The Conference Board
Governance Center Blog
AUG
07
2014
By
Donna Dabney, Executive Director, Governance Center, The Conference Board
A
recently published article by
Dr. Yvan Allaire and François Dauphine of the
Institute for Governance of Private and Public Organizations (igopp)
is well worth reading. It expresses common sense thinking about empirical
studies, activist hedge funds, and long term sustainable value.
The specific
issue the authors address is the long standing debate whether activist
shareholder interventions result in long term benefits to corporations,
which we have been
following closely at The Conference Board Governance Center. This
article analyzes a
widely publicized empirical study of the impact of activist hedge fund
intervention on financial performance, which concluded that activist hedge
fund interventions were beneficial to corporate shareholders over the long
term (five years). Allaire and Dauphine refute this conclusion by
analyzing the design of the study in detail, noting among other things,
that a large number of the companies in the study did not survive for five
years after an activist intervention.
Allaire and
Dauphine acknowledge that activist hedge funds create short term wealth
for some shareholders as a result of traders who jump into a stock when an
activist invests in that stock. However, in a majority of cases that
effect does not last. They also conclude that in a minority of cases,
activists may bring some lasting value for shareholders, but largely at
the expense of workers and bond holders resulting in an impact that takes
the form of wealth transfer rather than wealth creation.
Wealth transfer
rather than wealth creation is a real concern for public companies. The
Conference Board Governance Center Task
Force on Corporate/Investor Engagement concluded that long term
sustainable shareholder value can only be achieved by focusing on those
who create corporate value: the employees, creditors, suppliers,
customers, communities, and the environment in which the company operates.
A sole focus on shareholder wealth maximization at the expense of those
who create corporate value will not be sustainable in the long term.
About the
Blogger:
|
Donna Dabney,
Executive Director, The Conference Board Governance Center |
|
Donna has extensive experience in corporate governance matters, having
served as a member of management for over 15 years on the boards of Alcoa
and Reynolds Metals Company. She is a recognized expert on governance
issues related to executive compensation. As part of her work with the
Alcoa Board of Directors, she has gained substantial experience with
sustainable development in the Amazon region of Brazil.Donna Dabney joined
The Conference Board as Executive Director, Governance Center, in August,
2012. In her current position, Donna leads The Conference Board’s efforts
in the area of Corporate Governance. Prior to joining The Conference
Board, Donna was Vice President, Corporate Secretary and Corporate
Governance Counsel of Alcoa Inc.
Donna is a
member of the New York Advisory Board of the Society of Corporate
Secretaries and Governance Professionals, the Stockholder Relations
Society of New York, and she is a member of the faculty of the Citadel
Directors Institute and of the Practicing Law Institute. |
