WEEK 7 SHAREHOLDER ACTIVISM

3. Whether management proposals at the target’s AGM are controversial. * Understanding a target company's defensive measures and a shareholder's procedural rights is key to any solicitation * to determine the existence of matters such as limitations or prohibitions on the ability to call meetings, restrictions on shareholder proposals, the existence of a staggered board, the adoption of a poison pill and other limitations that may significantly increase the expense, timing and ultimately determine the success of a proxy contest * provisions in a company's constituent documents, loan agreements, employment agreements and other material contracts should also be reviewed to determine whether there are change of control or similar provisions and the cost to the company in the event of success.
4. Whether to team up with other shareholders especially institution * Less effective since entity initiating a proxy contest usually does not have majority voting power by themselves and need the voting power of other shareholders. * To gain more power, proxies can also borrow votes by buying shares from other shareholders in return for options which entitle them to purchase the shares back at a lower price than the proxy bought. * In effect the loss the proxy makes is the cost of using their vote.

Explain the free rider problem and discuss how this barrier could be overcome.

* The proxy who is amassing all votes required to shake up the management usually is the one spending all the money and resources to fight management while other shareholders simply relax and benefit from the result at the end. * That is why large shareholders rather than small individual shareholders have sufficient incentives and resources to initiate proxy fights.

Increase chance of successful proxy contest. 1. Identify burning