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5 February 2010
Sarah Wilson
As the debate about the rights of shareholders to appoint their own nominees to US boards continues, the PROXY Governance (PGI) Hybrid Boards study, sponsored by the IRRC Institute, is appearing with increasing frequency in shareholder comment letters and other governance analyses regarding the SEC’s proposed proxy access rules.
Hybrid boards are formed when activist shareholders such as hedge funds, through actual or threatened proxy contests, are able elect dissident directors but not win full control of a board. The purpose of the study was to discover whether hybrid boards really can create value for shareholders. PGI reviewed the effectiveness of 120 such boards formed from 2005 through 2008. Board effectiveness was evaluated both in terms of changes in corporate governance structures and strategy, as well as through increases or decreases in shareholder value, measured in both absolute returns and relative to peers.
On average, the study found that total shareholder returns at ongoing companies with hybrid boards were 19.1% – 16.6 percentage points better than peers – from the beginning of the contest period through the hybrid board’s one year anniversary.
The study was presented at January Activist Investor Conference in New York, along with updates for additional mergers and bankruptcies since its original publication last May. For a copy of the conference presentation please contact Chris Cernich at PROXY Governance.
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