Transcript
Welcome to shelter, Primacy for free float media. A podcast about activist investing Securities Law and all the ways, the financial illegal worlds, intersect and Collide in real life. Hi Anne. How are you? I'm fine. How are you? And, and I have returned for another week of podcasting, and of course is a law professor at the University of Colorado, who teaches and researches Securities and business law, she presides over the legal end of the podcast. Who lives and works in Chicago, he covers the financial side of our podcast. Yes, we have a couple of interesting subjects. We wanted to bat around today, there is an interesting decision out of Delaware, involving a take private for a company, which I had never heard of called engage smart. Where I think the chance to record some interesting reasoning and some fun facts. So maybe we'll talk about that for a little while. Yep. And we'll talk about proxy advisors and executive compensation. Yes, there's an interesting angle on that. I hope we can develop. So yeah. And Throw in. Once again you can email us at shareholder at freeflow.com LLC email us with your questions and comments and hopefully just lots of positive stuff but we can take if you don't, if you don't have it. All right, let's let's plunge into engage smart. That's the caption, on the case, shall we? Um, and this was a recent decision probably in the last few weeks, I'm guessing. Yeah, last week or two by Vice Chancellor Laster where he mostly sustained the complaint he dismissed a few things but he casts most of it alive. And as he said, the case is a take private deal of a controlled company engaged. It was controlled by a private Equity Firm, General Atlantic, which had about 60% of the voting power. And at some point, General Atlantic decided, it needed liquidity. It wanted to cash out some of its stake, but it was really adamant. It didn't want to lose control of Engagement. So it was only willing to entertain some bids for like part of its stake, but not so much. That it would lose control of the company. So the plan was, they would find a buyer who would buy out the public shareholders? And then buy out a little bit of General Atlantic. But generally Atlantic would get the immediate cash and remain in control. So this is this is a liquidity play. That was General Atlanta so they were probably they're probably getting redemptions or something and they probably needed. Yeah. There's some money was at the end of like the go for something like that happens. That's very routine. Yeah. Yes. So this but as you can imagine their plan, we get immediate cash but also remain in control limited their buyer options. Yes. Because that's what everybody wants. Everybody would love that get cash now but I still yes, a lot of, you know, bio shops either. They were not gonna be interested in a minority stake or they would only pay a limited amount for one and they hired financial and everyone hired financial advisors. So the company itself, the target engagement, it was in advised by Goldman Sachs and then there was a special committee to deal with the take Private and it was advised by evercore. And one of the fun things about the facts, as you read through it is that there was apparently a running feud between Goldman and evercore. No, kidding really. And according to the allegations. According, to last year's opinion, Goldman, basically tried to muscle ever core out of the way, which lasts or called a middle school status competition, but it's not But did not work out well for Goldman is, as we shall say about to see. So this happens this is this happens all the time. I've been involved where it's a little less. So, with law firms, they tend to be a little more focused plunged into the work, but the bankers are always trying to say. I have I in particular they try to say my Network's better, I have better contacts to try to find buyers and so, well, this is actually be interesting when we find out what happens because Me not after. This. Okay. So during this process ever core said that the special committee should at least look at whole company bids or control bids just so they could get us into the market but generally Atlantic vetoed. All of that they would only be looking at bids to take a minority position. So they get a couple of Bitters and general Atlantic, and Goldman in particularly favored Vista. And there are a bunch of allegations that Vista was given special treatment that other bitters didn't get access to information stuff like that. And then suddenly this said, out of the blue, We're only interested in control which had previously been off the table, but Vista was now saying they wanted to buy out all the public shareholders part of General, Atlantic stake, but they also wanted to have majority control and leave General Atlantic as a minority stake in the new entity and suddenly General Atlantic, which up until now had been vetoing. All attempts at selling control, suddenly, General Atlantic is okay with this. So the whole thing becomes a negotiation with General Atlantic and Vista and no, other bidder is allowed to really consider taking a controlling stake. I mean they did science something and then they did a ghost shop but by then it was basically too late. So all the bitters that would have been interested in a control steak were functionally locked pushed out of the way. And they reached a deal, which includes Vista buying some of General Atlantic shares and she's what John Atlantic wanted. But but also now Vista with control, this device out the public share's and Vista also agrees that after the deal closes, they're going to pay a 500 million dollar dividend to General Atlantic even more liquidity. Yes. The shareholders vote in favour of all this and the merger happens. And then we have a lawsuit which pretty much targets everyone. The Board General Atlantic Goldman