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	<title>Investment Initiatives &#187; Blogroll</title>
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	<description>Corporate Governance Engagements for the Long-Term Investor</description>
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		<title>The Futility of &#8220;Just Voting &#8216;No&#8217;&#8221; &#8211; October 27, 2005</title>
		<link>http://www.ii2llc.com/index.php/2005/10/27/the-futility-of-just-voting-no/</link>
		<comments>http://www.ii2llc.com/index.php/2005/10/27/the-futility-of-just-voting-no/#comments</comments>
		<pubDate>Thu, 27 Oct 2005 19:21:58 +0000</pubDate>
		<dc:creator>Andrew Clearfield</dc:creator>
				<category><![CDATA[Blogroll]]></category>

		<guid isPermaLink="false">http://www.ii2llc.com/index.php/2007/10/06/the-futility-of-just-voting-no/</guid>
		<description><![CDATA[Yesterday I received a breakdown of the votes cast in the News Corp. AGM. Of the 1,029,579,988 shares eligible to be voted, more than 816 million were voted, but more than 552 million of these were cast on behalf of the controlling group of Rupert Murdoch with his ally the Saudi prince Al Walid, and sometime rival John Malone adding his support. Of the minority shareholders, 264 million shares were voted, with from 43% to 51% voting to &#8216;Withhold&#8217; from the four directors and 62% voting against the motion to increase outside directors&#8217; remuneration. This was reported by Mr. Murdoch as a vote of &#8216;no more than 15% against any director,&#8217; and was considered a victory for the incumbent management. No one covering the meeting for the press bothered to break the vote down, and to consider that a majority of the 70% of shareholders who had voted had demonstrated their lack of support for the board. (Presumably this was due to issues arising from the implementation of News Corp.&#8217;s poison pill, because there were no other issues.) I don&#8217;t know whether the distinguished board members bothered to do the arithmetic, and realize how much credibility they have lost with shareholders. Certainly, no one has yet compelled them to do so. Aside from the fact that even had an absolute majority of votes been to withhold, the four directors would still have been re-elected, the inadequacy of such protest votes would still have been manifest. Given the way shareholders&#8217; meetings are run today, merely voting one&#8217;s shares against management is an ineffectual tool in attempting to bring an erring management to account. This is not to say that shareholders should not bother to vote their shares: of course they should. This is the device by which the shareholder will must ultimately be ratified. But along the way and by itself, it is rarely sufficient. Among other things, a &#8216;No&#8217; vote on an agenda item which has been prepared to further someone else&#8217;s interests, concerning some other issue entirely is a blunt tool at best with which to get one&#8217;s point across. And it is a deeper level of shareholder action on the part of the institutional owners who control so much of America&#8217;s assets which one must hope for, if one is to avoid the spectacle of a powerful media magnate and his board airily dismissing a covenant underscored in their company&#8217;s previous proxy statements as &#8220;a self-imposed guideline&#8221; revocable at will. Investors who care about how their companies are run need to engage the companies, actively and regularly, speaking with the chairman or his representatives, and if a problem persists, with any board members they can persuade to listen. This should be an ongoing process, even before the company turns up on a proxy advisor&#8217;s bad list. If consultations fail, shareholders who care about the governance of their portfolio companies need to be prepared to sponsor or support shareholder resolutions to press further to solve the issue. Often, the [...]]]></description>
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		<title>News Corp:  Written in Wind and Running Water- October 24, 2005</title>
		<link>http://www.ii2llc.com/index.php/2005/10/24/news-corp-written-in-wind-and-running-water-october-24-2005/</link>
		<comments>http://www.ii2llc.com/index.php/2005/10/24/news-corp-written-in-wind-and-running-water-october-24-2005/#comments</comments>
		<pubDate>Mon, 24 Oct 2005 19:29:44 +0000</pubDate>
		<dc:creator>Andrew Clearfield</dc:creator>
				<category><![CDATA[Blogroll]]></category>

