Investors Are Making Life Uncomfortable For Boards

May 31st, 2007

Editors Desk

Eye on The Markets

by The Economist | 5.31.07

IS THIS, to use the words of Martin Lipton, a veteran Wall Street lawyer, the age of the imperial shareholder? Owners in America are putting executives under an increasingly harsh spotlight. “Activist” hedge funds have found that they can make a lot of money by amassing stakes in companies and pressing managers, sometimes by taking board seats themselves, to make changes that force the share price upwards.
More idealistic governance activists want to increase shareholders’ say on everything from executive pay to greenery. Even institutional investors, who have preferred discreet discussions with managers to public advocacy, are learning that a muscular approach can pay dividends, literally.

These groups hardly share a common interest. Some wolfish hedge funds are avowedly short-term capitalists; by contrast, idealistic social activists (such as the greens who failed to stop the re-election of an Exxon Mobil director this week) regard lucre as filthy. Stuck in between these two extremes are corporate governance types who worry about issues like pay and share options, though from a long-term point of view. But in combination, the effect of all these groups is loudly to assert the rights of the shareholders of American firms to exercise control over managers (see article).




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