There was a very interesting post at Dealbook a couple of days ago, in which the estimable Steven Davidoff Solomon argues that:
Shareholder activism is in full roar as hedge funds prowl and companies retreat, but Nelson Peltz’s campaign to replace four directors at DuPont may just be where corporate America finally draws the line and tries to stem the activist tide. ...
DuPont is a well-performing company that should be receiving credit for its actions, not pressure from activists. ...
The easy route these days is for companies to settle when faced with an activist attack of this type. Yet DuPont has refused to compromise any further. Sotheby’s and Darden Restaurants had clear performance problems when they were confronted by the demands of activist investors, but DuPont does not. Another way to put it: Why should DuPont adhere to the wishes of its fifth-largest shareholder, including having that shareholder place a director on the board? ...
The underlying struggle is over who knows what is best for America: competent boards that perform well or hedge funds that are looking for the quick payoff.
That is indeed the basic question. It is one I recently addressed in my essay Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013), which is aailable at SSRN: http://ssrn.com/abstract=2298415:
Even though the primacy of the board of director 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.
