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Transcript of Shareholders Activism
restrictions on short-term trading:
individual that possesses control of company faces volume & holding-period restrictions on reselling shares
any gains a 10% holder of security receives on purchase/sale of security within 6 months of an earlier purchase/sale must be paid back
fund cannot hold more than 10% of stock of any firm to receive favorable tax treatment References Shareholder activism Shareholder activism PROS CONS Activism around the world UK US China Conclusion More monitoring by activists on managers' decisions
Potential new ideas will be brought up
Activists can press for certain changes (divestments, new performance measures, more accountability)
Significant positive abnormal returns around announcement date of change
Changes of CEOs & chairmen give rise to large, positive excess returns Large amount bought by activist = share price up, when selling = potential drop
Activists may have short-term horizon
Few mechanisms to monitor fund managers
Activist may have limited managerial competency
Activist may not monitor efficiently (not internalize welfare of other investors)
Management may focus on short-term results Can activist shareholders determine
the actions of management? Depends on several factors:
ease of communication
congruence of interests among shareholders
complex corporate structures
size of stock market
activist's stake in company Why YES Why YES Why NO -Contact with executives, managers
and non-executives -shareholders typically have a
"say on pay" -Formal requisition of a general meeting - re-election of one or more
of directors retiring by rotation Tutorial 21 Group A Alessandro Fiannola
Melina Haefner Problem statement Agenda Debate 1. Problem statement
2. Pros and cons of shareholder activism
3. Activism at Apple
4. Activist strategy around the world
6. References The Economist (2007), Hail Shareholders!
Gillian and Starks (2000), Corporate governance proposals and shareholder activism: The role of institutional investors, Journal of Financial Economics, 57(2)
Becht, Franks, Mayer and Rossi (2009), Returns to shareholder activism: Evidence from a clinical study of the Hermes U.K. focus fund, Review of Financial Studies, 22(8)
Brav, Jiang, Partnoy and Thomas (2008), The returns to hedge fund activism, Financial Analysts Journal, 64(6)
Tirole, J. (2006), Theory of Corporate Finance, Chapter 1, Corporate Governance, pp. 36-43
Xi, C (2006), Institutional Shareholder Activism in China: Law and Practice
http://www.traverssmith.com/media/599524/shareholder_activism_in_the_uk.pdf Hedge funds may hold undiversified portfolios with large blockholdings in individual companies
dispersed ownership Activism Alone Won’t Save Apple Shareholders Shareholder Activism PROS CONS Limits on institutional shareholder activism
1. Ownership Structure
- highly concentrated
- ownership structure
2. Conflicts of interest
3. Collective action problem
- not so large stake
- gains from fund managers may be less than from other alternatives David Einhorn - Founder and president of Greenlight Capital
- Hedge fund manager
- Filed a lawsuit against Apple = Court approved Is David Einhorn right (apart from the decision of the court)? If you were Apple, what would you do?
Discussion Question Negotiate the minefield Activism Armory -Has to effective and non-defamatory -Same rules and regulation, no freely pass of information to his nominator's -UK laws that put boundaries
to these statutory powers Where and under which circumstances can a shareholder best make use of activism? Activist Shareholder Enjoy the reading... Hedge funds face less restrictions than other investors + dispersed ownership
Lots of tools for activism, but be aware of the restrictions!!!
Very limited action by activism, do not invest there
Apple Current stock price: $ 425.66
Tim Cook is not as influential as Steve Jobs, he needs more help from other directors
propose outside director candidates Experiencing strikes for bad working conditions Current stock price: £10.46
Hedge fund manager built bridge between employees and high executives