Columbia Law School's blog on corporations and the capital markets has issued an article 'Why Activist Hedge Funds Deserve Representation on Corporate Boards' co-authored by Martin Gregor and Beatrice Michaeli (UCLA). The article discusses a universal proxy rule adopted by the Securities and Exchange Commission; the rule takes effect on September 1, 2022.
The new rule allows investors to choose the combination of candidates they vote for in a contested election. This change lowers the barriers for nominations from hedge fund activists and other activist groups. Will empowering activist funds come at a cost for other shareholders? Using their recent research based on information economics and game theory, the authors show that directors nominated by activist groups, such as hedge funds, can benefit other shareholders, even if the activists are biased. The explanation is that in the presence of activists, the CEO is forced to make the proposals more attractive to both the activists and other shareholders, and this improves the quality of approved projects.
The post on the Columbia Law School's Blue Sky blog is available here.
Autor - Barbora Holková