New York – A new study on the topic of shareholder activism highlights the pluses and minuses of the role of activism in the share price of the company. The study was conducted by Harvard Business School Assistant professor Robin Greenwood and Michael Schor and the results of the study were summarized in the Wall Street Journal last week.
The end result of the analysis is that shareholder activism has a kind of honeymoon effect on share prices when it is initiated. This appears to be related to the perception that the company may be in play. And if the company is subsequently sold there is an increase in the value of the shares of the company. If, however, the company is not sold, the share price tends to drift sideways.
Activist investors tend to put forward altruistic rationalizations as to their actions. For example, the case described in the WSJ is about the 7.1% stake that Franklin Mutual Advisors took In Weyerhaeuser Co. with the rationale of improving governance, management and strategic direction. That was over two years ago, and although the share price rose slightly on the announcement, two and a half years later it is languishing, alongside weaker profits.
Carl Ichan is an old hand at the activist game. He indicates that the reason people believe that a company may be in play is that the activists are thought to be willing to wage proxy wars to change the board and conduct broad changes to the management of the company.
However, there are research firms with specific expertise in these areas. Integrity Research has run a brief frisk of its knowledgebase of research providers and come up with a few suggestions for those that wish to brave the activist shareholder space.The relevant categories in are Corporate Governance and Proxy analysis. The following are few companies that might be helpful in this area:
International Shareholders Services (ISS) – Governance and Proxy
Glass Lewis – Governance and Proxy
Governance Metrics – Governance