Issue #10                                                                                                 October 2019
Some features of investor activism in Europe. How should companies prepare?
by Professor Antonio Dávila
Activist investors are common players in the governance of U.S. public firms. They take a significant equity position in a company that they have identified as having room for improved management and force changes to unlock value. Most of the time, the negotiation between the activist investor and the board leads to changes that management implements and to the investor reducing the equity position. Yet, in a few but highly publicized cases, the disagreements reach the governance structure of the company, going as far as proxy fights where the incumbent board and the investor present to shareholders different candidates for the board. If the investor wins, the new board often replaces a large part of the top management team. The dismissal of incumbent board members and top management accounts for the reservation with which activist investors are received.

Activist investors have recently expanded their activity to Europe. As mentioned before, these investors target what they perceive as underperforming companies and with a corporate governance structure which can improve. Thus, if they do their work right, other shareholders should welcome their presence. Similarly, managers find in them a source of ideas to enhance their companies.   

Still, the best way to avoid the stress that comes from activist investors targeting a particular company is to manage the company at its best. Yet, change in markets are accelerating, fueled by a myriad of new technologies hitting the market and the increasing competition from the opening of Asian countries. This new setting requires a new management paradigm that permeates from the board down to the bottom. The old paradigm emphasized execution as the source of value creation: companies executing flawlessly led in their markets. Today, execution is not enough. The new management paradigm goes beyond execution to embrace sensing opportunities for value. 

Yet, Western companies’ main disadvantage vis-à-vis Asian companies is their legacy where execution was all that was required to succeed. Asian companies have been born into the new market dynamics; for them sensing opportunities is as relevant as executing to win. Adapting to this new paradigm starts with the board and the information that they receive for each meeting. Leading boards receive structured information not only about internal processes but also about opportunities opening up in markets. This latter issue is the core of a research project at IESE, where we have developed a significant expertise.

Antonio Dávila 
Professor of Entrepreneurship and Accounting and Control 
IESE Center for Corporate Governance

Corporate Governance News

French policy-makers defy shareholder activism 
According to Reuters, the President of the French Finance Committee presented a report advocating for a better framework to regulate the practice of shareholder activism in France, where some companies such as Casino, Pernod Ricard, Safran and Scor experienced pressure from activist investors in 2018… read more
Activist fund Elliot takes on telecom giant 
With a stake of 3.2 billion dollars in AT&T, Elliot challenges the largest U.S. operator with a new plan to raise the company’s share price by 50%… read more
Index Funds rarely challenge management
According to Reuters, index funds control half the U.S. stock mutual fund market. However proxy votes indicate that this power to influence company performance is rarely exercised… read more
What’s accelerating the international CEOs exodus of recent years?
Sources consulted by Fortune maintain that 2019 already represents the year with the highest number of CEO exits. What lies behind this phenomenon? According to Fortune’s article, it’s reflective of a trend of uncertain economics on the horizon… read more
U.K.’s watchdog toughens disclosure standards following corporate failures
The Guardian informs that the Financial Reporting Council (FRC) intends to reinforce standards to prevent accounting errors that could result in cases like Thomas Cook or Carillion… read more
U.K. companies face shareholder friction in their AGMs
According to The Guardian, the U.K.’s leading investor group, which represents £7.7tn in assets under management, has warned companies of the need to have a plan to align existing executive directors’ pension payouts with those of the workforce by 2022 or face shareholder dissent… read more
Vivendi takes Mediaset merger to court
The French company has initiated a judicial proceeding in Italy challenging, among other things, the agreements adopted by the Extraordinary General Meeting of Mediaset shareholders in which the merger between the Italian parent company and the Spanish subsidiary was approved… read more
Why hasn’t Wall Street ever had a female CEO?
This article taps into the question of female representation on boards and top management position  in banking by providing some evidence from recent studies on the matter as well as a series of interviews conducted by the article’s author… read more

In Case You're Interested...

The Shareholder Rights and Activism Review

Law Business Review has released the Fourth edition of this study that helps to understand the legal framework and emerging trends of shareholder activism in various international jurisdictions facing activism in North America, Europe, Australia, and Asia. The Shareholder Rights and Activism Reviewis designed as a primer on these aspects of shareholder activism in such jurisdictions… read more

Understanding citizens’ views on the regulation of corporate reporting, corporate governance, and audit

U.K.’s Financial Reporting Council (FRC) has commissioned BritainThinks to conduct research with the public to understand citizens’ views on the development and strategy of the FRC, how the FRC can best operate in the public interest, and identify any gaps in expectations between what the public perceives to be important and what the Regulator delivers and can deliver. In particular, the research has focused on three key areas of regulation: corporate reporting, corporate governance, and auditing… read more

IESE's Recent Research on Corporate Governance 

“Family-owned Firms: The role of the Board of Directors, Family Council and Family Office”

Chapter (June 2019)

Book: General Management in Latin and Iberoamerican Organizations: A Humanistic Perspective, Caldart, A.; Ricart, JE and Carrera, A. (editors). Oxford: Routledge, July 2019.
Author: Tàpies, Josep
Read summary

“Beyond the Target: M&A Decisions and Rival Ownership

Working Paper (August 2019)

AuthorsAntón, MiguelAzar, JoséGine, Mireia; and Lin, Luca Xianran
Read summary

Upcoming Events & Programs

ECGI Annual Lecture: “The Economics of Firm Culture”
(hosted by IESE CCG) No registration fee

Why should firms care about corporate culture? Can they simply rely on corporate governance and incentives to ensure that management and employees maximize the objective of the company? When is culture more advantageous in shaping behavior? When are incentives more effective? In this lecture, Professor Sapienza will provide a unifying framework to understand the role corporate culture plays in shaping behavior within firms. The lecture also reviews the empirical evidence on corporate culture and direction for future work.
The ECGI Annual Lecture will be followed by presentations of the best working papers in 2018 from the ECGI Law and Finance Series. Details of these papers are contained in the programme brochure.

Date: October 24, 2019 (15:30-19:00)
Location: IESE, Barcelona, South Campus (Auditorium)
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Visit the event website 

IESE CCG and ECGI co-organize the conference “Corporate Governance and Ownership with Diverse Shareholders”
(by invitation only)

Date: October 25-26, 2019
Location: IESE, Barcelona, North Campus
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Executive Program: “Consejos de administración responsables”

Date: January 28-29, 2020
Location: IESE, Madrid Campus
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Executive Program: “Value Creation Through Effective Boards”

Date: May 18-21, 2020
Location: IESE, Barcelona Campus
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