Who We Are and What We Stand For
WHO WE ARE
We are a consortium of investors who believe that a well-functioning system of checks and balances between boards of directors and shareholders is fundamental to long term economic growth and U.S. prosperity. As stewards for the savings of the American public including retirees, pension funds, endowments and households, actively engaged shareholders play a vital role in this system.
Successful shareholder engagement depends on advocates’ ability to make a case for change when companies are underperforming and to hold boards and CEOs accountable when necessary. The evidence is clear that companies, investors and markets on the whole benefit from the robust exchange of ideas driven by investor-led heightened corporate accountability.
WHAT WE STAND FOR
- Long Term Value Creation. Our members build long-term value when we help companies improve in areas like operating performance, capital allocation, and corporate governance. Companies prosper, investors win and so do the retirees, pension funds, endowments and households who are the shareholders. Active monitoring of boards of directors and management teams, productive dialogue with corporate constituents and market participants, and sharing new ideas and perspectives are key tools for value-creating engagement.
- Free Competition of Ideas. Companies are run by their boards of directors and management teams as fiduciaries for the shareholders who own these enterprises. Engaged shareholders can be crucial in providing new ideas to address underperformance and oversight to ensure corporate accountability. Our regulatory system should enhance rather than burden this competition of ideas to produce the best results for shareholders, companies and the economy.
- Regulatory Balance and Transparency. The U.S. capital markets are the best in the world. In public markets, shareholder advocacy activities are highly regulated by federal and state laws. Changes in the regulatory framework that result in entrenching incumbent corporate interests and chilling positive shareholder engagement are unnecessary and inappropriate. Changes to the “ecosystem” that has created a workable balance between boards of directors and investors under which our markets have thrived should be avoided.
- Engagement between Investors and Boards. Because boards are elected by and accountable to their shareowners, it is critical to foster mechanisms that promote a productive dialogue between boards and investors. Much progress has been made in the past few years toward instituting and institutionalizing shareholder engagements, but more remains to be done to promote greater and more productive shareholder-board engagements.
WHAT WE DO
- Educate. CIRCA will help assure that facts about the role engaged shareholders play in our broader economic system are understood by the public, media, elected officials and regulatory agencies.
- Aggregate. CIRCA will act as a clearinghouse of timely and relevant information, research and thought leadership to help the constituencies we aim to educate.
- Advocate. CIRCA will engage elected officials, regulatory agencies’ staff and leadership, the media, directors of public companies and legal and finance professionals to advance our principles and further a robust and healthy dialogue between public companies and their shareholders.
What We Do
Today’s business landscape is ever-changing. It’s transparent, it’s dynamic, and it’s globally competitive.
To succeed in this environment, publicly-traded companies must continually evaluate their economic performance, strategize for the future, and make only those investments that create true long term value for the public shareholders. This requires good governance policies and practices and constant adaptation and an openness to change and to re-thinking strategies that may not be working.
Unfortunately, too often publicly traded companies lose focus with regard to serving the true interests of their shareholders – millions of Americans nationwide who own their shares directly or indirectly through their participation in mutual funds, public and private pension funds and other stock based investment vehicles. Many public companies are lacking in their corporate governance regimen or otherwise fail to take full advantage of their value creation opportunities. In those cases, whether by inaction, bureaucratic rent seeking or wrongly adopted strategic initiatives, the impact ranges from missed opportunities to misspent millions and billions of dollars. These mistakes result in a company underperforming, failing to stay competitive and dynamic, and missing growth opportunities. In turn, shareholders don’t get the return on their investment that they deserve, and overall economic growth lags behind its potential.
Activist investors seek opportunities to make significant minority investments in public companies which have, but are not taking advantage of, meaningful value creation opportunities.
Activists typically create shareholder value by encouraging and challenging public company managements and boards to adopt best governance policies and to re-evaluate their companies’ strategies in order to strengthen companies. This, in turn, boosts the U.S. economy by pushing companies to their peak performance.
As they improve corporate governance and corporate strategies, activists add value to individual companies and benefit the entire U.S. economy by increasing returns on investments, improving companies’ efficiency, and serving as guardians for the millions of Americans whose long-term savings are invested in stocks directly or indirectly through mutual funds, public and private pension funds and other stock based investment vehicles.
Frequently Asked Questions
What are activist investors?