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		<description><![CDATA[Over 2,000 years ago, the Latin poet Catullus, betrayed by his mistress, made the sour observation that &#8220;what a woman in passion tells her lover should be written in wind and running water.&#8221; Down through the centuries, many lovers of both sexes, disappointed by promises unkept, have echoed these sentiments. Nonetheless, it took deliberate action on the part of all the Common Law legislaturesâ€”so-called &#8220;heartbalm statutes&#8221;â€”to make such lovers&#8217; promises unenforceable at law. But now we have News Corp.&#8217;s lawyers making the interesting argument that a company chairman&#8217;s word is even less to be relied upon than a lover&#8217;s promise. They are arguing that a chairman&#8217;s promises to his shareholders regarding their company&#8217;s governance are inherently unenforceable, even without a statute being necessary. The case, Unisuper et al. v. News Corporation, is now before the Delaware Court of Chancery because in 2004, when Rupert Murdoch wanted to transfer the domicile of News Corp. from Australia to Delaware, he encountered substantial opposition from his minority shareholders, especially the Australian institutions. They threatened to scuttle the move because they felt that the Australian rules on corporate governance gave them more protection than the minimum guaranteed by the State of Delaware. Murdoch&#8217;s initial impulse was to tell them to pound sand, but as more major U.S. and European institutions began to weigh in, Murdoch became fearful that he would not attain the required 75% assent. So three weeks before the vote, he reversed course, and promised the company&#8217;s shareholders that the company would retain various protections that shareholders had enjoyed in Australia, including inter alia the right to vote on any poison pill within one year of its enaction. This was not merely some offhand remark made by the company&#8217;s chairman: a board resolution was passed, and the text was broadcast in press releases, on the company&#8217;s website, in filings to the U.S. courts and regulators, and in an amended proxy statement to shareholders. Relying upon the promise, shareholders dropped their opposition to News Corp.&#8217;s move. The concessions were repeated at the meeting where shareholders voted to support the change in domicile. The day after News Corp. began trading as an American company, however, and as predictably as a shark following a porpoise in the act of birth, John Malone of Liberty Media announced he had doubled his voting stake in the company to 18%. Since the Murdoch family has only 28% the company was understandably alarmed, and in accordance with the agreement with shareholders, enacted a poison pill having a duration of only one year. Fast forward to last August. On the 11th, with the AGM set for October 21st, and the agenda not yet sent out, Murdoch announced that the News Corp. board had decided to extend the poison pill by another two years, in flat violation of the promise to shareholders. He said nothing about the promise, and made no justification for this precipitous action, three months before the pill was due to expire. There was absolutely nothing to prevent [...]]]></description>
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		<title>When Governance Engagement Works: Fresenius Re-visited &#8211; September 1, 2005</title>
		<link>http://www.ii2llc.com/index.php/2005/09/01/when-governance-engagement-works-fresenius-re-visited-september-1-2005/</link>
		<comments>http://www.ii2llc.com/index.php/2005/09/01/when-governance-engagement-works-fresenius-re-visited-september-1-2005/#comments</comments>
		<pubDate>Thu, 01 Sep 2005 19:31:41 +0000</pubDate>
		<dc:creator>Andrew Clearfield</dc:creator>
				<category><![CDATA[Blogroll]]></category>

		<guid isPermaLink="false">http://www.ii2llc.com/index.php/2007/10/06/when-governance-engagement-works-fresenius-re-visited-september-1-2005/</guid>
		<description><![CDATA[The efforts of a small group of active investors attempting to engage Fresenius on that company&#8217;s proposed reorganization appear to have borne fruit. Although the group, led by the U.K.&#8217;s largest pension-fund manager, Hermes, apparently had no chance of actually derailing the transformation of Fresenius into a quoted, limited partnership (KGaA), they were important enough and credible enough to be able to persuade the company to make some important modifications in its proposed new structure. These changes were approved by the shareholders at the company&#8217;s Extraordinary General Meeting in Frankfurt on Tuesday. This case clearly illustrates the utility of investors engaging in a continuing dialogue with a company&#8217;s board and senior management, rather than simply voting their shares against something they find objectionable. Hermes, working together with the Netherlands&#8217; largest pension fund, ABP, had been in discussions with Fresenius since the end of July, after the company proposed the reorganization, with its attendant loss of shareholder rights. Although initially the effort seemed doomed, as the company&#8217;s dominant shareholder, a family foundation (Stiftung) was determined to hang on to its absolute control of the company without participating in any likely equity capital-raising, Hermes