The WSJ reports:
While their [i.e., shareholder activist hedge funds] prominence has been steadily increasing in recent years, in 2014 they reached new heights, sweeping out all the directors of one company, getting a seat on the board of the nation’s oldest bank and helping set the stage for the biggest takeover of the year.
Activists also raised billions of dollars in a sign they are likely to be as busy, or busier, in 2015. ...
More than ever in 2014, when shareholder votes were up for grabs, activists won. They scored a board seat in about 73% of all proxy fights, topping the previous year’s record of 63%, according to FactSet.
So what do those of us who believe in director primacy do now? My essay Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013), aailable at SSRN: http://ssrn.com/abstract=2298415, argues that:
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 chapter 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.