Steven Davidoff analyzes hedge fund manager William Ackman's upcoming raid on Air Products.
Air Products has lagged its peers in stock price performance in recent years. He is likely to use this underperformance to ask for some board seats and an overhaul of management. He is also likely to ask for tweaks in business direction and operations, but nothing significant. ...
Mr. Ackman likes the company a lot, but management not so much.
Given how badly Ackman's chosen manager and preferred business plans performed at JC Penney, why would anybody thinks his plans for Air Products are worth hearing, let alone implementing?
As even a pro-shareholder activist is now observing:
Penney is considering bringing back former CEO Allen Questrom as chairman to help replace current (and former) CEO Mike Ullman, who himself replaced Ron Johnson. All of this is at the urging of Ackman, the guy who brought in Ullman and Johnson before him, getting this whole debacle started.
It’s like the movie “Ground Hog Day,” where Bill Murray keeps waking up to the same day. No matter what happens and how many events he changes, the day repeats, over and over.
Ackman’s day must always begin with an urge to meddle in corporate affairs, if only for the sake of meddling. That and insisting everything be done immediately.
It's this sort of incompetent meddling by activist shareholders that drives my latest essay arguing for disempowering shareholders, Managing Shareholder Interventions: An Updated Director Primacy Critique of Shareholder Empowerment (July 25, 2013). Research Handbook on Shareholder Power and Activism, Forthcoming; UCLA School of Law, Law-Econ. Research Paper No. 13-09. Available at SSRN: http://ssrn.com/abstract=2298415:
Even though the primacy of the board of director primacy is deeply embedded in state corporate law, shareholder activism nevertheless has become an increasingly important feature of corporate governance in the United States. The financial crisis of 2008 and the ascendancy of the Democratic Party in Washington created an environment in which activists were able to considerably advance their agenda via the political process. At the same time, changes in managerial compensation, shareholder concentration, and board composition, outlook, and ideology, have also empowered activist shareholders.
There are strong normative arguments for disempowering shareholders and, accordingly, for rolling back the gains shareholder activists have made. Whether that will prove possible in the long run or not, however, in the near term attention must be paid to the problem of managing shareholder interventions.
This problem arises because not all shareholder interventions are created equally. Some are legitimately designed to improve corporate efficiency and performance, especially by holding poorly performing boards of directors and top management teams to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company than the incumbents, which may be true sometimes but often seems dubious. Worse yet, some interventions are intended to advance an activist’s agenda that is not shared by other investors.
This [essay] proposes managing shareholder interventions through changes to the federal proxy rules designed to make it more difficult for activists to effect operational changes, while encouraging shareholder efforts to hold directors and managers accountable.