Hedge Funds Differ From Other Shareholder Activists in Tactics, Demands

Jan 13 2006 | 8:41pm ET

Shareholder activism, especially from hedge funds, gained momentum in 2005 and shows no signs of slowing down any time soon. Beth Young, a senior research associate at Institutional Shareholder Services, a leader advisor on proxy voting and corporate governance, believes that what makes hedge fund shareholder activists different from traditional shareholder activists is a combination of the tactics they employ and their demands.

"What is noteworthy is they are using more aggressive tactics and are engaging companies around broader issues," she said, explaining hedge funds are much more "company specific" rather than issue specific in their goals. For example, a hedge fund may push for a company to spin-off part of its business or to oust its chief executive, rather than a more generic demand such as calling for improved corporate governance.

According to Young, instead of using the 14-a8 form, which shareholders file with the Securities and Exchange Commission, hedge funds are running their own solicitations and trying to push through director nominees. She added that they are also using good old-fashion pressure tactics, including the media, to shame boards. "That is not what you traditionally see shareholder activists doing," she said.

In fact, the past few weeks alone, a handful of hedge funds have come out kicking and screaming, demanding blood on the floor from companies they think are either underperforming or just plain mismanaged. (See our list of the latest shareholder salvos)

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