U.S. Chamber of Commerce Forms Anti-Activist Coalition

Jul 3 2015 | 4:36pm ET

The U.S. Chamber of Commerce is entering the growing battle between activist shareholders and corporate management teams.

The business advocacy group has formed a coalition aimed at ensuring what it terms “long-term value creation” drives the decisions of public company boards, according to a letter sent to the U.S. Securities and Exchange Commission last week.

The letter, which was signed by a number of industry trade groups, notes that the coalition plans to offer opinions on regulations that impact matters of corporate governance.

“Our members have experienced an exponential rise in the frequency of special-interest activism of all types,” said the letter. “These campaigns often involve idiosyncratic agendas that are wholly unrelated to increasing long-term value for shareholders.”

Shareholder activism has become more prevalent in recent years as hedge funds and other investment advisors take small stakes in publicly-held companies, usually 3-8%, and then begin agitating for changes that deliver greater value.

The scripts vary, but the tactics are often the same, including detailed, public letters outlining management failures and missteps and demands for board seats, mergers, divestitures, and special dividends. They can lead to nasty, expensive proxy battles between a group of dissident shareholders and the company they own.  

According to Bloomberg, activist hedge funds have amassed some $200 billion to pursue activist targets, and some of the most recognized names in finance – Icahn, Loeb, Ackman, Singer, etc. – are activist managers.

Lately, even the news that one of these investors has taken an interest in a company can send its stock price soaring, making their quest for increased shareholder return sometimes a self-fulfilling prophesy. 

Critics charge that such demands place management teams under tremendous pressure to meet the short-term demands of a very vocal minority at the expense of long-term value creation. 

Proponents for activist activity note that without such pressure, issues such as shareholder rights and corporate governance can be at risk. In one recent case, activist pressure resulted in a 158 year-old U.S. manufacturing company appointing its first new board member since 1994.

In late June, the SEC announced plans to recommend rules that will allow shareholders to vote for both management and activist-supported directors in proxy fights, a change from the “slate” system in place now that allows companies to exclude dissident-backed candidates from votes made ahead of annual meetings.

The new consortium will be led by Tom Quaadman, the Chamber’s VP for capital markets competitiveness, according to a Bloomberg article. It is reportedly comprised of 13 members to date, including the American Bankers Association, the National Association of Fuel Manufacturers, and SIFMA.

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