Directors Conflicted Over Shareholder Activism: Survey

By Michael Greene

March 7 — Corporate directors have mixed feelings about the recent surge in shareholder activism, a March 3 survey by NYSE Governance Services and Spencer Stuart found.

The “What Directors Think” survey, which polled nearly 400 board members, found that 62 percent of directors believe that activism has reinforced and rewarded “short-termism.”

At the same time, half of the respondents said activism has created more awareness of good governance practices.

Public company directors are “keenly aware” of their duty to respond to the concerns of all shareholders in the current environment, NYSE Governance Services President Adam Sodowick told Bloomberg BNA in a March 7 e-mail. “But not all shareholders are equal, and the results of many high-profile proxy contests in the last couple of years have shown that it’s difficult to win the battle for long-term strategic growth when an activist is leading the charge for short-term gain.”

Sodowick also noted that while there may be an “immediate upside” to an activist's agenda, many board members worry that such gains may erode investment in research and development, human capital and corporate sustainability.

He said that to better address this dynamic, NYSE Governance Services's Future of Responsibility, Governance and Ethics program will be bringing together directors and activist shareholders later this year to foster better communications.

Shareholder Engagement

Last year was an active one for shareholder activists, of which Elliott Management, Paul Singer's $27 billion hedge fund, was seen as one of the most influential . According to Activist Investing Annual Review 2016, Elliott pushed for changes at 18 companies in 2015, including pressuring EMC to be acquired by Dell .

Meanwhile, the NYSE and Spencer Stuart poll reported that while most directors view ongoing shareholder engagement as positive, almost a third (31 percent) expressed concerns over whether direct engagement carries the risk of board liability. The respondents also said direct engagement may:

  • elevate the risk of violating Regulation FD (28 percent);
  • create a wedge between the chief executive officer and the board (21 percent); and
  • unduly influence the board (14 percent).

    Sodowick warned that the rules of engagement require a strict adherence to Securities and Exchange Commission regulatory guidelines. Accordingly, boards must be careful to respond to shareholder requests “within the scope of good governance practices,” he said. “Many boards are responding to their concerns by taking part in additional board education and training, which allows them to prudently prepare for and carry out shareholder communication ahead of a potential crisis.”

    In other findings, the respondents said the most significant challenges facing public companies this year are:

  • economic uncertainty;
  • market risk;
  • cybersecurity; and
  • political uncertainty.

    Directors continue to express significant concerns about cybersecurity, the survey said. Over a third (38 percent) said that while they are doing everything they can to protect their company, “cyber risk is really out of their hands.”

    To contact the reporter on this story: Michael Greene in Washington at

    To contact the editor responsible for this story: Yin Wilczek at

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