We’ve been hearing more and more about activist investors like Carl Icahn and Bill Ackman over the last several months. So far this year already, it seems like the number of activist campaigns has been taken up a notch, just in general. So if this trend continues, what does that mean for the markets this year? Do investors really appreciate the efforts of activists, and what might these activists especially focus on this year? ValueWalk spoke with Jim Copland, director of the Center for Legal Policy at the Manhattan Institute, for some insight.
Activist Investors Part One: Is Activism On The Rise?
Michael Gelband’s Exodus Point launched in 2018 with $8.5 billion in assets. Expectations were high that the former Millennium Management executive would be able to take the skills he had learned at Izzy Englander’s hedge fund and replicate its performance, after a decade of running its fixed income business. The fund looks to be proving Read More
If you missed the first part of this article, click for Activist Investors Part One: Is Activism On The Rise? to read more about Copland’s views regarding whether it is increasing and why it might be.
Do investors really like activist campaigns?
When it comes to where investors spend their money and vote their shares, are they more or likely to support activists in their efforts? You might think that shareholders do approve of activism campaigns, particularly since they tend to put their money into companies which are being targeted. The fact that Carl Icahn was able to add $8 billion to Apple Inc. (NASDAQ:AAPL)’s market capitalization late last year every time he tweeted about his push for more share buybacks is evidence of this.
However, increases in share price aren’t the only place we can look for data on how well shareholders like activist campaigns. As of fall of 2013, support for shareholder proposals actually declined, with just 7% of them receiving the backing of a majority of shareholders. That’s down from 9% in 2012. In fact, according to the data from the Manhattan Institute, a smaller percentage of proposals passed last year than in any other year between 2006 and 2013.
Among the 20 proposals which did receive the support of shareholders, 13 of them were on two issues: “whether to elect all corporate directors annually and whether each director should be required to receive a majority of votes cast to be elected.”
This suggests that corporate governance issues tend to be toward the top of shareholders’ minds, and in fact, this breakdown from the Manhattan Institute does show that corporate governance issues make up a significant portion of shareholder proposals. Social policies are also a big one.
Here’s a general breakdown of the data (image courtesy the Manhattan Institute):
Breaking down these areas even further, we get a glimpse of what activist investors could be most concerned with this year. However, Copland thinks some of these areas could see an increase in the number of shareholder proposals filed this year.
Here’s his breakdown from the first part of 2013 (image courtesy the Manhattan Institute):
Copland believes the shift away from staggered boards and toward majority election without a proxy fight will continue this year. He noted a “pronounced shift” over the last ten years, and he said this is caused by “empowered shareholder activists” who are trying to change the behavior of management or a company’s board but do not want to advance onto a full proxy fight.
Copland also said this is changing the dynamics of activisms and resulting in some different tactics and techniques being used by activists. It’s worth wondering why we’re seeing what appears to be an increase in public relations campaigns by activists. Just from an industry watcher standpoint, it seems that at certain times, PR ends up being more effective than a proxy battle.
He also believes proxy access could be a key issue this year.
“Perhaps more effort on the proxy access front, although we have haven’t seen a lot of number on those since the SEC rule got shot down,” Copland said. “So I’m not sure if that’s because activists are hoping the SEC will come back to it, or if they are really going to just target the companies they have an issue with.”
Another key issue which he said we could see more of is separating the chairman position from the CEO position. JPMorgan Chase & Co. (NYSE:JPM) dealt with this last year, but the bank won the vote on that proposal, probably because its stock has been performing so well. Copland notes that the bank improved its vote on the issue in 2013, decreasing shareholder approval for it from 40% in 2012 to 32% in 2013.
“It will be interesting to follow that probably again, given the agreements JPMorgan’s had with the government and the multi billions of dollars to see if there’s another big push at them or not,” Copland said.
He thinks it’s unlikely shareholders will approve Jamie Dimon’s roles being split, particularly if the bank continues on the positive trajectory it has been on—in spite of all the legal problems.
De-staggering boards could also be a hot topic this year, according to Copland. He said that on a cross-sectional examination of companies, looks like those with de-staggered boards—which means they annually elect directors—perform better than those with staggered boards.
However, he said a more recent study which was also more sophisticated suggested that companies which adopt a de-staggered board tend to have a worse performance. He said this latest study suggests that instead of a blanket rule regarding all companies having de-staggered boards, examining each company on a case-by-case basis would be better. He said some companies could get some value out of having staggered boards at some point, depending on what’s going on with them.