Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 8

Regulation and Activists

How the Securities and Exchange Commission Helps (or Hurts) Activists

Another way to understand the growth of activists is through the regulations that give insurgents the tools they need to function. Activists could never have become the influential force they are today without a few key measures that the Securities and Exchange Commission (SEC) and other regulators have adopted over the past few years. And some shareholder-empowering changes could still be on the way.

One key provision adopted in 1992 under the helm of then SEC chairman Richard Breeden is the so-called short slate rule. Before this rule was adopted, investors were, for the most part, unable to split their vote between management-nominated directors, the incumbents, and candidates put up by dissident activist investors. Put another way, there were significant legal obstacles to voting for a dissident candidate and also voting for an incumbent nominee.

Many dissident shareholders felt there should be a place for activists that didn't want to disrupt the company order through a change-of-control proxy contest, but wanted to inject the business with some new energy in the form of a short slate of one or two directors representing a minority on the board.

“I'm not running a whole slate of 11 people to replace your entire board,” says Nell Minow, a corporate governance expert at the Corporate Library research firm. “I think that bringing in one or two outside directors to the board ...