and Vista. Okay. And it was ever recorded with a yeah, they were actually ever recorded Vista. I forget what their course. Yeah. But the main defendants here, the boardwalk clinic in Goldman. Okay. And so, and it was the, the plaintiffs here, obviously, the public shareholders, Saying what were they alleging? Well, they were basically alleging that this was a sweetheart deal for Vista and general Atlantic, that, you know, left that did not maximize value for the breach fiduciary duties to the public shareholders. Now, the interesting thing about it is that it was filed. The case was filed before. Delaware revised its law. SB 21, right? We talked about usb 20 was a lot. That's right. Yeah. Yes. So this is being litigated under mfw standards because we've talked about mfw, this is. So first of all, just to be clear, this is a conflicted deal in the sense that General Atlantic is a controlling shareholder, and it's also participating in the buyout and we and that meant that, you know, General Atlantic is sort of vulnerable to a lawsuit. Unless the deal is cleansed right now and we talked a lot on this part about SB 21 Delaware, revamped its law to make it a lot easier for boards and controlling shareholders to cleanse conflicts, right? Yeah, yeah. But so far we don't have any decisions under USB One. We're all just kind of guessing how we're just in a year. It was, it was listening a year ago. So yeah, right, so this case was filed under the Old Law, and that means the old cleansing regime, the mfw regime, which is which we'll talk about, that's, that's how the Committees work, how the votes work, what the shareholders know, all this kind of stuff. Okay, go ahead, right? So the mfw now that is a regime that requires the independent board independent members of the board to negotiate the deal and it requires the disinterested shareholders to approve it. And that's the only way you can be cleansed under mfw. Now, it's interesting because Even though sb21 loosen the cleansing standards, this particular deal under SB 21 would still have required independent director approval and disinterested shareholder approval. It's still would have required that because it was a take private, which is the right what SB 21 did. Was it said, even controlling shareholder conflicts can be cleansed by one mechanism or the other and only for take privates, will you need both? And this was a take private. So, even under USB 21, but SP 21 is applied, but still make things easier, because it would have made it easier to construct the Committees and so forth. So, but So. So, but we're not under USB 21. We're under mfw. But I still think that this case has lessons for what we might expect, under SB 21 and that's why I think it's that's why that's why it's kind of interesting here. Okay, so so just to recap Um it's this the whole, take private, and so forth and general Atlantic and its Banker Goldman or the company's Banker Goldman. Yeah the company lawyers probably started. The Goldman started his General, Atlantic Bank banker and then switched to being the company. Banker. I meant, that's not easy. Whoa. Okay. I mean there's a lot of Bankers, you can hire someone really wanted. Oh, they're all at least five, right? So at least five. Okay. All right, so, so I think the interesting part of this based on my quick read of Vice chair. Vice Chancellor's. Lastres Opinion. Which by the way. He is an unbelievable writer. I mean, they are. I mean, you know, the various chancellors, they take pride, he really kind of like, has some really, really good very colorful. I love signing them, except they're always really long and that's hard to say this. That was one of my problems is I got a few pages to do it. I said I can't take this I'll just can I have here? And anyway so a lot of this turns then on what? The company did or did not do to try to clean the deal. I think that's what we're driving. Yeah. So basically it so it needs mfw cleansing which means disinterested chair, holder approval and board approval. And the only thing he took on was the shareholder approval. Okay. And basically what he said was that the planets had for pleading purposes is just a dismissal motion, la la for pleading purposes. They were able to establish the shareholder approval. Was uninformed there wasn't enough information in the proxy and if there's not enough information in the proxy and then the deal is not cleansed which means its entire fairness review and nobody disputes that it's at least we get past emotion to dismiss if it's entire fairness reviews. So they were the plants were able to establish the shareholder approval was on informed. So, there are a couple things. First, the proxy didn't adequately disclosed, how much General Atlantic's liquidity needs were driving the process. It didn't disclose that Goldman was simultaneously. Actually had tipped this guy and given Vista like Advanced info and Oh no. Well, it also didn't disclose they might have This one was critical that. It didn't Des. Haunt Flex so that Goldman was actually had been simultaneously advising Vista and general Atlantic on other deals. Oh, And it didn't disclose how much the special committee had been undercut by Goldman and general Atlantic because Goldman's muscling ever core out of the way and the special committee. Let's General Atlantic kind of run the process, it didn't disclose the interests of other potential bidders fully so that it wasn't clear how much other bidders might have been interested in this. So all of this was material information, that wasn't disclosed. So the shareholder vote was ineffective, conflict, wasn't cleansed. That means it has to be reviewed for fairness and we have to go to trial to make that determination. So there was there was several proxies statements or number that were kind of put out there that were this information was either missing