T. Rowe Price’s Investment Philosophy
on Shareholder Activism
Posted by Donna F. Anderson, T. Rowe
Price, on Monday, June 18, 2018
Donna F. Anderson is Head of Corporate Governance at T. Rowe
Price. This post is based on a T. Rowe Price memorandum by
Ms. Anderson and Eric Veiel. Related research from the Program on
Corporate Governance includes The
Long-Term Effects of Hedge Fund Activism by
Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here)
with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and
Thomas Keusch (discussed on the Forum here).
We are long-term investors. The core of the T. Rowe
Price client-centered investment philosophy is to utilize proprietary research
to guide active investment selection and diversification to reduce risk. For
more than 80 years, our collaborative, disciplined approach has stood the test
Proprietary, fundamental research is a
critical foundation of our equity investment processes, and our
ability to generate unique insights about companies is, in turn,
dependent on our ability to cultivate constructive, private, two-way
communication with the managements of these companies over time.
Therefore, as we think about the effects shareholder activism may have
on our investment process, we take a very long-term perspective
because well-functioning capital markets and plentiful high-quality
investment opportunities are essential to the future of our investment
process, our clients, and our firm.
order to truly assess a company’s suitability as an investment in our clients’
portfolios, we have to understand not only its financial outlook but also its
unique culture, the strengths and weaknesses of its management team, its current
and potential market opportunity, and its ability to adapt to change.
ideal conditions, this sort of dialogue with company management progresses over
time and produces two important results: a rich source of insight for us as
investors and a useful stream of feedback and market perspective for the
Conditions aren’t always ideal, and on occasion a company in our portfolios
faces a contentious campaign of some kind: shareholder activism or a hostile
approach by another company.
philosophy on shareholder activism is based on our own observations as
experienced, fundamentally oriented investors. The core tenets of our philosophy
believe each activism campaign represents a unique set of conditions that have
combined to create an inflection point for the company involved. We have a
responsibility as engaged, active investors to assess each situation on its
believe management teams of companies have better information about their
businesses than outside parties do. Therefore, a certain amount of deference
is owed to management’s assessment of the company’s opportunity set.
disciplined, active approach to investment is rooted in our ability to
identify, support, and invest in companies that create sustainable value over
time. Neither companies nor activists have cornered the market on great ideas
that could generate value. Therefore, we believe company managements and their
boards should exhibit openness, curiosity, and intellectual honesty with
regard to serious, well-supported ideas for value creation, even when such
ideas originate outside the company.
time frame we apply for decision- making in activist campaigns is a multiyear
view. Our objective is to determine which path is likely to foster
sustainable, long-term performance by the company.
almost all cases, we do not believe it is T. Rowe Price’s role to initiate
activism campaigns. We have adopted internal policies prohibiting our
investment personnel from attempting to initiate an activism campaign
indirectly, such as by discussing or pitching ideas to activist investors or
other outside parties.
overall proxy voting track record is evidence of our commitment to make voting
decisions based on company- specific analysis. Our individual portfolio
managers maintain autonomy to vote as they see fit for their clients’
Roles and Responsibilities
situations where we have a significant investment in a company that is the
subject of an activism campaign, we believe it is our duty as engaged investors
to participate in the process in the interest of reaching the outcome we
conclude will produce the best result for our clients.
situations, we believe our engagement has helped facilitate compromise between
the parties, which is usually a better outcome than a contested vote.
activism campaigns where T. Rowe Price has a significant investment, our
commitments to the involved parties are:
Scrupulous adherence is required to all applicable regulations and our firm’s
internal policies regarding receipt of material nonpublic information,
communications with other shareholders, confidentiality, and disclosure
Diligent assessment of the dispute at the center of the activism campaign is a
core responsibility. In almost all cases, execution of this duty requires that
we meet with both sides of the campaign at least once.
Transparency and Access
have formed an opinion about an activist-related situation, we believe it is
important to be transparent about our thought processes and conclusions.
Generally speaking, both sides of a campaign can expect candid feedback from T.
Rowe Price regarding the path we believe will lead to the best outcome.
specific case of proxy contests, we will share our voting decision with both
parties in the campaign in advance of the vote upon their request.
only criteria we use in determining the best course of action in activism
campaigns are those related to the long-term interests of our advisory clients.
We arrive at voting decisions in contested elections independently.
not retain outside parties to engage with companies for us. We do not allow the
business interests of our firm (for example, client-facing associates) to take
part in any discussion or decision-making related to activism campaigns.
Although we are clients of ISS for proxy-related research, we do not follow the
recommendations of proxy advisors on proxy contests.
Furthermore, at T. Rowe Price, the responsibility to make proxy voting decisions
resides with the portfolio manager of each strategy. Therefore, decisions on
activism campaigns—as well as all corporate governance issues—are made through
an investment-centered lens.
extent that the managers of multiple strategies own the same security but
disagree about the issues before them in a proxy contest, they vote
individually. It is not uncommon for T. Rowe Price portfolios to cast different
votes on proxy matters.
situations where it is both appropriate and important for us to speak with other
investors regarding an activism-related investment situation, we will do so.
Generally speaking, these engagements would include our industry analyst who
follows the company, portfolio managers who own the investment in their clients’
portfolios, our head of corporate governance, internal legal counsel, or a
combination of these.
T. Rowe Price policies, such engagement with other investors regarding activism
campaigns should only take place under specific conditions:
the activism campaign has been publicly disclosed, either through confirmed
press reports or public filings;
the other investors acknowledge that we do not intend to form a group or act
in concert with them;
T. Rowe Price is an existing, significant investor in the company; and
the subject of the discussion is a single, known activism campaign, not the
potential actions the investor may initiate in the future.
to be absolutely clear about this important principle: Other shareholders do not
represent our views or speak on our behalf about the companies in which we
invest. While we may engage with activists or other investors in the interest of
hearing both sides of the dispute for due diligence reasons, we never ask,
encourage, or allow other shareholders to speak for us.
purposes of this statement, we use a narrow definition of shareholder activism:
publicly disclosed campaigns by significant, large investors declaring an
intent to influence management or boards of directors on matters of strategy,
capital allocation, management, and/or corporate governance;
publicly disclosed, unsolicited offers from strategic buyers, private equity
investors, or a consortium of these to acquire a company using a hostile
Harvard Law School Forum
on Corporate Governance and Financial Regulation
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