Archive for March 22nd, 2011

U.S. Secretary of State Hillary Clinton Addressed Forum’s Affiliate in the Baltic States

published by The Global Corporate Governance Forum, March 18th, 2011.

“Your work to reform state-owned enterprises sends a strong message across the region about the importance of transparency and accountability,” Hillary Clinton spoke via video to the annual General Meeting and Conference of the Baltic Institute of Corporate Governance on March 18, 2011.

Read more…


Uncle Sam and the Hostile Takeover

by Jonathan Macey for Yale Law School, March 21st, 2011.

The following commentary was published in The Wall Street Journal on March 21, 2011.

Conflicts between a public company’s top management and shareholders are seldom more intense than when an activist investor emerges with plans to make a substantial investment in the company’s stock. These investors sometimes are hedge funds or “value investors” like Warren Buffett. Whoever they are, after they take a huge stake in the target company they have strong incentives to agitate vigorously for reforms that will increase the value of their investments.

Shareholders benefit from the reforms of corporate governance initiated by these activist investors. So does the economy generally, because the overall economy performs better when companies perform better. But managers are not so fond of this process because activist investors push incumbent senior managers hard to improve their performance. Occasionally they even fire them.

Since incumbent managers sometimes lose to activist investors in fair corporate elections, their preferred strategy for dealing with them is to hire legal talent and team up with friendly regulators to make new rules and to concoct anti-takeover devices like poison pills.

For example, J.C. Penney adopted a poison pill last October, soon after learning that the hedge fund Pershing Square Capital Management and the publicly traded Vornado Realty Trust had acquired a sizeable position in the company. The particular poison pill it adopted would dilute the voting rights of the two activist investors’ shares if they further increased their holdings or attempted a takeover of the company by giving other shareholders the right to buy J.C. Penney shares at half-price. (continue reading… )

The Dodd-Frank debacle, takeover edition

by Larry Ribstein for Truth on the Market, March 21st, 2011.

The so-called “Dodd-Frank Wall Street Reform and Consumer Protection Act” was supposed to fix the problems that led to the financial bust.  Of course, that would require some understanding of what, exactly, those problems were, which Congress lacked.  The Act did little to fix the credit raters or the derivatives market that surely had something to do with the crash.  But it did include countless ill-considered provisions and rules lying in wait behind studies.  I’ve already commented (here and here) on the Act’s unwarranted federal intrusion into aspects of corporate governance that had little to do with the meltdown. And I’ve noted the Act’s contribution to hobbling initial public offerings.

Yale’s Jon Macey comments in today’s WSJ on the potential fallout from one of D-F’s most buried little gems:  Section 929R(a)’s authorization to the SEC to reduce the period for reporting 5% share acquisitions from ten days to “such shorter time as the Commission may establish by rule.”  Marty Lipton’s takeover defense firm, Wachtell, Lipton, Rosen & Katz, has seized on this provision to propose that the SEC reduce that period to one day.

Alerting the market to a potential impending bid raises share prices and therefore the takeover’s overall cost. This would add to the effects of a long-term trend at both the state and federal level of allocating increasing shares of the potential gains from takeover-induced governance reforms to the incumbent shareholders and away from the bidder. This is fine for the shareholders, given the existence of a bid.  But if you increase the price of bids you’re likely to decrease the supply.  Fewer bids = more power to incumbent managers. (continue reading… )



The UK government is wrong – governance cannot be outsourced to investors

by Ian Fraser for Qfinance, March 22nd, 2011.

Can investors be relied upon to police corporate behavior (governance) and guide the companies in which they invest to take decisions likely to create enduring value, and bring wider benefits over and above short-term profitability gains?

Can investors – which I take to include institutional investors like pension funds and intermediaries such as asset-management companies – be trusted to guide corporate managements around the Scylla of self-destructive behavior that might flatter short-term share prices but be catastrophic in the long-term, and the Charybdis of the pursuit by management of self-enrichment at the cost of long-term shareholder value?

Increasingly, I’m beginning to doubt it. Even though the UK and US governments still seem to believe that investors can be trusted to do such things, and despite all the hype surrounding the UK’s “Stewardship Code”*, and the rise of movements such as socially-responsible investment and environmental and social governance, the answer to these questions is sadly “no” and “no”.

There are clearly exceptions. A minority of institutional investors (including the California pension fund CalPERS, Dutch pensions giant ABP and the “Sage of Omaha” Warren Buffett), plus a select band of asset-management companies (such as Hermes Pensions Management and Fidelity in the UK) have a track-record of responsible intervention/activism with an eye on long-term sustainability.

But most CFOs and directors of listed companies tell me that the voices of responsibility are invariably drowned out by the baying hoard of more rapacious short-termist investors including hedge funds and high-frequency traders. And their time horizons are myopic. (continue reading… )

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