Closed-end proponent meets shareholder activist
November 23, 1998
New York, NY-Rival factions on issues surrounding closed-end funds met recently and debated the consequences of shareholder activism, the efficacy of current corporate proxy rules and how closed-end fund advisers and shareholders should communicate.
William Bohnett, a lawyer with Fulbright & Jaworski, speaking on behalf of closed-end fund adviser interests and shareholder activist Philip Goldstein, principal of Opportunity Partners, were among the principal speakers at a conference on closed-end funds, sponsored by International Business Communications on Nov. 10.
Although the two are used to holding opposing views, both Bohnett and Goldstein are now on the same team overseeing the closed-end Clemente Global Growth Fund. Bohnett serves as counsel to the fund. Goldstein and four other activists won seats on Clemente's board of directors several weeks ago, culminating a long struggle with Clemente management as to what to do about the fund's large discount to its net asset value.
Goldstein, who views himself as a catalyst for change in the closed-end fund world, argued that despite efforts by the Securities and Exchange Commission to make necessary changes in the rules governing corporate proxies, a major overhaul is still needed. Among the major flaws in the rules is that they limit shareholder proposals to 500 words while fund sponsors' proposals can be many pages long, Goldstein said.
"Other than (allowing for) a blatant misstatement of fact, let the shareholders have their say and let the shareholders decide," said Goldstein.
Defending current proxy rules, Bohnett said the SEC had twice reviewed these rules in the last decade.
"Proxy rules are an attempt to balance views," said Bohnett. "You've got rules. Don't overthrow those rules, work with it," he said. The fact that shareholder activists, by banding together, have been so successful in using the available tools to bring about change shows that current proxy rules are not too cumbersome, Bohnett said. The recent activist victories were, "a remarkable exercise in corporate democracy," he said.
Another problem with the SEC rules is that they allow fund advisers to use company funds to pay the cost of proxy battles while shareholder activists must use their own money, giving fund sponsors an unfair advantage, said Goldstein. Both panelists, however, said progress is being made on the issue of shareholder communications with management.
"Historically, the communication between management and shareholders were abominable...like the old Soviet Union...a top down communication," said Goldstein. When shareowners started to act like shareholders, advisers did not know how to respond. But now, they are listening to and considering shareholders' concerns.
Goldstein said that at a recent Clemente executive committee meeting, when an issue could not be resolved by the committee members, they agreed to let the shareholders decide. Fund advisers need to look at what shareholders want, said Goldstein. When there is, for example, a discount, advisers need to contact their largest shareholders and say, "We know there's a discount; what do you want us to do?"
"You may not do what I say, but I'd like to see more of this," Goldstein said.