Rob Swystun, Pristine Advisers
A while back, I wrote about how shareholder activism has increased in 2013 and is a trend in the financial marketplace. That was mostly about ultra rich shareholder activists who buy up huge stakes in a company and virtually force changes in strategy.
But there is another kind of shareholder activist out there, one whose pockets aren’t nearly as deep as the Carl Icahns or Dan Loebs of the world. They activate on a shoestring … wait, that doesn’t sound right. They try to enact change on a shoestring, meaning they buy just enough shares to be able to get a resolution onto an agenda — usually about $2,000 worth — and then do their best to get the ear of their fellow shareholders to try and help them get that change accomplished.
These types of budget provocateurs have a patron saint. His name is John Cheyedden and Reuters recently did a profile on him.
Laid off from the aerospace industry in the early 1990s, the 67-year-old Cheyedden has gone after some of the biggest companies in America with shareholder proxy measures.
His aim, he says, is to increase executive accountability and increase shareholder say. His reasoning is that this improves operations of companies and boosts their value. An example of some of the measures he brings forth include determining how often directors are elected and when shareholders can call special meetings of investors.
As of mid-September this year, Cheyedden has pushed through 58 proposals, the most of anyone, and those resolutions have won 41% of shares voted on average.
Some of his successful proxy measures have included:
- getting Whole Foods Market Inc. to make it easier to remove directors;
- convincing utility holding company Edison International to give shareholders more influence over executive pay (two years prior to “say on pay” votes becoming widely required under U.S. law);
- pressuring Bank of America Corp. to require its chief executive to hold on to stock for at least a year after retirement.
Maybe not surprisingly, the deep pocketed activists sneer at these largely procedural changes, with Icahn saying that Cheyedden’s measures do not “move the needle much” and that it’s far better for shareholders to try and get their own directors onto the board to push for change from the inside.
“You can’t get these guys on boards to be accountable, unless you have a lot of capital and a lot of firepower,” Icahn says. “You get one or two of your candidates on the boards. That’s how it’s done.”
But Cheyedden points out that the support he garners from his fellow shareholders should be a clear indication to boards that they could be doing a better job and should listen to shareholders.
Doing the activism others won’t
Cheyedden and other small scale activists act as instruments for institutional investors like mutual fund firms. These firms own vast amounts of shares in major companies and are, in theory, in positions to push through major reforms. However, it seems as though they don’t like to rock the boat much, as evidenced by data from SharkRepellent.net that shows since 2005, there have been exactly zero shareholder proposals at S&P 1500 companies by the largest fund families. Governance experts say part of the reason for the lack of push from big asset managers is because the payoff is often not direct and fails to justify the cost.
So, instead, they throw their support, and votes, behind activists like Cheyedden and his ilk, who make pushing through change a consistent goal.
In her book Looking Beyond Profit: Small Shareholders and the Values Imperative, Peggy Chiu says the increase in small shareholder activity really picked up in the 1990s, as small shareholders — sick of being ignored by the companies they partially owned — banded together to form shareholder associations to give themselves more clout.
But while there is strength in numbers, at times the companies that Cheyedden is attempting to enact change in have attacked him on an individual basis, either by taking their grievances about him and his proposed resolutions to the US Securities and Exchange Commission or by taking out lawsuits against him.
Both energy company Apache Corp and engineering firm KBR Inc have successfully sued to leave Cheyedden’s proposals off their proxy statements, claiming in part that he failed to prove owning shares.
But while these court actions do work sometimes, they can be seen as strong arm tactics meant to prevent other small shareholders from coming forward with change proposals.
Senior Vice President of Apache Sarah Teslik, however, says the company took the matter to court for a new legal perspective and not to silence Cheyedden. Teslik also claims that Apache tries to reach out to shareholders to work things out directly most of the time.
“If you want to solve a problem, you talk about it,” Teslik says. But when it comes to Chevedden, “He doesn’t try to talk to us; he tries to attack.”
Probably the best thing for everyone is, as Chiu says in her book, for companies to make a concerted effort to try and get to know their shareholders and gauge their attitudes about the current governance and what changes they’d like to see. It could save some lawsuits.