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:

Professional activist view of defense advisor playbook

 

For the defense advisor's video and chart for "Shareholder Activism Risk Assessment" referenced below, with links to the advisor's full presentation, see

 

Source: The Activist Investor Blog, April 7, 2015 posting

logo1

The Activist Investor Blog

 

Shareholder Activism: Are You Prepared? PwC Wants to Assess You.

 

Tuesday, April 7, 2015
 

Surely you’ve seen the new Pricewaterhouse Coopers (PwC) report on activist investors? The one that asserts “shareholder activism is exploding” and advises companies to “prepare and respond”? It attracted some news coverage and investor analysis as the latest offering in shareholder engagement, the current fad in deflecting serious investor concerns.

 

Among other helpful items from PwC, including a full report and a video, the risk assessment tool piques our interest. It reminds us of our time in big management consulting firms, where we pushed quizzes and questionnaires that aimed to frighten clients about how poorly they ran their businesses. It’s a standard, if naive, tactic to scare up work.

 

http://www.theactivistinvestor.com/The_Activist_Investor/Media/transparent.gif

 

BoDs and CEOs can thus assess the risk of attracting various types of activist investors. The firm invites executives to “Check all of the factors that may apply, and see where you stand.” PwC just wants to scare the crap out of executives, as they worry about attracting attention from a slick hedge fund. We studied the tool a bit, and ran some scenarios through it, to see how well it reflects how real activists think about portfolio companies.

 

The tool divides activist projects into four types: hedge funds, “vote no” campaigns, shareholder proposals, and adverse say-on-pay votes. Of course, only hedge fund activists pose a serious threat to a company.

 

It also lists three factors that drive the likelihood of an activist project: financial factors, governance profile, and investor base. The investor base factor merely asks whether a company has activist investors among the largest shareholders, which assumes what a CEO uses the tool to find out. Setting this factor aside allows us to ponder the financial and corp gov factors.

 

The financial factors include low shareholder return performance, low market-to-book ratio, and high cash balances. To PwC, any of these represent the “greatest risk” of hedge fund activism. And, investors do indeed focus on these factors in deciding whether to pursue an activist project at a company.

 

In contrast, only two of the nine corp gov factors represent the “greatest risk” from hedge funds - a “stale” BoD or no engagement program, whatever these mean. One of the factors, a classified board, carries a “low” risk, even though prominent hedge fund activists have gone after companies with one. And, poison pills are conspicuously missing.

 

Poor showing on the nine corp gov factors generally increases the risk of a shareholder proposal, say from a pension fund or foundation. While a nuisance, shareholder proposals really don’t worry most executives, despite what PwC thinks.

 

This is all completely subjective. The difference among low, moderate, high, and greatest risk, across 16 factors, has no basis in anything other than what PwC consultants say. They cite no data or analysis underlying what makes one factor more important than another. We can find no algorithm or model behind any of this nonsense.

 

More to the point, what to do about a high-risk situation? Fix the disappointing financial performance? Rectify poor corp gov? Nah, just “consider the activist’s ideas,” seek “consensus”, and “actively engage” with shareholders.

 

We can’t imagine directors actually complete this inane exercise. If so, let them use the tool, assess the risk, retain PwC to defend against us investors, and delude themselves that doing so represents serving shareholders well.

 

 

Copyright 2008-2015 Michael R. Levin - all rights reserved.

 

 

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.