliminate them, or at least have a mandatory sunset clause. In this article, Vijay Govindarajan of Dartmouth's Tuck School of Business, Shivaram Rajgopal of Columbia Business School, and Anup Srivastava and Luminita Enache of the University of Calgary argue that an "outright ban on dual-class shares would not be costless. For example, one principal reason for decline in the number of initial public offerings is the increasing reluctance of technology companies to list their stock, which is largely caused by rising shareholder activism. At the margin, a ban on dual-class stock would encourage more technology companies to remain private, or motivate listed technology companies to go private, eliminating common investors' chance to buy even the inferior voting stock. This growing possibility is likely why Hong Kong and Singapore stock exchanges have reversed their earlier stance and allowed dual-class shares." Meanwhile, they believe "a sunset clause would be ideal if there exists a fixed, predetermined time after which all companies become mature enough to need no further changes in their business models. However, we cannot completely endorse this idea for two reasons. First, the firm age at which [a] sunset clause should kick [in] is far from clear...Second, and more important, we are unsure whether any of today's companies can bask in their established business models forever, given the increasing pace of creative destruction and the emerging competition from digital companies." Instead, they recommend a more flexible shareholding structure. "Companies with dual-class structures could be required, after a period of predetermined years, to gain approval from a majority of all shareholders to continue the dual-class structure. Furthermore, single-class firms should be given an option to convert to dual-class shares through a shareholder vote, in order to carry out significant transformations, instead of having to completely delist in order to achieve that goal," they write.


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