The Deal

A lawsuit or two challenging California's recently approved board diversity law requirement is likely to emerge, though the proponents of such a challenge may not be immediately apparent. At least that's the view of Columbia Law School Professor John Coffee, who spoke with The Deal for its Activist Investing Today podcast about a new trend of legislators pushing to require corporations headquartered in their states to set up diverse boards. In California, a recently approved law requires one female to be installed on each locally-headquartered, publicly-traded corporate board by the end of this year. Coffee suggested that corporations based in the state without women directors may decide against filing a lawsuit challenging the restriction because of what he calls a "high embarrassment" cost. However, he also suggested that "ideological organizations" on the right, such as the CATO Institute, may bring derivative actions, buying a small number of shares, and suing in the name of the company to contest the California law."It would require some degree of collusion between the company and investor, but it is possible we would see that as well," Coffee said. "There is a quite uncertain future facing this legislation."

Activist hedge funds hurt research & development budgets at U.S. corporations, which has a broader negative impact on the economy.At least that’s the view of Columbia Law School Professor John Coffee, who spoke with The Deal for its Activist Investing Today podcast about a study he co-authored on the impact of insurgent managers on corporations and the markets overall.In a wide-ranging conversation, Coffee explained what he thinks is going on with Carl Icahn’s objections to Occidental Petroleum’s acquisition of Anadarko Petroleum and what he thinks might be at play when activists try to nullify blockbuster mergers. Coffee, who runs Columbia’s Center on Corporate Governance, also discussed his thoughts on a new Securities and Exchange Commission effort seeking to rewrite the rules for proxy advisers Institutional Shareholder Services and Glass Lewis.

Canada currently doesn’t have legislation mandating a non-binding vote of shareholders on executive compensation, but legislation percolating on Parliament Hill in Ottawa is likely soon to change the situation. That’s according to Catherine McCall, executive director of the Canadian Coalition for Good Governance in Toronto. McCall talked to The Deal for its Activist Investing Today podcast about why she thinks a Canadian federal government amendment requiring a non-binding say on pay has a “pretty high” chance of being adopted. She also touched on the group’s efforts regarding director qualifications, when it comes to environmental and social risks as well as about efforts to gently push Canadian companies into becoming more diverse.

The Activist Investing Today podcast spoke with The Deal’s media, technology and communications expert Chris Nolter, about whether there would be interest in acquiring Sony’s entertainment assets now that it appears Third Point’s Dan Loeb is seeking to shake things up at the Japanese diversified multinational company. Nolter noted that Sony owns a major Hollywood studio and “there just are not that many of them, so it always has been valuable.” Nolter points to a bidding war that led to a sweetened $71 billion sale of Fox’s TV production and other operations to Disney, as an example why buyers could be interested in buying Sony’s entertainment assets. He notes that Sony could set up a joint venture of sorts, as an alternative to a sale. The podcast reviewed whether other factors could be playing into the potential Third Point campaign, such as a change in management and new Japanese spin off tax laws.

It’s okay to call activist investors corporate raiders. At least that’s the view of Jeff Gramm, the author of “Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism.” Gramm talked to The Deal for its Activist Investing Today podcast about his book, why he launched a proxy fight at Texas Restaurant chain Luby’s and what he thinks about CEO pay packages.“ One big theme of the book is that these shareholder activists through history are kind of all the same,” Gramm said. “They are economic actors out to seek a buck on their investments in public companies and they use engagement with public companies as a means to generate their alpha.”

In 2015, Ertan Enginalev, launched his first public insurgency campaign in Turkey, urging an industrial conglomerate, Akfen Holdings, to consider strategic options such as listing a minority stake of a container port it controlled. Enginalev took some time to speak to The Deal’s Activist Investing Today podcast about the experience and why he thinks Turkey’s investor make up can make the country a strong candidate for public and private activism, even though most companies are insider-controlled and appear to be impenetrable. Under pressure from WSD, Akfen’s shares shot up, outperforming the BIST 100 Index, Turkey’s benchmark stock index, by 151 points over 12 months. By 2019, Akfen was taken private, giving Enginalev his first big win in Turkey. Since then, Enginalev has set up three additional Special Purpose Vehicles with two-year lockups to fund three additional campaigns, all of which, so far, have remained collaborative and private.

Activist investors like Nelson Peltz who have board and operational experience are more likely to be viewed positively by influential proxy adviser Glass Lewis than hedge fund managers that have never held director positions.That’s the view of Mark Grothe, senior analyst in M&A and contested situations at Glass Lewis. Grothe, who has worked on the some of the most contentious proxy fights in recent years, spoke to The Deal’s Activist Investing Today podcast and offered his thoughts on whether the Glass Lewis is more or less likely to recommend that investors support an activist-backed industry expert or one of their hedge fund analyst candidates for a directorship. Grothe also offered his thoughts on change-of-control slates, and why he thinks it is very important for both companies and activists to make director candidates available for conversations.“If you think of someone like Nelson Peltz at Trian, he has a lot of board experience with consumer product goods companies. He has a certain reputation, and calls himself a ‘constructivist,’” Grothe said. “That’s not to say that if Nelson Peltz nominates himself in a board fight he is guaranteed to get a seat but at least you have some board experience. You really want to see industry experience as well.”

The Activist Investing Today Podcast spoke with The Deal’s intrepid Delaware expert, David Marcus, about what to expect in Delaware Chancery Court later this month when rent-to-own retailer Rent-a-Center faces off against its would-be buyer, Vintage Capital. In December, Glenn Welling-targeted Rent-A-Center surprised the markets by saying it was terminating its $1.37 billion deal to be acquired by Vintage Capital after it "did not receive" an extension notice from the buyer. Vintage said RCII’s move was invalid. Now the two companies are in the midst of a Delaware battle over the deal and a whopping (at least for Vintage) $126.5 million termination fee that hasn’t been paid yet. It’s a story with everything: Activism, private equity, M&A, intrigue and now, litigation. Will more lawsuits follow this one?

Chief executives who also serve as board chairs are leaving CEO roles but maintaining chairman positions at a large number of U.S. corporations, a situation that is jeopardizing boards’ independence and effectiveness.That’s the view of Yaron Nili, assistant professor of Law at the University of Wisconsin-Madison, an expert in governance, hedge funds, private equity and activist investors. Nili spoke to The Deal's Activist Investing Today podcast about a new study he just issued that identifies many cases where the company installs a CEO who the former chief executive has been cultivating for the role and whom he will continue to oversee as chairman. “If you have the CEO and ex-CEO both serving, and working in cahoots, so to speak, the power structure is a problem and whether the rest of the directors can resist the chairman and CEO, who are on the same wave length, is a question,” Nili said. According to Nili, there were 217 companies in the S&P 1500 in 2016 that had “successor” CEOs, where the chief executive has stepped down from their executive role but maintained the chairman role.

Individuals who sit on five or more corporate boards - particularly at the largest U.S. corporations -- may not have the bandwidth to focus enough energy and time on each company's strategic and operational issues. At least that's the view of Kurt Schulzke, associate professor of Accounting & Law at the University of North Georgia and director of Kennesaw State University's Corporate Governance Center. Schultzke spoke with The Deal's Activist Investing Today podcast about overboarded directors, and his finding that some of the best-performing companies in the U.S., such as Starbucks Corp. (SBUX), Apple Inc. (AAPL) and Johnson & Johnson (JNJ), have directors who don't serve on many other boards.