Empirical study and review: hedge fund activism.

• Author: Briggs, Thomas W.
• Position: Corporate Governance and the New Hedge Fund Activism: An Empirical Analysis

All these legal changes have combined to open the door for a new, more aggressive kind of shareholder activism, and hedge funds have marched unhesitatingly through. The following pages examine what they actually do and how they do it. (92)

1. Study Methodology

   The methodology used is straightforward. Data for all 2005 (the first year hedge fund activism received widespread notice) and the first eight months of 2006 (both the cut-off for this Article and the unofficial end of the proxy season) were hand-gathered from press reports and information available from ISS and Georgeson. (93) What is considered a "hedge fund" has already been described. (94) For purposes of the study, "hedge fund activism" is defined as any actual or overtly threatened proxy contest or any other concerted and direct attempt to change the fundamental strategic direction of any solvent United States public corporation other than a mutual fund. For example, any campaign using such phrases as value "maximization" or "enhancement" is included; conversely, mere sponsors of corporate governance shareholder resolutions are excluded. (95) Once a situation was identified, virtually every filing with the SEC by every participant was reviewed to obtain details (which often remain under or unreported) about the strategies and tactics used. (96) While diligent efforts were used to identify as many situations as possible, some have no doubt been missed. This is likely especially true for situations involving smaller companies or sparser press attention.

   Although the data presented have not been deliberately "cherry picked" for hedge fund success, unsuccessful activist efforts and campaigns involving smaller companies inevitably garner less than their fair share of attention. A campaign that gets no traction dies unnoticed. Some subjective judgment is also involved here since every hopeful writer of a "Dear Management" letter, who might get noticed in the weekly Barron's write-up of that week's half-dozen or so "activist" Schedule 13D filers, can hardly be said to have mounted anything resembling a real campaign. Nevertheless, what follows is presented with the confidence that it is indicative of the kinds of strategies and techniques actually used by hedge funds today. The relevance of these findings for corporate governance and regulation then follows in Parts IV and V.

2. The Findings: Hedge Fund Activism Today

   Despite all the press and attention lavished on hedge fund activism and its supposed evils and benefits, one of the most striking things about this study's findings is how rarely activist efforts became full public attacks. Of the thousands of U.S. public companies, only 52 seem to have...