Shareholder Activism: Stanford Rock Center for Corporate Governance Series – Part 1 of 3

Mason Morfit, a partner at ValueAct Capital and one of the most successful shareholder activists in the US, according to the Rock Center announcement, and Abe Friedman, of CJB Capital Management (former Global Head of Corporate Governance & Responsible Investment for BlackRock the world’s largest asset manager), shared insights from their experience in the trenches engaging every day with management teams and boards on behalf of investors.  In addition, they offered insights on activism globally, how activism in the US is changing and what that means for corporate America in the next decade.

Abe, Evan, Mason

Mason and Abe were introduced by Evan Epstein who heads the Rock Center. Many thanks to Evan and the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University for making this series possible. Mason and Abe really presented those who attended with a quick but solid grounding in shareowner activism. Students from the Bay Area and beyond should have found attendance both educational and fascinating.

Mason Morfit

ValueAct, thinks like an owner, holding for an average of 3-5 years, frequently serving on boards and facilitating change at companies. They’ve been on 30 company boards and have had a reasonable amount of success changing out CEOs, changing business plans, etc. Abe headed proxy voting for BlackRock and is now setting up his own firm. Both agreed, the last dozen year have more active than previous 90 year, so we live in interesting times

Abe Friedman

The trend is toward empowering shareholders. Activism works. However, activism is much more than what you read in the Wall Street Journal. Proxy fights and public campaigns get the press but most of the real effective action happens behind the scenes.

Activism does generate excess returns and they are sticky. Reading assignment: Jiang, Wei, Kim, Hyunseob and Brav, Alon P., Hedge Fund Activism: A Review (2010). Foundations and Trends in Finance, Vol. 4, No. 3, pp. 1-66, February 2010.

Issues Spectrum

Issues spectrum: Hard to read in my poor photo but mostly board issues at the top moving down to the red hot issue of board composition: Non-economic (enviro, social), Strategy/Management/compensation (business performance, strategy, pay levels, performance-linkage); Rules and Elections: Shareholder rights (majority voting, classified boards, proxy access), Board composition (specific members).

Sponsors: Individuals 350 (mostly 5 or 6), religious 200, labor unions 150, public pensions, 100, investment advisers 60, other 100. FactSet has great data on this and on SEC filings in general. See 2011 proponent ranking in their archives.

Process Spectrum

Process spectrum: Here, we’re going from no contact, to call/meet, letter, board service, 13D filings, websites, vote no, proxy contest. ValueAct has taken it to the proxy contest level only once. My guess, however, is that the one contest was valuable because companies know they’ve done it… so the threat is there.


They discussed some of the stereotypes. Public/union pensions – politicized, union agenda; Corporate pension plans- conflicted anti-activist

Types of companies – old guard (sell your shares); new school (well advised, reaching out to shareholders, sensitive to proxy advisers. Most of the largest companies have moved to new school, whereas many small companies remain old guard.

Discussed the types of Professional advisors and their roles – compensation consultants, lawyers, solicitors, bankers, shareholders, governance experts, proxy advisors.

Cycle of Activism: Scandal, fuels stock exchange changes, shareholders emboldened, then complacency sets in until another crisis and the cycle repeats.

In the 1920′s most firms were owned by founders and controlled by majority shareholders, as they still are in many of today’s developing markets). 1930′s SEC and more disclosures. 1943 SEC allows shareholder proposals as a result of pressure from the Gilbert Brothers, often referred to as gadflies. 1950s mutual funds develop. Family run businesses move to professional managers. 1970′s Evelyn Davis one of the early gadflies, who is still active. Shareowners tend to vote the idea, not based on the proponent, so there is room for individual retail investors as well the Carl Ichan’s and corporate raiders.

CII formed. Today very powerful. Poison pill invented Martin Lipton of Wachtell, Lipton, Rosen & Katz in 1982. ISS formed in 1986. Soon after that public pension funds started filing proposals. It was a time of imperial CEOs.  Lots of interesting stories. Mason told of ValueAct buying out a founder, adding capital and a Martha Stewart story where they lost a lot of money (because they got in just before the scandal) but gained a lot of business because they got to run the company. Went through some of the history of more recent activism up to proxy access and the new SEC Investor Advisory Committee.  Trends re staggered boards, poison pills, hedge fund activism.  The video is available for those who missed. Check here.


The weak side of the spectrum works because the threat of public fights hurts.

Question asked about individual investors.  Working behind the scenes can be more difficult for them because company not as likely to engage but they cited increasing use of social media. Eric Jackson at Yahoo! Rim example. Discussed Google – there’s a cost for A/B stocks.  SEC Section 13D governs communications between shareowners.

The Activist Investor just put out a list of Activist Investor Websites.  There are several more associated with the United States Proxy Exchange, although several aren’t linked into the main site. For example, there’s a campaign at PNBC for a write in director and using a USPX proxy access proposal. At, shareowners were able to take straw polls on proxy issues.

Great to be able to hear tales of activism and discuss the issues, even if it is a long drive down from Elk Grove. I like the issues and process spectrum typologies. Another way of looking at it is to think of the range of issues over which shareowners can exercise control to yield the degree of democratization. As we do so, we need to distinguish level from actual degree of influence. Years ago, Paul Bernstein wrote a great little book, Workplace Democratization, from the perspective of employees. Part of his typology included the following “necessary” components for democracy:

  • Participation in Decision-Making
  • Economic Return
  • Sharing Management-Level Information
  • Guaranteed Individual Rights
  • Independent Judiciary
  • A Participatory Democratic Consciousness

What would be the “necessary” components of democracy from a shareowner’s perspective?

To contact James McRitchie directly, please email


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