Richard Breeden's Short Slates Usher In World of Activism

Former Securities and Exchange Commission Chairman Richard Breeden claims credit for the birth of the activist hedge fund movement. Breeden, who is chairman of the activist hedge fund Breeden Partners LP, may have a point.

Other regulators have done things to give activists leverage, but under Breeden's chairmanship, the agency did three things in 1992 that transformed the way activist fund managers operate today. (He was chairman during President George H.W. Bush's administration between 1989 and 1993.)

He approved rules freeing up communications among investors to talk about performance issues at companies of which they were stakeholders.
Under Breeden the commission also adopted executive compensation disclosure rules, which were the precursor to updated CEO pay regulations approved under SEC Chairman Christopher Cox.

Probably the most important change under Breeden involved the "short slate" regulation that allowed fund managers to nominate one or two candidates to a company's board rather than replace the whole slate of directors, or in cases of staggered boards, all the nominees up for election. "The only options before the short slate rule was the Wall Street walk or replace the whole board," Breeden told The Deal. "That is, leave, abandon your interests and give up in frustration or take control of the business. Shareholders had the atom bomb, but they didn't have anything as a lesser remedy to fix the situation."

Breeden added that frequently smaller changes to the board are necessary: "Too many boards have static membership. People burrow in, and maybe they were great directors in the first five years of their tenure, but in years 16, 17, they don't tend to be as involved as they might once have been," he said. - Ron Orol