The book starts with the basic principles of corporate governance and the history of American jurisprudence’s treatment of it – including Justice Louis D. Brandeis’s surprisingly relevant ruminations on the “Frankenstein monster” states created through corporation laws in the early 20th century, and how the top-heavy corporate structures of the past were the “the negation of industrial democracy.”  However, the bulk of the handbook gives practical guidance on how institutional and even individual shareholders can exercise their legal rights, with derivative actions, appraisal rights, books and records requests, merger and tender offers, and other underused tools.  Eisenhofer, who worked at Skadden Arps Slate Meagher & Flom LLP and as a partner in the Wilmington, Del., office of Blank Rome Comisky & McCauley LLP before forming G&E in 1997, also has a wealth of practical experience in corporate governance cases.  For instance, Eisenhofer has served as lead counsel in four of the largest securities class-action recoveries in history, including a recent $300 million settlement with DaimlerChrysler AG and the $425 million in partial settlements in the Global Crossing case.  Eisenhofer spoke to Dow Jones Corporate Governance about why the handbook is needed and what it aims to achieve:

What was the impetus for the book?
We thought that there hasn’t ever been a book written about this subject from the perspective of shareholders.  There are lots of corporate law books out there, but they’re all written for lawyers or boards.  None of them have been written for institutional investors. Most shareholder activists are institutional investors, but it can really be anybody.  It was a joint idea with Michael Barry, the co-author.

How did G&E come to focus on corporate governance and the needs of institutional investors?
We started our firm as one focused for institutional investors. We had been defense lawyers at Skadden Arps and thought there was a need in the market for a firm that was there to represent institutional investors in every aspect of securities litigation, corporate litigation and non-litigation. We started out with four lawyers, and hardly any cases. Now we have 35 lawyers, were the lead plaintiff in the Parmalat Finanziaria SpA, Pfizer Inc. and Delphi Corp. cases.  We’ve gotten five of the biggest recoveries of all time and have had clients such as Calpers [California Public Employees’ Retirement System].

Have you hammered out a lot of the legal tools listed in the book through cases at G&E?
Everything is something we’ve been involved in.  There are chapters on shareholder resolutions, chapters on annual meetings, appraisals. We’ve had a hundred cases like that.

Are there any important precedents you feel you’ve set in your work at G&E that have contributed to the methods shareholders have available to them?
I don’t know that I can really give you a revolutionary breakthrough we’ve contributed to. There have been so many significant events in the history of shareholder activism - Bob Monks campaigning at Sears, the South African divestment campaign, the Department of Labor saying that funds have a fiduciary responsibility to vote their proxies. Those were before our time. Those are the things that are the significant historical events.

Do you have the sense that most shareholders aren’t really aware of all the avenues they have to exercise their rights?
Yes, absolutely. It’s just something that is off the radar screen of most shareholders. I think that there are increasing numbers of shareholders that pay attention to activism, but not enough. It may be a lack of staff, a lack of anybody putting it together in one place.

Are hedge funds changing the landscape significantly?
I think so. They’re really increasing the significance and visibility of activism.  They have the resources to do it, and are increasing their returns because of activism - that is what will really give great impetus to shareholder activists. It’s taking governance out of the realm of public policy and putting it in the area of increasing returns.

What are the barriers to institutional investors becoming more active?
Resources.

What about conflicts that might tie institutional shareholders to the management of companies they invest in? It’s been said this is a large under the radar problem in corporate governance.
There are a lot of large shareholders that have an institutional bias against being activist. Many get corporate business and wouldn’t want to turn off those companies. That is a significant problem. I don’t see legal solution to it. It’s more of a business problem. There is huge pressure put on investment managers by some of the entities whose money they manage to become more activist - that was the genesis of the fund reporting rule.

One of the issues you address in your book is, activism worth the investment? How do shareholders make that determination?
I don’t think there’s any question that it is. It’s clear by the evidence out there - but you have to be able to invest on a scale to make it worthwhile. CG

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