BOSTON--(BUSINESS WIRE)--
Ron O’Hanley, president and chief executive officer of State Street Global Advisors (SSGA), the asset management business of State Street Corporation (NYSE:STT), today called on corporate boards to develop principles for engaging with activist investors to promote long-term value creation and sustainable economic growth. This comes in response to new research from a report by Lazard’s Corporate Preparedness Group,1 showing that more companies are reaching quick settlements with activists and conceding board seats without input from other investors, including long-term shareholders like SSGA.
“Our main goal as a near-permanent source of capital for companies listed in the indices is to maximize the probability of long-term value creation on behalf of our clients,” said O’Hanley. “We recognize there are different ways for activists to engage with companies and that some activists can drive positive change. But we are wary of activist situations that favor short-term gains at the expense of long-term investor interests.”
As of August 2016, 49 companies had conceded 104 board seats to activists in settlements, almost on par with the 106 seats conceded by 54 companies in all of 2015.2 This significant uptick represents a dramatic increase in situations where long-term shareholders have not been afforded the benefit of public discussion regarding these activists’ views on strategy, compensation, share buyback programs and other factors.
“Today we call upon the boards of publicly traded companies to identify and address issues in agreements that, absent the below recommendations, might adversely affect the interests of long-term shareholders,” continued O’Hanley. These include:
- Duration of settlement agreements: by extending the time horizon of the agreement, both companies and activists will be more sensitive to long-term factors and incorporate these into the settlement terms and any strategic actions undertaken by the company;
- Time period for holding shares: SSGA believes activists should be required to hold shares for long periods from the date of settlement to better align them with them with long-term shareholders.
- Minimum ownership thresholds or director resignation requirements for board representation: Typical agreements allow activists to reduce their stake to 1-2% below ownership levels at the time of settlement, but SSGA advocates for agreements to specify minimum ownership levels for longer periods in exchange for any board representation.
- Risk to share prices from the pledging of activist shareholdings: While settlement agreements limit an activist’s ability to engage in short sales, they generally do not contain restrictions on the pledging of shares. SSGA believes this could create perverse incentives for the activist firm, which could result in their director nominees pursuing aggressive strategies to maintain share prices in the short term.
Going forward SSGA will assess settlement agreements according to how they address these issues and will engage with companies that pursue unplanned financial engineering strategies within a year of entering into a settlement with an activist to better understand the reasoning behind the strategic change.
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State Street Global Advisors is the investment management arm of State Street Corporation.
*Assets under management were $2.3 trillion as of June 30, 2016. AUM reflects approx. $40 billion (as of 6/30/2016) with respect to which State Street Global Markets, LLC (SSGM) serves as marketing agent; SSGM and State Street Global Advisors are affiliated.
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The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
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10/31/2017
1 Data provided by Lazard’s Board Preparedness Group as of
August 19, 2016. Source:
Activist Insight, FactSet, Spencer Stuart.
Note: All data is for activist campaigns targeting companies with market
capitalizations exceeding $500 million at time of campaign announcement.
2016 YTD data as of 8/19/2016.
2 Ibid.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161010005781/en/
