Re-examining Board Priorities in an Era of Activism

by Ira M. Millstein for Dealbook, March 8 2013

With the recent increase in activism, some on Wall Street are blaming shareholders for the short-term mentality of corporate boards.

But many of these activists represent a small subset of investors in publicly held companies. As a result, corporate boards around the country should re-examine their priorities and figure out to whom they owe their fiduciary duties.

One of the major problems of this newfound activism is the focus on short-term results. That is not to say that our economy isn’t gripped by a short-term mentality, whether it’s individuals saving less and seeking immediate satisfaction or corporations forgoing long-term sustainable growth and profitability to meet investor demands for quarterly stock market returns.

But as many commentators have pointed out, activist investors are manipulating the system without succeeding in increasing shareholder value or instilling better corporate governance practices. Some activists are using their newfound power to sway and bully management to focus on the short term, meet the quarterly targets and disgorge cash in extra dividends or stock buy backs in lieu of investing in long-term growth. In recent years, companies including Dell, Yahoo and others have faced proxy wars or shareholder proposals to merge, divest, change boards or management or undergo a drastic reorganization.

This focus on catering to activists has resulted in overlooking the importance of reasonable shareholder power. And that is leading to a stasis in corporate governance, rather than innovation and positive change. Continue reading…


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