2012 Preview - A Quiet(er) Year for Activist Investors?

Date: Monday, January 30, 2012
Author: Michael R. Levin, The Activist Investor

It seems a little quiet right now. Too quiet. Does this portend a less-contentious year for activist investors? Or just the calm before the storm? At the moment, we can think of just a few things that will stir things up in 2012.

Some activist investors feel exhausted by the events of the past year or two, and just want to concentrate on fixing the dogs in their portfolios. Calm may meet a need right now. The adrenaline junkies among us that thrive on controversy may, on the other hand, feel a bit of loss this year.

Where are the activists?
We do see plenty of action in the dozens of Form 13D filings each week. Yet, we can identify at most only a couple of significant activist situations right now, with some of the usual suspects (Nelson Peltz, Ralph Whitworth) oddly silent.

The one significant case so far involves Bill Ackman from Pershing Square Capital Management (of course), who owns a significant chunk of Canadian Pacific Railway. Atypically, both for him and activists generally, he has demanded that the BoD appoint his CEO candidate to replace the incumbent. We don’t often see that specific a demand about the senior executives. He has threatened to nominate his own BoD candidates as a means of getting satisfaction.

We’re very familiar with another interesting situation, at Mac-Gray Corporation (NYSE:TUC). For the fourth year in a row, unhappy investors will
push for better BoD representation and company accountability. A sometime activist fund, Moab Capital Partners, has taken up the cause this time.

Proxy Access, Part Two
Investors now have some barely satisfactory clarity around how proxy access will work. Shareholders can propose specific proxy access structures at a given company, either as a non-binding resolution, or as a binding bylaw amendment.

So far this year, we count 16 such proposals, predominantly non-binding resolutions, and largely at bigger companies. Deadlines have mostly passed to file these proposals for Spring 2012 annual meetings.

Companies have started to test the SEC’s willingness to sustain efforts to exclude these proposals. We think the SEC won’t cooperate, after what these corporate interests did to the SEC in court last summer over mandatory proxy access.

We also predict, though, that emboldened companies will litigate these matters beyond the SEC staff, taking the controversies well into 2012.

Say-on-pay Becoming Routine
Say-on-pay votes have become a standard part of the annual meeting agenda, finally, for better or worse. Proxy advisors now have their system down for reviewing pay, and investors have designed policies for voting. This year, companies that lose say-on-pay votes will do so as part of more general protests against poor corporate performance.

A few say-on-pay lawsuits are hanging out there, too, with some settlements and verdicts expected this year. These will matter a bit to the companies involved, but not much to anyone else.

Action on Proxy Plumbing?
The SEC has had plenty to work with concerning the wholesale revamping of the entire system of proxy voting, share custody, and the rest. Yet, since issuing a request for comments over a year ago, and receiving significant input, it has done nothing visible with it.

In this presidential election year, the only path we see to progress does not favor investors. The proxy plumbing efforts did feature discussion of the role of proxy advisors , such as ISS and Glass Lewis. Proxy advisors continue (misguidedly, in our view) to irritate complacent BoDs and executives. If corporate interests decide to pursue heavier regulation of proxy advisors, then they will likely push forward the proxy plumbing discussion as their means.

If you desire a quiet year, then 2012 may meet your needs. But, be careful what you wish for.