Ic­ahn reg­u­la­tory role gives ac­tivist in­vestors voice

Kuwait Times - - ANALYSIS -

US chief ex­ec­u­tives, al­ready wrestling with a steady flow of ac­tivist in­vestors in their board rooms, face a newly chal­leng­ing land­scape now that the loud­est voice of the bunch will have the ear of the next pres­i­dent and his se­cu­ri­ties’ rule mak­ers. The ad­vi­sory role granted to bil­lion­aire in­vestor Carl Ic­ahn by Pres­i­dent-elect Don­ald Trump is a po­ten­tial blow to CEOs and board di­rec­tors who hoped the new Se­cu­ri­ties and Ex­change Com­mis­sion would fa­vor cor­po­rate man­age­ment teams over share­holder pro­pos­als that they deem too friendly to share­hold­ers.

Ic­ahn’s ap­point­ment, an­nounced on Wed­nes­day, spans all reg­u­la­tory mat­ters. That in­cludes vet­ting SEC can­di­dates, a sig­nif­i­cant boost to share­holder ac­tivists who want com­mis­sion­ers to keep cor­po­rate gov­er­nance ini­tia­tives on the front burner. While Ic­ahn has spent four decades an­tag­o­niz­ing CEOs and boards, the ex­tent of his Wash­ing­ton in­flu­ence and where he will lean on share­holder is­sues re­mains to be seen. Still, it is clear that hold­ing the feet of ex­ec­u­tives and di­rec­tors to the fire of ac­tivists is high on his list of pri­or­i­ties. “We don’t hold our man­age­ments or boards ac­count­able enough,” he said Thurs­day in a CNBC in­ter­view fol­low­ing his ap­point­ment.

Ic­ahn’s strong sup­port of the “univer­sal” proxy card, a ma­jor ini­tia­tive that ac­tivists feared would die in a Trump ad­min­is­tra­tion, may help it sur­vive its cur­rent SEC re­view. In a con­tested share­holder vote on board mem­ber­ship, univer­sal proxy cards al­low in­vestors to pick and choose among all nom­i­nees, rather than just be­ing able to vote for an en­tire slate.

But Ic­ahn has thrown cold wa­ter on other gov­er­nance pro­pos­als and has yet to voice an opin­ion on an­other key ini­tia­tive: the SEC’s adop­tion of a rule re­quir­ing public com­pa­nies to dis­close the ra­tio of the com­pen­sa­tion of their CEOs to the me­dian em­ployee com­pen­sa­tion. “The ques­tion I have is, Which Carl Ic­ahn do we see in this role? Ic­ahn the ac­tivist, or Ic­ahn the busi­ness­man, ad­vo­cat­ing for the busi­ness com­mu­nity?” said Keith Got­tfried, a Wash­ing­ton D.C.-based part­ner at law firm Morgan Lewis, who spe­cial­izes in ac­tivist de­fense. “We will prob­a­bly see more of the lat­ter.”

Ic­ahn’s sup­port of univer­sal proxy cards pits him against the US Cham­ber of Com­merce, a pow­er­ful busi­ness lob­by­ing arm, and Re­pub­li­can SEC com­mis­sioner Michael Pi­wowar, who be­lieves the rule fa­vors share­holder ac­tivists at the ex­pense of other in­vestors. SEC Chair Mary Jo White out­lined the rules in Oc­to­ber, but she has said she will leave her post at the end of the Obama ad­min­is­tra­tion. With the SEC ac­cept­ing com­ments through Jan 9, that leaves only a small win­dow for her to act be­fore Trump takes of­fice on Jan. 20, a prospect most see as slim.

“With Ic­ahn play­ing a role in se­lect­ing com­mis­sion­ers, it’s very pos­si­ble univer­sal proxy cards will re­main on the agenda,” said Bruce Gold­farb, CEO of Okapi Part­ners, a proxy ad­vi­sory firm that rep­re­sents ac­tivists and com­pa­nies. Ic­ahn may also have in­flu­ence over the pay ra­tio rule, which was adopted by se­cu­ri­ties reg­u­la­tors in 2015 and set to be­gin next year. Repub­li­cans and the Cham­ber of Com­merce have fought the rule, which is seen as be­ing too fa­vor­able to share­holder ac­tivists who fo­cus on keep­ing ex­ec­u­tive pay in check. Ic­ahn has not in­di­cated his view.

Ac­tivist Agenda

Share­holder ac­tivists have launched 670 cam­paigns against U.S. com­pa­nies since 2015 and have placed 213 di­rec­tors on boards of com­pa­nies with a mar­ket value of $500 mil­lion or more, data from Lazard show. Ic­ahn, known for invit­ing CEOs he’s tar­get­ing to his home and of­fer­ing them a mar­tini, has placed nine di­rec­tors on boards this year alone. Ic­ahn’s new role is “prob­a­bly go­ing to be mildly bad news” for most CEOs, said Michael Levin, an ac­tivist in­vestor and di­rec­tor on the board of Co­marco Inc.

Levin said he does not ex­pect Ic­ahn to have much in­ter­est in changes re­lated to so­cial or en­vi­ron­men­tal ac­tivism by share­hold­ers. Once seen as a sideshow, the pro­pos­als have of­ten drawn trac­tion since the fi­nan­cial cri­sis. Mea­sures call­ing on com­pa­nies to re­port on sus­tain­abil­ity av­er­aged around 30 per­cent sup­port from share­hold­ers this year for in­stance, ac­cord­ing to the Sus­tain­able In­vest­ments In­sti­tute.

But crit­ics have pushed back at the bal­lot ques­tions, of­ten see­ing them as non­bind­ing dis­trac­tions or un­re­lated to core busi­ness is­sues and best left for man­agers to de­cide. Paul Atkins, a tran­si­tion ad­viser and a for­mer SEC com­mis­sioner who is one of two lead­ing choices to head the SEC, which reg­u­lates how ques­tions can be put on com­pany bal­lots, has been a steady critic of the trend. In a 2008 speech he re­ferred to “the abu­sive use of the share­holder pro­posal process by some in­sti­tu­tional in­vestors.” — Reuters

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