Thursday, May 22, 2014

What if Companies Could Pick Their Shareholders?

Earlier this week, Stanford University's Rock Center for Corporate Governance released a study entitled “How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making.” Not surprisingly, the 138 North American investor relations professionals surveyed prefer long-term investors so that management can focus on strategic decisionmaking without the distraction of “short-term performance pressures that come from active traders,” according to Professor David F. Larcker. Companies believed that attracting the "ideal" shareholder base could lead to an increase in stock price and a decrease in volatility.

The average “long-term investor” held shares for 2.8 years while short-term investors had an investment horizon of 7 months or less.  Pension funds, top management and corporate directors held investments the longest, and companies indicated that they were least enamored of hedge funds and private equity investors.  Those surveyed had an average of 8% of their shares held by hedge funds and believed that 3% would be an ideal percentage due to the short-termism of these investors. Every investor relations professional surveyed who had private equity investment wanted to see the ownership level down to zero.

I wonder what AstraZeneca’s investor relations team would have said if they could have participated in the survey given the various reactions by its shareholders to Pfizer’s proposed takeover. (See here and here to read about the divisions within the shareholder ranks). What would AstraZeneca’s “ideal” shareholder base look like? BlackRock, which owns 8%, is the company’s largest shareholder. Will it sway AstraZeneca’s board to reconsider its rejection of Pfizer's bid and should it? Pfizer’s purported behind the scenes attempts to get shareholders to express their anger at AstraZeneca’s board may not be working, but this may be a prime example of why companies wish they could pick their shareholders.

As one of the study’s authors Professor Anne Beyer aptly concluded, “companies see very large, tangible benefits to managing their shareholder base, so there seems to be a real opportunity for some companies to improve corporate decisions and increase their value by paying close attention to who holds their shares.” 

 

 

 

http://lawprofessors.typepad.com/business_law/2014/05/what-if-companies-could-pick-their-shareholders.html

Business Associations, Corporate Governance, Corporations, Current Affairs, Marcia L. Narine, Merger & Acquisitions | Permalink

Comments

Colin Mayer (Oxford) has some thoughts along these lines in his recent book "Firm Commitment." He discusses "time dependent shareholdings" whereby shareholders who commit to holding their shares for a specified period of time are awarded additional rights, such as increased voting power, etc.

Posted by: Haskell Murray | May 22, 2014 1:26:16 PM

Thanks Haskell. I also blogged about loyalty-driven securities earlier this year. It's an interesting concept. http://lawprofessors.typepad.com/business_law/2014/01/can-loyalty-driven-securities-solve-the-problem-of-short-termism-probably-not-according-to-a-study.html

Posted by: MARCIA NARINE | May 22, 2014 2:14:27 PM

Post a comment