Conference Board Issues Report on Hedge Fund Activism

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The Conference Board Governance Center convened a Working Group on Hedge Fund Activism, which released a set of proposed recommendations for public companies and institutional investors who might find themselves involved in an activism campaign mounted by hedge funds. The proposed recommendations are supported by a research report discussing the Working Group’s findings.

The Conference Board Working Group recommends actions which can be taken voluntarily by corporations and investors. Due to the non-advocacy policy adopted by The Conference Board, no recommendations to legislative bodies or regulatory agencies were issued. The Working Group focused on the following major areas:

• What corporations can do to better monitor securities holdings and learn about those accumulations of stock or extraordinary trading patterns that may reveal a hedge fund’s activism tactic. 

• What measures corporations can adopt to avoid becoming a target.

• How boards and senior executives can react to an activism campaign and how they should respond to requests for change made by hedge funds.

• How companies and large institutional investors can ensure integrity of the voting process in those situations where hedge funds borrow shares for the sole purpose of influencing a shareholders’ vote.

• What considerations institutional investors should be mindful of when allocating some of their assets to hedge funds pursuing activism strategies.

The Conference Board Governance Center, under the direction of Carolyn Kay Brancato, established the Working Group on Hedge Fund Activism in early 2007 to bring together major institutional investors, public companies at the forefront of corporate governance developments, financial service providers, legal experts and business associations. The Working Group is co-chaired by two noted corporate governance experts, Dr. Stephen Davis and Jon Lukomnik, and Senior Research Associate Matteo Tonello authored the report. The Working Group was formed during the height of a burgeoning hedge fund market; while that industry’s activity has somewhat abated in the late 2007 and early 2008 market downturn and liquidity crunch, the major issues raised by hedge fund activism are expected to persist.  

The full set of findings and recommendations being released for public comment can be downloaded at http://www.conference-board.org/workingGroups/wkgGrpDescribe.cfm?Council_ID=245.