Report: Activist Hedge Funds Share Views on Role of Board Director

Today, The Conference Board’s Governance Center released a report detailing the role and expectations of corporate directors from the perspective of activist hedge funds. Some who engaged with The Conference Board believe their directors should behave on boards “as if they owned the whole company.” Hedge funds think the directors they appoint should treat the board directorship as if only the interests of the hedge fund were at play. This challenges the conventional notion that directors have a duty to act in the interest of all shareholders.

In the report, Just What is the Corporate Director’s Job?, the viewpoints featured are from a panel discussion with two principals and a managing director of three activist hedge funds, in addition to a separate interview with a hedge fund representative. Insights from the report include but are not limited to the following:

• For activist hedge funds, incorporating environmental, social, and governance (ESG) considerations into strategy is not a given. While some hedge funds have recently said they would like to see environmental, social, and governance considerations integrated into strategy and planning, this was not the case for some of the hedge fund representatives who spoke with The Conference Board. Rather, hedge funds see ESG as a separate issue to be studied by boards before it is integrated into company strategy. This could reflect that their investment time-horizons are too short to be concerned about ESG factors, which tend to have longer-term impacts.
• When activist hedge funds look for director nominees, they look for those who are knowledgeable about the portfolio company. They also want the candidates to be actively involved in strategy development and engaged enough with management to understand the short-term and long-term plans of the company.
• Activist hedge funds prefer shorter public disclosure reports. Management’s public disclosure materials need to be more succinct and concise. Hedge funds would prefer management deliver an integrated summary report to the board that includes a letter from the chair, the company capital asset strategy, a summary of corporate governance, and sustainability metrics—all in 50 pages or less.

“Directors chosen by activist hedge funds can be the most isolated and yet most sought-after members on the board because they often come equipped with more information about the target company than the sitting directors themselves,” said Gary Larkin, the report’s author and research associate at The Conference Board. “The main reason is those directors are part of a well-thought out process to engage a target company by placing someone on the board to institute changes.”

“Activist hedge funds are disrupting the traditional notion of what the job of the corporate director looks like and challenging how directors should approach their fiduciary duties,” said Doug Chia, executive director of The Conference Board Governance Center. “While boards and management teams will find this alarming, the activist approach may be indicative of where the job of the director is headed.”

The report marks the sixth of several Governance Center reports that feature insights from boardroom stakeholders about the role of the corporate director. In addition to highlights from conversations and interviews, the report includes an overview of activist hedge funds, a hypothetical corporate director’s job description based on a panel discussion, and case studies of proxy fights and settlements including activist hedge funds.

Media can contact The Conference Board for a copy of the report.

SOURCE The Conference Board

Today, The Conference Board’s Governance Center released a report detailing the role and expectations of corporate directors from the perspective of activist hedge funds. Some who engaged with The Conference Board believe their directors should behave on boards “as if they owned the whole company.” Hedge funds think the directors they appoint should treat the board directorship as if only the interests of the hedge fund were at play. This challenges the conventional notion that directors have a duty to act in the interest of all shareholders.

In the report, Just What is the Corporate Director’s Job?, the viewpoints featured are from a panel discussion with two principals and a managing director of three activist hedge funds, in addition to a separate interview with a hedge fund representative. Insights from the report include but are not limited to the following:

• For activist hedge funds, incorporating environmental, social, and governance (ESG) considerations into strategy is not a given. While some hedge funds have recently said they would like to see environmental, social, and governance considerations integrated into strategy and planning, this was not the case for some of the hedge fund representatives who spoke with The Conference Board. Rather, hedge funds see ESG as a separate issue to be studied by boards before it is integrated into company strategy. This could reflect that their investment time-horizons are too short to be concerned about ESG factors, which tend to have longer-term impacts.
• When activist hedge funds look for director nominees, they look for those who are knowledgeable about the portfolio company. They also want the candidates to be actively involved in strategy development and engaged enough with management to understand the short-term and long-term plans of the company.
• Activist hedge funds prefer shorter public disclosure reports. Management’s public disclosure materials need to be more succinct and concise. Hedge funds would prefer management deliver an integrated summary report to the board that includes a letter from the chair, the company capital asset strategy, a summary of corporate governance, and sustainability metrics—all in 50 pages or less.

“Directors chosen by activist hedge funds can be the most isolated and yet most sought-after members on the board because they often come equipped with more information about the target company than the sitting directors themselves,” said Gary Larkin, the report’s author and research associate at The Conference Board. “The main reason is those directors are part of a well-thought out process to engage a target company by placing someone on the board to institute changes.”

“Activist hedge funds are disrupting the traditional notion of what the job of the corporate director looks like and challenging how directors should approach their fiduciary duties,” said Doug Chia, executive director of The Conference Board Governance Center. “While boards and management teams will find this alarming, the activist approach may be indicative of where the job of the director is headed.”

The report marks the sixth of several Governance Center reports that feature insights from boardroom stakeholders about the role of the corporate director. In addition to highlights from conversations and interviews, the report includes an overview of activist hedge funds, a hypothetical corporate director’s job description based on a panel discussion, and case studies of proxy fights and settlements including activist hedge funds.

Media can contact The Conference Board for a copy of the report.

SOURCE The Conference Board