Winter 2006 CFO Forum Meeting

Wednesday, February 8, 2006, 7:30-10 a.m.
"Relating to Shareholder Activists: Saviors, Bullies or Pests?"

Who runs the business? And who should? Increasingly, non-management shareholders are asserting their right to monitor and influence managers’ decisions. Such oversight, they argue, improves governance and firm performance. On the other side, many directors and managers view shareholder activists as meddlers who have neither the skills nor the experience to run businesses well. Activists’ efforts, according to this view, waste resources and distort corporate decisions.

These are not trivial issues. Each year, more than 400 firms are targeted by shareholder proposals or direct negotiations with shareholders. Institutional Shareholders Services, Inc. boasts more than 1,600 institutional and corporate clients, giving unprecedented muscle to their recommendations on proxy voting. Such institutional investors as t he California State Teachers’ Retirement System are large enough to get the attention of any corporate manager who receives a request to discuss his or her firm’s governance and performance.

Is pressure from institutional shareholders a good thing? Does your perspective depend on whether you are a director, manager, or shareholder? And what do you do when you receive a call from one of your institutional investors, or when ISS rates your firm’s governance as poor?

Helping us explore these issues were three experts on shareholder activism:

* Patrick McGurn, Senior VP & Special Counsel for Institutional Shareholders Services, Inc., the world's leading provider of proxy voting and corporate governance services.

* Tracie Woidtke, Assistant Professor of Finance and Research Fellow for the Corporate Governance Center at the University of Tennessee.

* Paul Malatesta, Professor of Finance and the Norman J. Metcalfe Faculty Fellow in Finance at the University of Washington, and the author of the first large-scale empirical study of shareholder proxy proposals.

CFO Forum participants, as always, contributed their perspectives, making this more than an academic discussion.

Additional Links of Interest:

Summaries of research on shareholder activism by Tracie Woidtke

Harvard Business Review article on shareholder activism by Tracie Woidtke

Link to the Governance Center at the Institutional Shareholders Services, Inc. website

A survey of empirical research on the effects of shareholder activism by Jonathan Karpoff  

A copy of the first large-scale empirical study on shareholder proxy proposals by Paul Malatesta

Citgroup article on hedge fund activism