Big targets were all the rage this shareholder voting season in the United States. Uppity investors set their sights on industry heavyweights like JPMorgan Chase and Apple. Such headline-grabbing giants overshadowed activist investor Ralph Whitworth’s success at the far smaller Timken. He persuaded fellow shareholders to approve his ballot campaign to break up the steel and ball bearing manufacturer. It’s the result that boards should be most carefully watching.
Mr. Dimon fended off JPMorgan shareholders who wanted to split his chairman and chief executive roles. Overall, though, it has been a pretty good year for dissidents. Greenlight Capital boss David Einhorn forced Apple to unbundle a trio of proposals. Elsewhere, through June 5, shareholders had either won votes to secure board seats or successfully negotiated for them in 30 instances, according to FactSet SharkRepellent. There have been no more than 18 such victories at the same point in any of the past three years.
Mr. Whitworth, however, pulled off the real coup. His proposal to carve up Timken was only the 11th occurrence of its kind on the nine years SharkRepellent has been tracking such issues. JPMorgan, for example, managed to prevent a similar plan from making it into its proxy this year.
Moreover, Mr. Whitworth, the founder of San Diego-based Relational Investors, is the first to get shareholder approval. Previous efforts by other investors at General Electric and Viacom failed to sway even 5 percent of shareholders. At Timken, just over half of the shares voted last month were in favor.
The company intends to respond within a couple of weeks. It’s a non-binding vote and strategic initiatives are rarely decided at the ballot. It’s hard to imagine, though, how the board will be able to ignore completely the will of Timken’s owners.
It’s a wake-up call to chairmen and chief executives everywhere. Votes on corporate governance and social and environmental issues are one thing - these constitute nearly all proxy season shareholder proposals. Shareholders proposing value-maximizing steps that call the entire business model into question, though, are far more threatening than losing a title or board members.
Mr. Whitworth also didn’t act alone. He teamed up with the influential California teachers’ pension plan Calstrs, which typically focuses on governance matters. The next wave of barbarians clamoring at the gate won’t necessarily be the usual suspects - and may not be following a familiar playbook.
Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
