Poison pills are one of the most powerful deterrents to hostile takeovers, making a takeover so unattractive and expensive that a potential acquirer declines to pursue it. A pill typically works by triggering the issuance of new shares to “old” shareholders when a hostile takeover threat arises, thus diluting the acquirer’s stake and making the acquisition unviable. In the four decades since its invention, however, the pill has  sparked many debates about its benefits and drawbacks and particularly its impact on the adopting firm’s value. Though the pill’s deterrence of hostile takeovers ..read more

In a potentially precedent-setting case, 11 directors of global energy company Shell Plc (formerly Royal Dutch Shell Plc) [1] are being sued in their personal capacity over the company’s energy transition strategy. The claim, which has been filed in the English High Court, alleges that the strategy is “fundamentally flawed” and puts the global energy company at risk as the world transitions toward net zero, in breach of the directors’ fiduciary duties to the company. The claim is brought by non-profit organization ClientEarth, and is supported by a group of institution ..read more

For more than ten years, Larry Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, has published separate annual letters — one to CEOs and another to BlackRock’s shareholders. This year, Fink combined the two letters into one to underscore that in serving its clients, BlackRock has also created value for its shareholders — a demonstration of stakeholder capitalism at work. As we recently explained, major asset managers such as BlackRock play a critical role in supporting companies as they seek to fulfill their fundamental purpose of pursuing long-term, sustainable ..read more

Companies involved in scandals often suffer damage to their reputations from media, consumer, or investor criticism For instance, notable oil spills, from Exxon’s 1989 Exxon Valdez disaster to BP’s 2010 Deepwater Horizon debacle, resulted in both hundreds of millions of dollars in direct regulatory penalties and short-term stock market losses (Länsilahti 2012), substantial longer-term losses of reputational capital, (McGuire, Holtmaat, and Prakash 2020) and punitive legislation. The reputational consequences of socially irresponsible corporate actions may also escalate in light of a recent inc ..read more

Much of the debate about activist shareholders is informed by experience in Northern Hemisphere markets, particularly the United States. In my recently published book, I examine the topic from an Australian perspective. Australia is ideal for exploring shareholder activism for several reasons. It has a substantial share market, and its pensions and fund management industries are some of the largest in the world and own a considerable proportion of Australian listed equities. Australia’s public companies tend to have an ownership structure that is conducive to activism because of a low incidenc ..read more

Financial theory suggests that a firm with strong corporate governance (e.g., an effective board of directors), keeps a CEO exactly as long as is optimal for the firm. When the firm’s board and other corporate governance mechanisms are ineffective, however, a CEO can stay on longer than is optimal, to the detriment of shareholder value (Brochet et al., 2021). Theoretical studies (e.g., Casamatta and Guembel, 2010) indicate that a CEO’s decisions affect a firm’s future performance, potentially beyond the CEO’s tenure. However, the empirical evidence for this finding is almost nonexistent. If a ..read more

Sound policymaking has helped India modernize and achieve robust economic growth, positioning it to become an increasingly important player on the world stage. But recent developments – and scandals – show that the government must address some major issues if it wants to sustain India’s global rise. — Nouriel Roubini[1] As India chairs the G20 meeting in Bengaluru, the country emerges as one of the most economically powerful and politically important countries in the world. However, recent events are casting doubts on its commitment to the rule of law and undermining the trust of global i ..read more

The 2023 proxy season is underway for public companies and their investors. Corporate secretaries, lawyers, and executives are actively engaged in the SEC’s shareholder proposal process. Consistent with recent proxy seasons, a significant number of companies are receiving proposals calling for new or enhanced political disclosures. Although these proposals have been around for some time, recent contentious election cycles, debate over hot-button issues, including the Supreme Court’s 2022 decision in Dobbs v. Jackson Women’s Health Organization, and increased investor focus on ESG matters (as w ..read more

More than 40 years after its invention by lawyer Martin Lipton, the poison pill remains the subject of important judicial decisions and academic debate over corporate governance questions, in both the United States, its country of origin, and Japan, its adopted home. The pill’s development has taken divergent paths in the two countries because of their markedly different corporate governance environments. Yet today, shareholder activism and concern for environmental, social, and governance (ESG) issues may be causing those paths to converge, a possibility highlighted by recent judicial decisio ..read more

In recent years, an increasingly popular strategy among hedge fund activists has been to acquire  seats on the boards of target companies. These board seats are held by what we refer to as “activist directors,” who may be affiliated with the activists or nominated by them. However, obtaining board representation has costs, which include the direct costs of getting board representation and the risk of staking one’s reputation on the company’s future performance. Additionally, board positions come with fiduciary responsibilities to all shareholders, and access to inside information may limi ..read more