Delaware Chancery Court judge Leo Strine’s decision to ban Conrad Black’s sale of his Hollinger Inc assets to the Barclay brothers is a sure sign of the times. The ruling sends a strong message to CEOs and corporate boards about the mindset of lawmakers in Delaware, where the majority of US companies are incorporated. And that message is this: minority shareholder interests are front and center in the minds of lawmakers today – CEOs and directors who are viewed as impinging on the interests of this shareholder class will face serious opposition and scrutiny.
Similarly, as proxy season gets into full swing, management teams that are seen as promoting their own interests over that of minority shareholders (or shareholders in general) will be challenged. IROs in particular need to be conscious of the activist mindset already building among institutional investors that could have a direct impact on this year’s proxy results and, more importantly, on shareholder value creation going forward.
It’s amazing to see how battle for control of some companies is playing out in the press and through new online investor forums, such as those being sponsored by proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis. IROs should be following these public power struggles because they provide insight into where the institutional thinking is on important issues – such as the separation of the roles of chairman and CEO, and the contentious matter of executive compensation.
While the final outcome was unknown as we went to press, the Disney-Eisner situation is a perfect example of how ripe the climate is for activism and how some institutions, namely pension funds, are willing to speak out against management. Several US pension funds including Calpers, the largest one in the country, announced their decision to withhold support from Eisner in late February. Pension funds have a broad impact on public opinion, and management and the board really feel the impact of their opposition. We should never forget, for example, that it was pressure from pension funds that seemed to finally force former NYSE head Dick Grasso to resign.
Now that mutual funds are required to disclose their proxy votes, the current tide of shareholder activism is only going to get stronger. In the middle of all this action and debate is an opportunity for IROs to emerge as informants to management and the board on governance and proxy issues.
As the person who has daily contact with the buy side, the IR person is in the perfect position to find out what institutions are thinking about management and the board. And getting involved with prepping for the annual meeting is yet another way to elevate IR’s role within the corporation.
