Activist investor targets J.P. Morgan, Bear Stearns over subprime

Fallout from the subprime mortgage crisis may lead to a director shuffle at both Bear, Stearns & Co. and J.P. Morgan Chase & Co. At least that’s what activist institutional investor American Federation of State, County and Municipal Employees’ director Richard Ferlauto hopes to achieve with proposals that would seek to eventually elect directors at both these companies.
AFSCME is submitting so-called shareholder access proposals, which is a two-step process for getting a shareholder director candidate listed on corporate proxies. AFSCME, holding a significant stake in a corporation for at least one year, submitted a bylaw proposal seeking to nominate director candidates at the two companies. If the bylaw measure isn't removed and it passes, AFSCME would then be able to nominate a candidate for the company’s board on the company’s proxy card in the following year’s election.
Ferlauto is arguing that shareholders should be able to put a director candidate on corporate boards because management at these companies mismanaged risks associated with subprime mortgages, leading to shareholder losses.
But it looks like Ferlauto isn't going to get his way — at least in the short term. The SEC on Wednesday adopted rules allowing companies to remove such proposals from their proxy statements. These companies are expected to use the agency’s authority to remove the AFSCME measures. In an interview with The Deal, Ferlauto says he will challenge a decision by either of these corporations to remove the proposal. — Ron Orol
Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.