Are Proxy Battles Worth It?

At the end of the day, does it matter?

That sounds like the kind of existential question my teen-aged daughters might ask, but a new Wharton School of Business report dumps cold water on the enthusiasm of shareholder activists who have had a field day this past proxy season.

A recent spate of annual meetings have seen any numbers of dramas, from the heirs of John D. Rockefeller urging highly profitable ExxonMobil to alter its long term course away from carbon-generating petroleum to a hedge fund challenging the New York Times to railroad CSX under attack by a British group and bringing on the America First jingoists.

In general, however, proxy battles are not really the milieu of victories Davids standing up to recalcitrant Goliaths. According to Wharton finance professor Franklin Allen, proxy wars usually aren't very successful because shareholders tend to side with the current management.

Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, believes that proxy battles represent management failure. While shareholder resolutions do put management on notice of a concern, it really amounts to a communication failure on the part of the C-Suite, he believes.

One rather bogus cause celebre was the battle between Yahoo chairman Roy Bostock and activist investor Carl Icahn. The pair penned open letters to shareholders and aired their dirty linen before coming to an agreement. Who won? Nobody, says Lawrence Hrebriniak, a Wharton management professor. "This proxy fight was disruptive to Yahoo management and part of it was game playing between billionaires," he says.

Even so, Wharton believes that proxy wars are an effective way to hold management accountable. With the sour economy droning on, expect more wars in the future.