continued discussions, while at the same time attempting to rally other shareholders to its side. The foundation needed to ensure that it would have 75% of the votes cast at an EGM called for the purpose, which was probably why they decided to call the meeting for the end of August, when the European vacation period is at its height. This timing, during the notoriously absent-minded month of August, also endangered the minority shareholders&#8217; campaign, as it often proved impossible to even discuss the initiative with key decision-makers among the various institutional shareholders. After a major conference call in mid-August between Hermes&#8217; negotiators and Fresenius&#8217; controlling shareholder ended with nothing resolved, the situation looked bleak. But the negotiators persisted, hinging their arguments on the fact that under the limited partnership, shareholders would no longer have any power of review over board decisions made during the previous year. The company was willing to continue talking, knowing that it was discussing these matters with important shareholders like Hermes and ABP, and with the threat of CalPERS voting against the change as well. They also knew that Hermes and ABP would show up at the EGM, and speak against the transformation, which was not exactly good publicity for the company. As the discussions came down to the wire, proposals for some kind of special structure were mooted, and voilÃ !â€”a compromise was found: the board&#8217;s Audit Committee, already composed of a majority of independent directors, would have responsibility for overseeing governance, and would have to report to the shareholders (i.e., the limited partners) each year, at the AGM. This change is not as cosmetic as it sounds, for one of the few powers the limited partner-shareholders in a KGaA have is to accept or reject the report of the Audit Committee. At the EGM, Hermes introduced the motion for these changes, it [...]]]></description>
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		<title>The Reorganization of Fresenius:  Is there a Case for Reasoned Inaction? &#8211; August 15, 2005</title>
		<link>http://www.ii2llc.com/index.php/2005/08/15/the-reorganization-of-fresenius-is-there-a-case-for-reasoned-inaction-august-15-2005/</link>
		<comments>http://www.ii2llc.com/index.php/2005/08/15/the-reorganization-of-fresenius-is-there-a-case-for-reasoned-inaction-august-15-2005/#comments</comments>
		<pubDate>Mon, 15 Aug 2005 19:33:19 +0000</pubDate>
		<dc:creator>Andrew Clearfield</dc:creator>
				<category><![CDATA[Blogroll]]></category>

		<guid isPermaLink="false">http://www.ii2llc.com/index.php/2007/10/06/the-reorganization-of-fresenius-is-there-a-case-for-reasoned-inaction-august-15-2005/</guid>
		<description><![CDATA[There is an investor-led campaign to reject the reorganization scheme proposed by the German health-care company, Fresenius, which is the world&#8217;s largest provider of kidney-dialysis machines and services. Management is proposing that the company abandon its current status as a public corporation (an AG in the German abbreviation) in order to become a publicly-quoted limited partnership (KGaA) with its controlling shareholderâ€”a holding corporationâ€” as the general partner. As justification for the move, the company has cited its declining trading volumes on the Frankfurt bourse, and the fear that the company could fall out of the DAX 30, the narrow index which attracts most investor attention in Germany. How would the proposed transformation help? In becoming a limited partnership, the company will be able to exchange all its preferred shares (about 1/3 of the free float) for ordinary shares, increasing its index weight, and issue more shares without having to participate in the capital increase or risk loss of control. Thus the company is trying to have the best of both worlds, increasing the capitalization without losing control. As so often is the case in these beautiful schemes dreamed up in some investment banker&#8217;s fur-lined office, what the corporate client gains, minority shareholders lose. Ordinary shareholders are being asked to give up their theoretical rights as shareholders in a corporation in order to see themselves heavily diluted in a quoted partnership. Preferred shareholders will have to pay a premium equivalent to half of the average price differential between the preferred and the ordinary in order to receive ordinary shares. The share price of the ordinary will likely decline due to the historically greater discount demanded by the market in a partnership, as there is not even the remote possibility of a contest for control. It is not even clear that liquidity in the shares will improve under the new mode of organization, given that the link between shares outstanding and trading volumes is imprecise, to say the least. In short, this is a scheme which seems to benefit minority shareholders not at all. To add insult to injury, the company is attempting to ram the measure through at an Extraordinary General Meeting in Frankfurt on August 30th, when most of Europe is and has been on vacation, and even workaholic Americans are more likely to be found at beach houses than at their desks reading tedious proxy advisories, let alone at foreign shareholder meetings. It is difficult to believe that this measure was so urgent that management could not have waited a month to bring it before shareholders. So why, then, is this sad but all-too-common sort of event the occasion for a column on &#8220;reasoned inaction?