It is rare for a group of directors, such as the National Association of Corporate Directors/New England, to invite into its midst a so-called “activist shareholder.” At the February 11th breakfast meeting, however, the group was addressed by Gregory Taxin, a co-founder and former CEO of the proxy advisory firm Glass Lewis and presently manager of an activist investment fund focused on small and mid-cap US public companies.
Taxin pulled few punches. He advised the directors that “you work for me, the shareholder.” He reminded them that they are held to a fiduciary standard. He stated that activism is a positive force in the capital markets and that activist shareholders should not be treated as an enemy, half-jokingly blaming Attorney Martin Lipton as the culprit.
He noted that some shareholders have good ideas and do their homework and should not be met with immediate resistance. Activists shareholders look for operational missteps without board reaction, and also for “stale boards” with historical hangers-on not providing added value.
Directors should not feel that they have a “job” that is being threatened by shareholders, since they work for the shareholders and their duty is to maximize shareholder return. He admonished directors to talk to all shareholders, not just activists, and find out what they really think.
The biggest fireworks (to the extent fireworks ever break out at meetings of directors of public companies) arose when an audience member challenged the concept of activism, claiming that activist shareholders are short term investors who push hard for increased dividends, massive stock redemption plans and other actions that will bring immediate increase to the share price to the detriment of the interests of long term shareholders.
Taxin fired back: there is no such thing as a long term investor;. everyone is economically rational or they are a bad fiduciary; the best way to create short term value is to make best long term decisions; best long term decisions increase projected future cash flow, which is discounted back to determine the present value of a share of stock. The little old lady who invests and holds for the long haul does not even exist. Everyone is a short term investor.