or was a little vague or something, right. All of it had to do specifically with Whether the advisors were conflicted, whether General Atlantic was conflicted things, whether the special committee did his job, that's basically processed failures. Yes. And also, so the court, so Laster found that the proxy statement was not sufficient, and then he also said that he was going to sustain claims against Goldman for aiding in abetting, the breaches of the board and, and general Atlantic because so gold. So, so in, this is why I say, we'll see if this changes Investment Bank or behavior. Like, once again it's just emotion to dismiss, right? It could still get out of it but um, the play you know to prove aiding and abetting. The plaintiff has to show aiding in a betting a breach of fiduciary duty. Yes. The plaintiff has to show that the aider, in this case, Goldman knowingly, participated in a fiduciary, breach of Duty, so we'd have to. So they have to show the Goldman knowingly participated, he reaches a fiduciary duty by the board, and by General Atlantic. And we've talked about this book before we had a show about this where Are both laughter and McCormick not long ago, had merger cases where they held at the bitter. The actual acquirer aided a breach of fiduciary duty by the Target board and in both of those cases, the Delaware Supreme Court reversed them and said no, the plaintiff had not shown that the bitter aided a fiduciary, breach of Judiciary Duty by the Target board. And last year, in this case, he spent some time angsting over those reversals and what they mean for the law going forward. But for me, it just makes sense. And this is where last came out, ultimately that you would you would look at it differently when we're talking about an accusation of aiding in a bedding against the financial advisor to the board, versus the acquiring company. The acquirer is across the table from the board like we expect them to engage in hard bargaining. We expect them to manipulate the target board. That's just how I negotiation goes. That's right. I've been a victim of that, I've done it. So yeah. Right exactly. But the advisor, the advisor to the board like if they're manipulating the board and they're supposed to be Advising the board. The board is relying on them. That should be kind of an easier sell I would assume. So that's really kind of like Relates to the, it's like malpractice, or like a professional liability claim against against Goldman about the, the nature. Of their of their advising exactly. And that's really, that's very different. Yeah. And that's and that's ultimately where I like Goldman, at least the plaintiff had stated a claim for aiding and abetting. So he concluded that plaintiffs alleged, they aided the breaches of gold and the board by favoring Vista. And also by letting General Atlantic shape. The bidding and this one is the funny part. He found Goldman aided the breaches because it excluded ever core from the process and before was supposed to be counseling, the special committee. And so when Goldman refused to cooperate with evercore and like, wouldn't give them information all that Goldman, impeded, Everest ability to count the special committee which lasts or found was an was part of why he found that there was aiding in a betting, a breach of fiduciary duty. So, I don't know if this will affect Investment Banks going forward, but it really does suggest that, like, you could get yourself into trouble by getting into that kind of fight. Well and again there's there's a lot of Obviously, a huge amount of ego. I mean, you know, I know people who do this and how much there's huge amounts of fees to, I mean, I fear were, you know, tens of millions of dollars that were at stake. So that's part of it too. But yeah. I could easily see how that how it could work out that way. So yeah. Wow. So he gets. Yeah. But yeah. What? So and just to procedurally, this was just a Emotion to dismiss like you know, early on like summary summary judgment or whatever. I don't even know how much. Oh, there's a discovery like assuming this doesn't settle, there's going to be Discovery and there's going to be a trial where a long way Discovery? Oh yeah. Yeah, we're a long way from anywhere, but the other thing is remember, this is under the Old Law, it's under mfw but I still think as I said, it's indicative of SB 21 because Remember so the thing about SB 21? And we probably talked about this, I'm sure we have I forget what we said, is it really? It's like it reads, like different defense lawyers, got their hands on the draft, and put in like and and sneaked in all of these Provisions. That look really strict on the surface, but they have so many caveats and limitations and loopholes for resourceful, right? That they'll make it very hard for planus to Sue and very easy for boards to cleanse conflicted deal. It's like the deals. They're these Easter eggs in SB 21, okay? And protect boards and one of those Easter eggs has to do with shareholder approval and the vote Cheryl voting on these dealership voting. Because one way you can cleanse a conflicted deal under both SB 21 and the prior law. Is it the shareholders vote in favour. If you have a conflict transaction just an ordinary one not involving a trolling shareholder. All you need is a shareholder vote. It can be cleansed in isolated from a lawsuit of Share this vote in favor, that's true. But It's too Prius 2021, right? But of course if shareholders are going to vote to cleanse, a conflict that vote has to be informed, you have to disclose material information. Obviously, right now over the years there have been a lot of disputes over. What kind of information shareholders have to know what material information you have to disclose and there are a whole bunch of Delaware. Supreme Court cases that have said it's not good enough to just disclose