State Street Global Advisors Calls on Corporations to Protect Long-Term Shareholder Interests in Activist Engagements
October 10 2016 - 10:49AM
Business Wire
Ron O’Hanley, president and chief executive officer of State
Street Global Advisors (SSGA), the asset management business of
State Street Corporation (NYSE:STT), today called on corporate
boards to develop principles for engaging with activist investors
to promote long-term value creation and sustainable economic
growth. This comes in response to new research from a report
by Lazard’s Corporate Preparedness Group,1 showing that more
companies are reaching quick settlements with activists and
conceding board seats without input from other investors, including
long-term shareholders like SSGA.
“Our main goal as a near-permanent source of capital for
companies listed in the indices is to maximize the probability of
long-term value creation on behalf of our clients,” said O’Hanley.
“We recognize there are different ways for activists to engage with
companies and that some activists can drive positive change. But we
are wary of activist situations that favor short-term gains at the
expense of long-term investor interests.”
As of August 2016, 49 companies had conceded 104 board seats to
activists in settlements, almost on par with the 106 seats conceded
by 54 companies in all of 2015.2 This significant uptick represents
a dramatic increase in situations where long-term shareholders have
not been afforded the benefit of public discussion regarding these
activists’ views on strategy, compensation, share buyback programs
and other factors.
“Today we call upon the boards of publicly traded companies to
identify and address issues in agreements that, absent the below
recommendations, might adversely affect the interests of long-term
shareholders,” continued O’Hanley. These include:
- Duration of settlement
agreements: by extending the time horizon of the agreement,
both companies and activists will be more sensitive to long-term
factors and incorporate these into the settlement terms and any
strategic actions undertaken by the company;
- Time period for holding shares:
SSGA believes activists should be required to hold shares for long
periods from the date of settlement to better align them with them
with long-term shareholders.
- Minimum ownership thresholds or
director resignation requirements for board representation:
Typical agreements allow activists to reduce their stake to 1-2%
below ownership levels at the time of settlement, but SSGA
advocates for agreements to specify minimum ownership levels for
longer periods in exchange for any board representation.
- Risk to share prices from the
pledging of activist shareholdings: While settlement agreements
limit an activist’s ability to engage in short sales, they
generally do not contain restrictions on the pledging of shares.
SSGA believes this could create perverse incentives for the
activist firm, which could result in their director nominees
pursuing aggressive strategies to maintain share prices in the
short term.
Going forward SSGA will assess settlement agreements according
to how they address these issues and will engage with companies
that pursue unplanned financial engineering strategies within a
year of entering into a settlement with an activist to better
understand the reasoning behind the strategic change.
About State Street Global AdvisorsFor nearly four
decades, State Street Global Advisors has been committed to helping
financial professionals and those who rely on them achieve their
investment objectives. We partner with institutions and financial
professionals to help them reach their goals through a rigorous,
research-driven process spanning both active and index disciplines.
We take pride in working closely with our clients to develop
precise investment strategies, including our pioneering family of
SPDR ETFs. With trillions* in assets under management, our scale
and global footprint provide unrivaled access to markets and asset
classes, and allow us to deliver expert insights and investment
solutions.
State Street Global Advisors is the investment management arm of
State Street Corporation.
*Assets under management were $2.3 trillion as of June 30, 2016.
AUM reflects approx. $40 billion (as of 6/30/2016) with respect to
which State Street Global Markets, LLC (SSGM) serves as marketing
agent; SSGM and State Street Global Advisors are affiliated.
Important Information:
The information provided does not constitute investment advice
and it should not be relied on as such. It should not be considered
a solicitation to buy or an offer to sell a security. It does not
take into account any investor's particular investment objectives,
strategies, tax status or investment horizon. You should consult
your tax and financial advisor. All material has been obtained from
sources believed to be reliable. There is no representation or
warranty as to the accuracy of the information and State Street
shall have no liability for decisions based on such
information.
State Street Corporation, One Lincoln Street, Boston, MA
02111-2900
© 2016 State Street Corporation - All Rights Reserved
CORP-2284
10/31/2017
1 Data provided by Lazard’s Board Preparedness Group as of
August 19, 2016. Source:Activist Insight, FactSet, Spencer Stuart.
Note: All data is for activist campaigns targeting companies with
market capitalizations exceeding $500 million at time of campaign
announcement. 2016 YTD data as of 8/19/2016.2 Ibid.
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State Street CorporationAnne McNally, +1
617-664-8572Aemcnally@StateStreet.com
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