Wednesday, January 7, 2009

New SEC chairmwoman was activist backer

Activist hedge fund managers may like Mary Schapiro.

The soon-to-be Securities and Exchange Commission chairwoman was a solid shareholder activist during her stint as a commissioner at the agency. So much so that governance fund manager Ralph Whitworth said "She has been a stanch and long-time supporter of shareholder rights."

RiskMetrics Inc. Director Patrick McGurn said: "You have to put [Schapiro] on the progressive side of the scale when it came to initiatives for shareholders.”

President-Elect Barack Obama chose Schapiro in December to run the controversial and embattled agency, which is likely to be restructured in response to the financial crisis.

Between 1988 and 1994, Schapiro was an independent commissioner at the SEC. During that period, the agency was headed by GOP chairmen David Ruder and Richard Breeden, and later by Democratic commissioner Arthur Levitt.

In my book I talk about how that period was critical for shareholder empowerment. Breeden, who now runs an activist hedge fund, pushed through a number of investor-empowering rules with Schapiro's critical backing. Schapiro's support for shareholder initiatives at the time indicates that she may be supportive of some major pro-investor proposals as chairwoman.

In the early 1990s, Schapiro voted to have the SEC adopt a number of rules expanding the amount of communications investors could have with each other. It also freed up communications between investors and reporters. The rules allowed investors to vote against a management proposal or director candidates as long as they didn't try to nominate their own director candidates.

She also endorsed a provision introduced by Breeden known as the short-slate rule that allowed investors to split their vote between management-nominated directors and candidates put up by dissident activist investors.

"More than a decade later, this measure was critical in establishing the world of activist hedge funds and other insurgent investors," McGurn said. "She [Schapiro] was critical to the effort to keep that controversial provision in the final shareholder communications reform package."

While at the SEC, she also backed a measure that expanded the amount of disclosure executives were required to provide about their compensation plans. Those disclosure rules were expanded in July 2006.