the economic terms of the deal. You have to tell shareholders about the entire negotiating process. Right? So right. Right. And so repeatedly, the Delaware Supreme Court has reversed Chancery decisions that found disclosures were sufficient because the Supreme Court over and over, sad shareholders have to know about flaws. In the process, they have to know about conflicts. They have to know if directors were biased or rushed or uninformed because that's the only way that you're holders. Can really evaluate a transaction. Exactly. But defendants have been pushing back and this was a big issue in tornetta. The musk pay case of course because remember in tornado, shareholders knew the financial terms of Deal. I mean they knew the maybe we just did we just did? We just didn't know we could guess but in tornado we didn't really understand. And we even knew about some of the relationships like Kimball and Elon have the same last name. Yeah. Okay and and if we cared to dig, we'd figure out that our iron price was You know, in deals with musk, but relative to this particular transaction, there's all sorts of disclosure. That. potentially could have been useful and the problem is There's no way to know what the moment with whether shareholders would have cared at that point, there was some evidence in tornado that they did. There was plenty of opposition to the original, Mega Grant in 2018. Yeah, and its potential potentially. There could have been a lot more opposition. Had these facts been known. We don't we just don't know. And you can't, you can't relive that history and so right. Exactly. And that's exactly what Chancellor McCormick held. So she held that Shareholder vote was not fully informed and write particular thing. And this one is really goes to your point about how shareholders might very much cared, is that the original proxy statement made it clear that this pay package had been proposed by musk himself that the board essentially accepted what musk proposed that was the draft version, the public version, they edited it so much that they sort of obscure that this was musk's idea that he initiated this whole idea and McCormick thought that meant that shareholders were not fully informed, but of course, defendants argue. They are you Jim McCormick and they argued before the Delaware Supreme Court that shareholders wouldn't have cared that. All they cared about were the economic terms of the deal. They didn't need to know all the details about how it was negotiated, or who came up with what I disagree their holders, you just don't know what your holders want to know, right? When it was being passed, these arguments were still very much alive. At that point, she had already rescinded the PayPal package. It was pending on the it on appeal to the Delaware Supreme Court. So this issue of whether shareholders need to know, all the details of how things were negotiated, that was very much top of mind. And in that context, as be 21 has this odd little drafting clerk. It says, Conflict transactions can be cleansed either by directors or disinterested shareholders, if it's an ordinary, you know, for most complex, both for you know. And then, when the independent directors approve, a conflict transaction, the statute is specific. They have to be informed about the material facts of the conflict, including whether the conflicted individual was involved. And I'm quoting in the initiation negotiation or approval of the actor transaction. In whether the conflicted individuals, say Elon Musk was involved in the initiation of the transaction. The, the board members have to know this to approve it. If it's a conflicting controller transaction to the important about the material facts, but when shareholders approve, it the language is different. It doesn't say that shareholders have to know, material facts. It doesn't say that shareholders have to know whether the conflicted person, initiated the deal, nothing like that. Instead, the statute just says shareholders have to be informed. They don't vary very exactly. And what's interesting is that when SB 20 won was first, drafted the language was the Aim for both shareholders and directors. Originally, it said they both had to say the same information and somewhere along the way that language was changed. So now, the statute is very specific, directors have to know all this stuff, but shareholders only have to be informed. Now, we don't have any cases yet. We don't know how a court will interpret that language, but my suspicion is, it's drafted. That way to open a door to give the defendants in a future case. The option to try to argue that defendants don't need to be as informed, about the process. As the prior case law shareholders shareholders. Sorry, that shareholders, don't need to be informed that. I think it's opening the door to that argument that. So the defendants could go into court and say, well, as be 21's language, is clear. Now shareholders, don't have to have the full Suite of information, they had to have under prior law. So that's why I think the engaged smart opinion is so interesting because even though he's not analyzing USB 21, he does an incredibly deep dive into why it's really important for shareholders to understand the process by which a deal was reached. Yeah, he's All the Delaware president about why it's important to know about conflicts and the Chancery decision Supreme Court decision, just thick paragraphs of why it's important for shareholders to understand process. So the significance to me is if in the future defense try to use this SP 21 language to argue that shareholders. Don't need to know about process. The engaged, smart opinion is going to be like plaintiff's roadmap to just arguing even under SB. 21 a shareholder can't be informed unless they have all this information and he is exactly right. I can't agree more as like a