Returns to Shareholder Activism：Evidence from a Clinical Study of the Hermes UK Focus Fund.pdf

Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund Marco Becht ´ ECARES, Universite Libre de Bruxelles and ECGI Julian Franks London Business School Centre for Corporate Governance, CEPR and ECGI Colin Mayer ¨ Saıd Business School, University of Oxford, CEPR, and ECGI Stefano Rossi Stockholm School of Economics This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its UK Focus Fund. In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. (JEL G32) We acknowledge financial support from the London Business School’s Centre for Corporate Governance, the European Corporate Governance Training Network under European Commission contract number MRTN-CT- 2004-504799, and from the ESRC under contract number R060230004. We are grateful to Hermes for having made data on their UK Focus Fund available on an arm’s length basis and to current and former Hermes staff for their patience and support: Steve Brown, Tim Bush, Peter Butler, Michelle Edkins, David Pitt-Watson, Fatima Shaikh, Mike Weston, and in particular Leon Kamhi. We are grateful to the London Business School’s Centre for Corporate Governance for providing access to Factiva, Datastream, the London Share Price Database, and the LBS annual reports collection. We are also grateful to Sarah Wilson and Tim Clarke at Manifest for data on shareholder proposals and to