Activism, Short-Termism and Corporate Governance

Activism, Short-Termism and Corporate Governance

Activism, Short-Termism and Corporate Governance

Activism, Short-Termism and Corporate Governance: David J. Berger & J. Daniel Plants

Silicon Valley companies continue to be the leading target for “activism, short-termism and corporate governance.” Directors of some Silicon Valley companies believe these activists are too short-term focused, while some institutional investors believe the activists create value for all shareholders.

One response to the growth of activism has been the adoption by some high-profile tech companies of multi-class stock, as seen in Snap’s recent IPO. Another response has been a movement by several large institutional investors for more independent and diverse boards engaging with investors and focusing on long-term value creation, rather than short-term results.

Panelists: Activism, Short-Termism and Corporate Governance

Allison A. Bennington

Allison A. Bennington

Allison Bennington is a Partner and the General Counsel of ValueAct Capital. Prior to joining ValueAct Capital in April 2004, Ms. Bennington was the General Counsel of Atriax, Ltd., a joint venture of Deutsche Bank, J.P. Morgan Chase, Citibank and Reuters.

Ms. Bennington is a director of Seitel Inc. and is a member of the Advisory Board of the Program on Corporate Governance at Harvard Law School. She is also a member of the Corporate Governance Advisory Board of the Council of Institutional Investors. She has a J.D. from the University of California, Hastings College of the Law.

Dan Plants

J. Dan Plants

J. Dan Plants

J. Dan Plants founded Voce Capital Management, LLC in 2009 and has been its Managing Partner and Chief Investment Officer since 2009. He served as Managing Director and Head of Communications, Technology and Digital Media Investment Banking at Needham & Company, LLC from July 2007 to May 2009. He has been the Chairman of Cutera, Inc. since October 28, 2016 and its Independent Director since January 6, 2015. He has been an Independent Director of Oplink Communications, Inc. since 2014. He served as a Director of Destination Maternity Corporation from November 24, 2014 to December 20, 2016. He served as a Director of Volunteers of America – Greater New York from 2002 to 2005. Mr. Plants received his J.D. from the University of Michigan Law School.

Anita M. Sands

Anita M. Sands

Anita M. Sands, Director, Pure Storage, ServiceNow,
and Symantec, previously served as Group Managing Director, Head of Change Leadership and a member of the Wealth Management Americas Executive Committee of UBS Financial Services. She has also served as managing director, head of Transformational Management at Citigroup; senior vice president and head of Innovation and Process Design at the Royal Bank of Canada; and director of CIBC Treasury and World Markets at CIBC. She has received many awards in recognition for her leadership, contribution to public service and efforts to empower women, including 2012 Women of Concern by Concern Worldwide and 2011 Most Influential Women by Irish Voice.

Ms. Sands joined Symantec’s board of directors in October 2013, and serves on the board of directors of ServiceNow and Pure Storage.

She holds a doctorate in atomic and molecular physics from Queen’s University of Belfast, and was a Fulbright Scholar at Carnegie Mellon University in Pittsburgh, where she graduated with a master’s degree in public policy and management.
David J. Berger

David J. Berger

Moderator: David J. Berger is a litigation partner at Wilson Sonsini Goodrich & Rosati and he specializes in representing companies and directors in litigation involving mergers and acquisitions, fiduciary duties, activism and corporate governance. He also writes and speaks extensively on these issues and has taught classes on corporate governance and shareholder litigation at law schools across the country, including Harvard Law School, Stanford Law School and Duke University School of Law.

David also serves on Aspen Institute’s Business and Society Program board of advisors and previously served on the board of directors of the California Culinary Academy. He has a J.D. from Duke University.

Activism, Short-Termism and Corporate Governance: Discussion

I’m sure everyone who went to the forum on activism, short-termism and corporate governance sponsored by the Silicon Valley Directors Exchange and Stanford’s Rock Center for Corporate Governance left with different takeaways. What follows are mine. Yes, they’re cryptic.

Capital formation and compensations systems; control is a bit different in each. VC skills are not the same as public company skills. Cultures are unique to each company, each fund. Venture capital and hedge funds are often thought leaders. They take a pioneering approach to corporate governance. From a shareholder perspective, they want accountability.

Founder mentality is one of the more frequent problems encountered by hedge funds. Founders are not always the right person further down the road. Misallocating capital is another of the most frequent issues. It is difficult to make that transition when founder is not the right person. Silicon Valley tends to focus too much on the technology, instead of management, and operational efficiency.

The phase of the company, where it is in the lifecycle, is important. Increasing complexity requires greater diversity and and more accountability mechanisms.

Directors need to be their own activists. Boards must be objective in evaluating the firm’s vulnerability. What makes your firm attractive to a specific activist? Undertake the exercise proactively.

Activists are another constituent. Because activists are out there, corporate America is on their toes… asking the right question. Is your company growing against its own potential? Look especially at your incentive system. What are your rewarding? Independence of the board is also important. Also keep in mind differences between activists and investors.

Smart hedge funds won’t invest in companies with dual class stock because you can’t impact their direction. You have no ability to make changes.

Before buying in, hedge funds will often approach management and/or the board first. What would we be getting into?

Activism, short-termism and corporate governance? Maybe it isn’t as much of a problem as many believe, since most stock is increasingly held by indexed funds, even while the analyst community remains fixated on quarterly reports.

Amazon pointed to better investing outside their core in part due to greater accountability but is the board really independent from Jeff Bezos?

Investors want empowered boards but they want those boards to be accountable to investors. Silicon Valley is not pioneering on diversity. Although the press focuses on women and minorities, what companies should be trying to achieve is cognitive diversity, even if women and minorities are an important subset. S&P 1500 have more men over 70 than women directors. The criteria used for board searches is crucial. Get rid of criteria like must be a former CEO or must have board experience.

Activist traps. Is it a great business that can do better? Director engagement through lead or chair. It would be nice if directors thought of their boss as investors, instead of the CEO. Consider buying stock in the company where you sit on the board. Risk your own capital, not just what the company provides in return for your service.

Activism, short-termism and corporate governance – perennial issues at all boards of directors. Discussions, such as those held on April 20 at Stanford Law help drive consensus on the issues. Be sure to check out the annual dinner on May 18, sponsored by the same two organizations.

SVDX podcast April 2017 Activism, Short-Termism and Corporate Governance: Issues for Silicon Valley Companies

SVDX podcast April 2017 Activism, Short-Termism and Corporate Governance: Issues for Silicon Valley Companies from WMS media Inc. on Vimeo.

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