Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

See related case examples of

Dell Inc.

appraisal rights for intrinsic value realization

and

Walgreen Co.

stock buyback policies

"Fair Access" Home Page

"Fair Access" Program Reference

For graphs of specific company and related industry returns, see

Returns on Corporate Capital

For graphs of specific company voting for the past 5 years, see

Shareholder Support Rankings

 

 

 

Forum distribution:

Escalating controversy about corporate and investor responsibilities for long term value

 

Source: The Conference Board Governance Center Blog, August 7, 2014 posting


The Conference Board Governance Center Blog

AUG
07
2014

Wealth Transfer Versus Wealth Creation

By Donna Dabney, Executive Director, Governance Center, The Conference Board

A recently published article by Dr. Yvan Allaire and François Dauphine of the Institute for Governance of Private and Public Organizations (igopp) is well worth reading.  It expresses common sense thinking about empirical studies, activist hedge funds, and long term sustainable value.

 

The specific issue the authors address is the long standing debate whether activist shareholder interventions result in long term benefits to corporations, which we have been following closely at The Conference Board Governance Center. This article analyzes a widely publicized empirical study of the impact of activist hedge fund intervention on financial performance, which concluded that activist hedge fund interventions were beneficial to corporate shareholders over the long term (five years). Allaire and Dauphine refute this conclusion by analyzing the design of the study in detail, noting among other things, that a large number of the companies in the study did not survive for five years after an activist intervention.

Allaire and Dauphine acknowledge that activist hedge funds create short term wealth for some shareholders as a result of traders who jump into a stock when an activist invests in that stock. However, in a majority of cases that effect does not last. They also conclude that in a minority of cases, activists may bring some lasting value for shareholders, but largely at the expense of workers and bond holders resulting in an impact that takes the form of wealth transfer rather than wealth creation.

Wealth transfer rather than wealth creation is a real concern for public companies. The Conference Board Governance Center Task Force on Corporate/Investor Engagement concluded that long term sustainable shareholder value can only be achieved by focusing on those who create corporate value:  the employees, creditors, suppliers, customers, communities, and the environment in which the company operates. A sole focus on shareholder wealth maximization at the expense of those who create corporate value will not be sustainable in the long term.

About the Blogger:

Donna Dabney, Executive Director, The Conference Board Governance Center

 

Donna has extensive experience in corporate governance matters, having served as a member of management for over 15 years on the boards of Alcoa and Reynolds Metals Company. She is a recognized expert on governance issues related to executive compensation. As part of her work with the Alcoa Board of Directors, she has gained substantial experience with sustainable development in the Amazon region of Brazil.Donna Dabney joined The Conference Board as Executive Director, Governance Center, in August, 2012. In her current position, Donna leads The Conference Board’s efforts in the area of Corporate Governance. Prior to joining The Conference Board, Donna was Vice President, Corporate Secretary and Corporate Governance Counsel of Alcoa Inc.

Donna is a member of the New York Advisory Board of the Society of Corporate Secretaries and Governance Professionals, the Stockholder Relations Society of New York, and she is a member of the faculty of the Citadel Directors Institute and of the Practicing Law Institute.

 

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to access@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.