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Paving a two-way street on Wall Street

Tuesday, August 26, 2014 - 02:37

In an era of activist investors, proponents of a new set of guidelines called the SDX Protocol hope to reshuffle the deck when it comes to corporate governance by creating better dialogue between shareholders and public company directors. Lily Jamali reports.

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Money talks on Wall Street. So you'd expect 10 trillion dollars of it to be heard loud and clear. But that's not always the case. The 10 trillion dollars is the amount of assets under management by a group of heavyweight investors supporting new guidelines aimed at getting corporate board members and shareholders to talk to each other. It's called the SDX Protocol. SOUNDBITE: DECLAN KELLY, CHAIRMAN AND CEO, TENEO (ENGLISH) SAYING: "It is a path. It is a roadmap and people can choose it or not. It's up to them." Declan Kelly heads Teneo, a firm that advises CEOs. He's a co-creator of the SDX Protocol, which calls for better communication. SOUNDBITE: DECLAN KELLY, CHAIRMAN AND CEO, TENEO (ENGLISH) SAYING: "I think there have always been occasions where directors have gotten involved in dialogue with shareholders but it has always been on a sporadic, unplanned basis without a protocol or any means of everybody in the conversation understanding what has to happen in order for that dialogue to occur." REPORTER STAND-UP: REUTERS REPORTER LILY JAMALI (ENGLISH) SAYING: "Change is in the air on Wall Street. One of the most significant developments has been the explosive growth of assets under management by activist investors." Shares controlled by these investors have more than quintupled from $19.5 billion a decade ago to $111 billion today. That's according to data from HFR. Plus, says Kelly: SOUNDBITE: DECLAN KELLY, CHAIRMAN AND CEO, TENEO (ENGLISH) SAYING: "Large M&A activity has come back into the market now that the economy has recovered and so forth. And so things are happening - it seems to me - at a much faster pace - greater rapidity and greater volatility." Activist investors have gained fame and fortune navigating these waters - often leading the charge for reforms in the board room. One activist fund rep -who asked not to be identified- points out SDX's creators tend to block activist-initiated change. But he said the diversity of supporters is promising. Last month, those supporters sent this letter to chairpersons of Russell 1000 companies, asking them to consider adopting it. Signers include representatives of BlackRock, Vanguard, and large pension funds...groups that are traditionally less vocal on issues like - say - how much executives get paid. Bob McCormick is the Chief Policy Officer of Glass Lewis, which researches and advises shareholders on how to vote: SOUNDBITE: BOB MCCORMICK, CHIEF POLICY OFFICER, GLASS LEWIS (ENGLISH) SAYING: "The current group of directors probably didn't think it was part of their job in many cases to engage directly with shareholders. They signed up, maybe began their director terms or even just being a director 20 years ago when you weren't normally expected to engage directly with shareholders." McCormick says that expectation has shifted, as evidenced by the growing list of board members now backing SDX.

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Paving a two-way street on Wall Street

Tuesday, August 26, 2014 - 02:37