Posts Tagged 'The Wall Street Journal'

How to Be an Activist Investor

by Alex Davidson for The Wall Street Journal

You, too, can be an activist investor.

Just ask hedge-fund manager Eric Jackson, who started a crusade for change at YahooInc. more than seven years ago armed with only a blog post and YouTube.

“It’s never been easier for an individual shareholder to express a point of view,” says Mr. Jackson, who used social media to galvanize support for shareholder-friendly changes at Yahoo and against members of the compensation committee responsible for approving executives’ pay packages. At the time, he and his supporters collectively owned 0.2% of Yahoo’s shares outstanding.

Conventional thinking has been that ordinary individual investors, too busy with their own work and families, don’t have the time or desire to agitate for change. With the stock market in a six-year bull market and index funds proliferating, many people have, in fact, been content to sit back and be passive investors.

But some individual investors, buoyed by the belief that good corporate governance leads to improved returns, are showing a greater interest in engaging with companies on issues such as executive pay and board structure. And shareholders—even those with limited resources—have plenty of options when it comes to being heard.

So how does one go about becoming an activist?

As with any other activity or sport, there are different levels at which investors can get involved. Read more here.

The Morning Risk Report: Cybersecurity Responsibility Falling to Boards

by Ben Dipietro for The Wall Street Journal

U.S. regulators this year are emphasizing the importance for corporate boards to take responsibility for cybersecurity, saying directors and officers who fail to do so could be held individually liable for any lapses that occur, attorneys said Tuesday during a webinar on the subject. This means boards must put in place the proper teams and prepare plans to prevent any breaches and to respond to any that may occur. Particularly in the last three to four months there has been intense focus by regulators on this subject, largely directed to directors and officers, said John Failla, a partner in Proskauer Rose’s insurance group.

Regulators are “trying to articulate responsibilities to board to prevent, address, mitigate and transfer risks for this issue,” said Mr. Failla. In the webinar, he cited a speech from Securities and Exchange Commission Commissioner Luis Aguilar in June 2014 in which he “made it abundantly clear” the SEC views boards as being a critical part of risk management in this area. “Boards need to work with management to assess cyber controls, to make sure they match up with or exceed federal frameworks” and to make sure directors are educated about risk and technology and take the time to address these issues. The Financial Industry Regulatory Authority and the Federal Trade Commission also are focused on this topic, he said. Read more here.

Faith-Based Shareholder Plans to Pressure Wells Fargo and Citi

by Sarah Krouse for The Wall Street Journal

A religious shareholder group that has in recent months pressured two of the largest U.S. banks into publishing reviews of their business standards, is out to repeat the feat at Wells Fargo WFC +2.48% and Citigroup C +2.75%.

The Interfaith Center on Corporate Responsibility will Friday afternoon have a teleconference with Wells Fargo officials to discuss the bank’s internal standards and the publication of details of them.

The organization, which represents groups with over $100 billion of invested money, is planning similar talks with Citi in the coming months, according to Seamus Finn, chairman of the ICCR board.

Mr. Finn said: “It would be helpful for us as investors and the general public to have one place to go to see what changes they’ve put in place since the 2008 financial meltdown.”

The ICCR declined to comment on the size of the collective stakes its members hold in Wells Fargo and Citi.

A spokesman for Wells Fargo said: “We have appreciated the engagement we’ve had with them in the past and we meet with them from time to time.”

A spokeswoman for Citi said: “Citi has long enjoyed a productive dialogue with the members of the ICCR.”

The moves come as investors and regulators step up efforts to ensure the world’s largest banking institutions address issues of culture and behavior. These efforts follow a string of high-profile scandals in the banking world, ranging from benchmark manipulation to sanction violations, that have cost banks billions of dollars in fines and huge reputational damage. Read more here.

The Morning Risk Report: China Bank Probes Point to Governance Issues

by Samuel Rubenfeld for The Wall Street Journal

China’s high-profile anti-corruption drive has turned its head toward the nation’s financial sector, as multiple reports noted this week, all of which pointed to the questioning of a senior executive of one bank and a board member of another regarding possible corruption. To that end, Beijing’s anti-graft authorities recently formed a department to focus mainly on the financial sector, the Wall Street Journal reported Tuesday, citing Chinese officials familiar with the matter.

Fitch Ratings, in a statement on Tuesday, said the investigations of the two bank leaders shouldn’t greatly affect their employers, but they do “underscore broader issues” of governance, management and political risks at China’s banks. The agency said its ratings for China’s banks “already reflect a degree of risk related to weak corporate governance,” and that a lack of transparency, as well as nascent regulatory and legal systems, are a sector-wide constraint on ratings. ”These events…could be a precursor to a wider investigation into corporate management. If so, as far as the financial sector is concerned, it has the potential to enhance transparency and improve governance standards in the long run–which would be credit positive,” said Fitch. Read more here.

Meet the Corporate Board’s ‘Kitchen Junk Drawer’

by Michael Rapoport and Joann S. Lublin for The Wall Street Journal

As new risks multiply, the audit committee has become the “kitchen junk drawer” for many corporate boards.

The workload of the powerful committees has expanded sharply beyond their core role of overseeing a company’s financial reporting. They are grappling with new regulations, whistleblower claims and issues like cybersecurity and foreign corruption. In addition, the Securities and Exchange Commission is expected to suggest new rules by the end of next month requiring them to disclose more about their activities.

“It’s not the favorite committee,’’ says Fredric Reynolds, a retired CBS Corp. chief financial officer and audit committee chairman at Mondelez International Inc. To attract committee members, he sometimes promises relatively short stints: “You’ll be released for time served and good behavior,’’ he tells directors.

Mr. Reynolds estimates he spends 100-plus hours a year on Mondelez’s audit committee. One key part of that is the audit committees’ oversight of whistleblower complaints, which is required by the 2002 Sarbanes-Oxley Act. The vast majority are from people frustrated with their work colleagues, he adds. But when there’s smoke, “you don’t know if it’s fire.” Read more here.

The Secret Sauce of Corporate Leadership

by Lawrence A. Cunningham for The Wall Street Journal

Earlier this month came refreshing news that an activist shareholder had agreed to withdraw a proposal to split the roles of CEO and chairman at Bank of America in exchange for a study of the bank’s corporate culture and guiding values. This presents an opportunity to discuss corporate leadership beyond stale debates about formal job functions and to focus more on substance: talent at the top and the tone that leaders set.

Proponents of splitting executive and board leaders are correct that good governance promotes institutional health, but there are no guarantees that formal splits advance this interest. And many uncontroversial ideas can do so, especially electing savvy directors or appointing exemplary officers.

Shareholders of several hundred companies are now considering whether to split the CEO and chairman roles. While some argue that dividing corporate power checks executive hubris, many shareholders vote against the split as long as a corporation performs satisfactorily. In 2012 Chesapeake EnergyCorp. voted to break up the positions, whileJ.P. Morgan voted no in 2013. Read more here.

The Real Referendum on Abenomics

by Nicholas Benes for The Wall Street Journal

Japanese Prime Minister Shinzo Abe has framed the Dec. 14 “snap election” as a referendum on Abenomics, yet the real referendum will come afterward. In the months ahead, international and domestic investors will vote with their money to answer one main question: Will the “third arrow” of Mr. Abe’s growth agenda deliver real reform, or is Japan’s ruling party still under the sway of labor and corporate interests that like things as they are?

Investors will have a clear litmus test to use. During the next four months, Japan’s Financial Service Agency and the Tokyo Stock Exchange (TSE) will be finalizing the country’s first corporate-governance code, which with the right components would mean real economic-reform progress. Read more here.

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