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

Chapter 13

Institutions Changing Corporate Bylaws so Activist Hedge Funds Can Get Down to Business

As we can see, institutions have a difficult time becoming full-fledged activists, despite their efforts to block deals or launch campaigns to force incumbent directors off boards. These kinds of activist efforts are typically done in tandem with activist hedge funds doing the heavy lifting, so to speak. But institutions have also found another way to aid activist hedge funds, though indirectly: the shareholder proposal.

Most rank-and-file institutional investors come across a wide variety of proposals at hundreds of corporations that make up their large portfolios. Every year, before an annual meeting, shareholders receive a copy of the annual report along with a booklet outlining the proposals they must vote on.

After the section on director elections and approval of the company's external auditor, investors often are exposed to a wide variety of shareholder proposals. Many of them are targeted at multinational companies, seeking reduction of greenhouse gas emissions, conserving natural resources, or establishment of global labor standards for the corporation's operations around the world. At Wal-Mart, for example, investors might see a dozen shareholder proposals, including one seeking more information about the company's political contributions.

But, unlike these measures, many corporations list other proposals calling for a shareholder vote to change the company's bylaws and ...