Activist investors typically buy meaningful, but minority, stock positions in publicly traded companies, after having identified internal problems with a company’s governance policies, finances, capital allocations, leadership and management, plans for growth, operating performance or other critical aspects of its business plans and strategy. Having done so, the activist will typically seek to work with the company’s management and board in order to stimulate the positive reforms they have identified and championed in order to maximize both short and long-term value for all company shareholders, and as a result the U.S. economy in general. In cases where the activist and management are unable to reach a mutually satisfactory conclusion, the activist may ask the company’s shareowners to decide the dispute by launching a proxy contest to elect a revised board to make the decision.
How do activist investors bring about change?
They make their case. Activist investors bring their ideas to the attention of senior management and, where appropriate the board, and present their case for change.
When a company’s leadership is unprepared to work with an activist investor or is unwilling to alter its plans, and thus reject the opportunity to create higher returns for shareholders, the activist investor, who is almost always a minority shareholder, will often seek to persuade the company’s other shareholders to join them as a catalyst for positive change.
What does activism do for the US economy? Does it affect the global economy?
Activism contributes to the growth of the US and global economies by fostering more effective business practices and value creating business strategies, thus not only benefitting the shareowners of the affected companies, but also the economy in the form of greater productivity and competitiveness.
How do pensioners and institutional investors view activist investors?
Institutional investors, as shareowners of affected companies, benefit most immediately by value accretion in their investments. As a result, institutional investors, including mutual funds and public and private pension funds, are increasingly supportive of activist investors.
How do activist investors create long-term value?
Activists create value in a multitude of ways including improvements to capital allocation, management and leadership, business strategy and operations. These benefits accrue to all shareholders, not just activist investors. Sometimes improvements in value are realized in a relatively short period of time, but more often than not those improvements in value persist over a period of many years. When the immediate value realization takes place in months rather than years, the evidence does not suggest that long-term value has been sacrificed. Meanwhile, the excess value created by the activists is overwhelmingly re-invested and thus put back to work for the long term benefit of Americans whose pensions are tied directly or indirectly to the performance of the stock market and the U.S. economy.
Aren’t activists really just short-term investors?
Activists and activist programs come in all shapes and sizes. While in some cases activists propose value creation programs of relatively short duration, they often champion longer-term programs that may take years to implement. Likewise, the available evidence shows that an activist’s average holding period for an investment is much longer than popularly supposed, and quite often is measured in years, not months. Activists are frequently called short-term investors as part of a campaign to disparage their attempts to create value for all shareholders, without regard to the specifics of the situation.
Activists are accused of forcing too many company stock buy-backs, but is this true?
Stock buy-backs are not inherently good or bad. If the buy-backs utilize excess company funds (that is, money which the company cannot put to work productively), they are good because they are an efficient way to repatriate excess and unneeded capital to the company’s shareowners. On the other hand, if they drain the company of money that would otherwise be put to better and productive use to grow the company’s profits, then the question is harder and its answer depends on which program—the share buy-back or the investment—will create the greatest amount of net present value. At the end of the day, the question of whether activists recommend too many share buy-backs cannot be answered by a generalization. Each situation must be analyzed on its own in terms of which solution creates more value on a present value basis.
Why are we talking about activist investors in today’s political and business climate?
Activist investors are more relevant and sophisticated than ever before. Their track record of creating value at scores of public companies over the past decade is clear and convincing. As a result, activist investors’ aggregate investable funds have grown dramatically over the past several years, making them a larger presence with greater capacity to effect constructive change in our public company arena.
Because of the activists’ established track record of value creation and corporate leadership, other shareholders are more willing to listen and trust the recommendations of activist investors than they were in the past. This has contributed to the increased effectiveness of activist investors and to their solid record of accomplishment.
How do activist investors benefit the U.S. economy as a whole?
When an activist gets engaged at a company, it doesn’t just benefit all of the company’s other shareholders – it benefits the entire marketplace. Activist investors generally improve the value and competitiveness of a company, which redounds to the vigor and health of America’s economy. The more competitive companies are, the better off the economy as a whole.
A study conducted by Bloomberg in early 2014 found that stocks of companies targeted by activist investors from 2009 to 2013 gained 48% on average, beating the S&P index by approximately 17 percentage points.
This vigor that activist investors inject into the marketplace makes our US economy stronger and more competitive in the global economy.
Who are the sponsoring members of CIRCA?
Sponsoring members include Elliott Investment Management, Icahn Enterprises L.P., JANA Partners LLC and Pershing Square Capital Management, L.P..