A new proposal by U.S. Senators Tammy Baldwin (D-WI) and Jeff Merkley (D-OR) named the Brokaw Act seeks to put more restraints on the Schedule 13-D. Under current law, when an investor acquires more than 5% of a publicly traded company they have 10 days to file a 13-D, stating their intent. The new proposal under The Brokaw Act, changes the window of time to file to two days. A drastic change to a mere two days could have far-reaching effects on the entire economy. As the U.S. economy continues to rebuild itself, the last thing we should be doing is discouraging investment. Oversight and transparency are a must, but there must be some middle ground. Skin tight regulation such as this goes against the premise this country was built upon.
In their bill these two Senators pick one company, name the Act after it, and then cast the entire activist investing community as raiders and law breakers. This is not an accurate portrayal of activist investing results nor of their intent. Professor Lucian Bebchuk published a study, “The Long-Term Effects of Hedge Fund Activism”, which analyzed over 2000 activist interventions. The study reveals that there is no evidence that the short terms gains effect the long term performance of a company. This is the most comprehensive study done to date regarding this.
The premise of activist investing is to hold CEOs and Boards of Directors accountable. The Board has a duty to its shareholders to maximize the value of a company. These companies make a decision to go public and to take the money of investors in the venture, subjecting themselves to regulations, and most importantly, to the shareholders. Yet this is often forgotten. When an activist investor goes in and starts asking questions and requesting changes, they are often met with a poison pill defense deployed by a high brow NYC Law Firm. However, these companies can’t have it both ways. You can’t take public money and then ignore the people who hold shares in your company.
Men such as Carl Icahn and Daniel Loeb do something well, they hold people accountable, and demand results. Time and time again, this has worked. There were 348 activist campaigns in 2015. There are over 4000 publicly traded companies, meaning that the campaigns represent a fraction overall. The real question is how many of these 4000 companies are being run into the ground with poor management and oversight?