Fair Investor Access
SEC Support of New Communication Processes
Preliminary Review of Objectives for Investor Initiation of Issues
Foundation for improved access to decision-making information
to define an issue
Challenges of practical support
during the past few weeks with representatives of a wide range of
investor, corporate and professional perspectives suggest that almost
everyone appreciates the benefits of making it practical for “mainstream”
investors to initiate issues for consideration.
This enthusiasm was sensibly balanced, though, with concerns about
fairness, integrity and order.
a summary of the objectives and concerns that have been discussed so far,
and of the further advice we need to provide the required support of
for improved access to decision-making information
you have noted that we had addressed these investor interests a few years
ago in the Forum’s “E-Meetings” program, establishing consensus
marketplace standards for more direct investor-corporate communication
about decision-making issues.
That was intended to provide only a foundation for progress, though, and
was recognized at the time as just a beginning. What we can observe now,
unfortunately, is that this progress has included the development by some
market participants of advantages over others.
The need for
more effective investor access has been illustrated on many levels in the
attention-getting Pershing Square/Valeant bid for Allergan, including in
the bidder’s plan for a self-managed “referendum” that stimulated our
current interest. Essentially, each side is trying to control the
definition of issues it wants investors to consider, and each side has
claimed the support of the target’s shareholders for its version of
issues. Presumably, some of Allergan’s shareholders would like to offer
their own definitions of issues about which they should be informed, but
do not want to assume the burdens of an “activist” function in public
statements of their concerns. And many of the shareholders would probably
also appreciate independent insights into the interests of other
investors, but do not want to publicly state their own views or be exposed
to communications that might be viewed as acting in concert.
We know that
well-tested Forum processes can support these presumed investor interests
very effectively. We have also determined how fairness is judged regarding
an investor’s right to ask questions, either anonymously or identified,
and get answers. Now we must figure out how to make those fair processes
define an issue
essential purpose of enabling broader investor participation in the
definition of issues is to improve the efficiency of decision-making, not
only by investors but also by the corporate managers who are responsible
for addressing their interests and by the policy makers who govern our
capital markets. In that context, these are some of the key observations:
Many investors want to be able to define issues themselves.
If practical to do so, many fund managers would prefer to present
their own definition of issues to be addressed rather than rely upon
agents – whether proxy advisors or activist funds – to determine what
investors should consider.
Fund managers may consider it their responsibility to determine what
is required for informed decisions.
Based either on legal definitions of fiduciary duty or on client
expectations of professional expertise, some fund managers feel
obligated to exercise independent judgment about what is relevant in
their investment decisions.
Both investors and corporate managers should be able to understand the
views of all significant investor constituencies.
Aside from wanting to know who is winning a contest, anyone concerned
with analyzing alternatives may benefit from learning the views of
others with different perspectives.
Corporate managers need to know what concerns long term investors.
While the views of all shareholders should be considered, the
interests of long term investors who rely upon the development of
future enterprise value are likely to be most relevant to a company
officer’s or director’s fiduciary responsibilities for the corporation
and its stockholder interest.
Issues defined by long term investors are important to the
The influence of investors concerned with long term enterprise
development is essential to the viability of financial markets, and to
their purpose of allocating capital productively.
Investors must be able to choose between anonymous and attributed
Privacy rights and the sanctity of voting processes are of course
important to all investors, but it is especially important for larger
shareholders to be able to choose whether they want the benefits and
burdens of leadership recognition or the ability to ask questions
without being identified as the source.
simply, most of us would benefit from investors being able to initiate and
control their own definition of issues. It is not economically sound for
managers of long term investment interests to rely upon the “free” agency
of professional activists – or upon anyone else whose interests are
clearly different and unshared – to determine what issues should be
of practical support
processes required for independent investor initiations of issues are well
established, as noted above, and work well with evolving communication
technologies. There are significant challenges, though, in making the
required services available more broadly than in the past Forum programs.
These concerns can certainly be satisfactorily resolved, but will require
The most obvious obstacle to independent investor initiations of
issues has been cost, since even relatively modest expenses incurred
by one investor effectively impose a penalty on responsibility if the
resulting benefits are distributed equally among all the other
shareholders, including rival fund managers whose performance
statistics have not been reduced by the burdens of leadership. What we
need, then, is a very practical way to deliver the required services
as a reasonably priced, value-justified alternative to a seemingly
free activist service.
Current discussions are focused on the Forum’s providing the required
processes in relatively inexpensive steps, assuming that issues might
be defined and addressed at early stages without any need for the
initiators to fund full scale programs. We are also considering
policies to accommodate multiple initiating investors for a subject
company, although it is not yet clear whether this can be done in a
practical process that avoids questions about the investors acting in
Qualification for investor initiation:
The theoretical ideal of completely open access to all investors must
necessarily be balanced with the need for order. Qualification should
be based on verified legitimacy of the investor, whether identified or
anonymous, and of the issue to be initiated. The criteria for both
investor and issue legitimacy must be strictly objective, and not
based on popularity. Our objective is to assure that a Forum-supported
investor initiation of an issue is responsibly presented and merits
Suggestions for qualifying issues have included variations of review
panels and validating endorsements by other investors or
organizations. Any solution will necessarily have to be simple and
efficient, considering our objective of making support readily
available as well as the need to minimize costs.
your thoughts on how to resolve these challenges, and on other challenges
that should be addressed. We will be trying to develop a plan that can be
tested in a real decision-making situation within a few weeks, and will
welcome your advice to guide our progress.
GL – June
The Shareholder Forum
Avenue, New York, New York 10022