Risk & Compliance

Shareholder Activism

Getting Out the Vote
Tim ReasonJune 1, 2002

Nine days before Aetna’s annual meeting in April, institutional shareholders of the troubled insurance company were invited to attend or call in to an unusual conference in New York, where Providence Capital president Bert Denton urged them to elect a maverick director–handpicked by Providence–to Aetna’s board.

At issue was Aetna’s poison pill. Providence, a self-professed shareholder advocate, has been waging war on issues it considers signs of poor corporate governance. Although Denton’s pick was defeated, he has successfully used the threat of a proxy battle to eliminate or modify poison pills at Footstar, Airborne, Alaska Air, Great Lakes Chemical, and Navistar.

“The issue isn’t poison pills, it’s corporate democracy,” says Denton. “Now, because the concentration of institutional investors is so high, it allows those like us to wield great influence and power.”

But Providence’s activism is highly unusual. In theory, institutional investors have a lot of weight to throw around, but they often act more like 900-pound weaklings. Although institutional investors hold an average of 61 percent of shares, 60 percent of the CFOs and managing directors polled say these institutions either have no impact on corporate direction or are neutral, according to a survey by PricewaterhouseCoopers of 120 companies with institutional investors.

Together, those numbers suggest that investors place their bets on management, trusting it to do a good job. Richard S. Pzena, president of New York-based Pzena Investment Management, which holds 3.3 million shares of Aetna, says he voted to keep the existing directors even though he’s no fan of poison pills. Still, he applauds Providence’s effort. “It keeps pressure on companies to make sure their governance practices are in line with shareholder interests,” he declares.

Pzena has a simpler approach. “I don’t see why it is such a big deal to pick up the phone and call an outside director,” he says. “We do it all the time.”