&#8221; In a brief conversation with a colleague and friend of mine, he disclosed that his fund was planning to vote with management. Why? Because the controlling shareholder would be the same no matter what, and because it had done a &#8216;pretty good job&#8217; running the company. Also, he was afraid that otherwise management would [...]]]></description>
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		<title>The ICGN Conference: Some Afterthoughts &#8211; July 19, 2005</title>
		<link>http://www.ii2llc.com/index.php/2005/07/19/the-icgn-conference-some-afterthoughts-july-19-2005/</link>
		<comments>http://www.ii2llc.com/index.php/2005/07/19/the-icgn-conference-some-afterthoughts-july-19-2005/#comments</comments>
		<pubDate>Tue, 19 Jul 2005 19:35:04 +0000</pubDate>
		<dc:creator>Andrew Clearfield</dc:creator>
				<category><![CDATA[Blogroll]]></category>

		<guid isPermaLink="false">http://www.ii2llc.com/index.php/2007/10/06/the-icgn-conference-some-afterthoughts-july-19-2005/</guid>
		<description><![CDATA[In the generally warm, fuzzy aftermath of the International Corporate Governance Network&#8217;s recent Annual Conference at the Guildhall in London, two sobering reflections continue to dog my memories of what was otherwise an extraordinarily successful conference. On the face of it, the conference was a resounding success. Despite the terrorist attacks of July 7th which paralyzed London transport and prevented several speakers from arriving in the U.K. at all, more than 500 delegates showed up over the two days of the conference. The programmed speeches and panels went on almost without a hitch. The turnout was almost as high on July 8th, despite the fact that many could have used the fear of follow-on attacks and continued interruption of four Underground lines as justification for not attending. The talks were interesting and useful, the level of professionalism high. For those of us who have fought to establish governance activity as a legitimate exercise of property rights on the part of shareowners, the conference was exhilarating. The corporate governance movement has clearly come of age. And yet . . . The first cloud over this generally sunny landscape is that almost none of the conference attendees represented &#8216;mainstream&#8217; fund managers. Despite best efforts by the hard-working and able conference organizers, the ICGN Conference has remained a conference by corporate governance practitioners, for corporate governance practitioners. Those U.K. hedge funds which have recently become in involved in governance initiatives, such as TCI and Atticus, were not there, nor were aggressive relational investors, such as Carl Icahn and Guy Wyser-Pratte. Most of the big U.K. unit trusts, the American mutual funds, or any of their Continental counterparts were conspicuous by their absence. Those which were present were represented almost entirely by governance specialists, rather than by portfolio managers or senior executives. Global giant Fidelity had no employees in attendance, nor did Capital Research. Most major securities law firms were not represented. Nor were many issuing companies in evidence, despite the presence of several of their most prominent members as speakers: companies and their advisors clearly are convinced they already know how to &#8216;do&#8217; corporate governance. The other shadow cast over the conference was that there was a general air of complacency on the part of the speakers. The cause of better corporate governance was taken as sui generis, something like accounting standards which may be fought over and involve considerable political maneuvering, but for which the need is accepted by all. It was assumed by almost all panelists that the cause would continue to grow, and that there would be more and more general acceptance of better standards. Not only was there no discussion of the widely-entertained argument that the cost of complying with many of the new governance regulations has far exceeded any benefits which might flow from them, there was no discussion of how to meet the still-persistent argument that there is no economic benefit to be associated with improved corporate governance. It was as if a gathering of prelates dedicated [...]]]></description>
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