Investor Activism: Reshaping the Playing Field? Federal Reserve Bank of Atlanta Financial Markets Conference

In recent years, there have been a number of efforts to extend the shareholder franchise. The major stock exchanges, for example, have implemented new listing standards expanding the number of corporate compensation plans that must be approved by shareholders. (E.g., NYSE § 3.12.) As of this writing, the Securities and Exchange Commission (SEC) is still at least nominally considering a proposal to permit shareholders, under limited circumstances, to nominate directors and have their nominees listed in the company’s proxy statement and on its proxy card. In addition, on July 25, 2007, the SEC issued two new, conflicting rule proposals regarding “proxy access, ” potentially a valuable tool in the activists ’ arsenal. This paper considers the following questions: • What are the arguments for and against “democratization ” of the proxy? • How will such power, if granted, be used by activists to affect both the structure of corporate governance and the strategic operations of the corporation? • To what extent do activist investors have objectives for the firm that differ from those of passive investors (e.g., social responsibility versus profit maximization)