shareholder and reads this stuff and cares about these votes and so forth. So You go ahead? No. I mean I was actually Like let's say you're presented with a merger offer. It is a premium generating deal. No question. Are you really going to vote it down? Because you read about process failures and how it was reached? I might, I don't know. Yeah, I don't know, but I want to but I want the right. I want the information so that you can be able to decide if that if that's important. Okay I mean again this is this is a cousin. A distant cousin of a debate that's going on for decades. About what do we mean like about materiality? Yeah. Okay. I understand, right? Like there's no point to shareholders voting down, a deal, a premium generating deal, even if they don't like the process, because what is that going to get them? Like, are the directors going to renegotiate maybe a very small number of situations. They will, but most of the time it's kind of take it or leave it and they're gonna want the premium. Look, I'm familiar with many deals and part of what's interesting here is that there's not, you know, we're not talking about you know routine director elections. We're going to talk about this in the next segment actually. Yeah. The vote that a shareholder needs to take on these kind of things are sufficiently. Occasional, they don't happen that often and frequently they're a big enough deal relative to your portfolio relative to the premium or whatever that you're going to want to maybe know that General Atlantic and Goldman were conspiring with the buyer to sort of in some cases. The buyer will go back and like, you know, bump it up or something. We got something out of it, right? Like shoulders are going to vote down. So, but but all, I just another thing, which is that if you assume for the purposes of argument that it doesn't like shareholders, they're not going to vote down a premium generating deal in most cases, even if the process was less than perfect. So, therefore, why does it matter? Well, it matters because I think it boards know, they have to disclose this stuff. They are less likely to do. Do it like okay potentially ABS right? So it's prophylactic in the Future deal. Like it's not this deal, it's about boards. Don't want to have to self accuse themselves of having been neglectful and so if they know they have to disclose it, they'll do a better job. I I, I really hope you're right. And I kind of expect they might. So anyway, oh, this is fascinating, all right, so, this is, this is what we're gonna track. That's what happens. Well, with the SB 21, we finally do csb 21 cases. I'll have to wait and see that. That's that's what I think. His opinion portends for future, SB 21 fights. All right, well, interesting. All right. Well, let's um, let's take a quick break, shall we? And we can return in a minute to talk about proxy advisors and interesting idea about why why they're so controversial related to exact comp here at shoulder Primacy. Cheryl Primacy is brought to you by free float, analytics.com. The only free database of corporate directors, their influence and their performance. If you want to Stocker, retirement plan go to freefloat analytics.com. And look up which of your elected directors are performing well, which aren't use your vote in the alternative democracy and get your data at free. Float analytics.com. Now, back to the show, Oh, welcome back to shareholder Primacy. I'm Ann Lipton, we're talking about proxy advisors and executive compensation with Mike Levin. So you have a view about all of these attacks on proxy advisors at this point I've lost count of all of them. Yes, there's a lot and the last two three times we've kind of taken apart. What's happening to them? And most recently, we were talking about state law that was trying to go after them and it got me wondering. What really is happening here because a lot of this is motivated by really by companies. It's fair to say that shareholders their clients, love them as a general rule. They don't love what they have to pay. But in general useful. Yeah there. Yeah. There's there's very little objection. To. Proxy advisors so like all these objects, but it's not management. I know, I know she's happy to subscribe or whatever. It's more because right. JP Morgan has the recipient of the advice. Yeah, exactly. So and I and I keep wondering okay, what's really at the heart of this of of these companies, getting such a hard time because if you look at it like like put his ISS is an IRA They have submitted to SEC regulation as a registered investment advisor for decades. I've looked I don't think there's a single customer complaint. It was a way there are. Dozens a day against other races around the country, okay? It just hasn't happened. So clearly it's companies in the representatives and their lobbyists and so forth. That are making life hard for. Proxy advisors. And as I was thinking about it, it occurred to me. That. To ask. What's the most sensitive? What's the most Close to home. Thing that the proxy advisors do. And I and I think it has to do with exact time and so I wanted to explore that for a little while. Now, this is not there. This, this opinion, this is more of a hypothesis. It's a theory. There's no, I don't have any, what you would call like factual documentation, right? I haven't, I haven't gone out. I've asked actually I've asked some, some company people. What's your problem with that? And people kind of few skate? I know this, but yeah, yeah, yes, correct, we did. and so I started by looking at What are the various things that? The proxy advisors kind of do that. Might annoy a company. And would prompt this kind of pushback where companies are lobbying or their representatives are lobbying. As we talked about last time, you know, for State Legislative state laws in eight different, you know, or really going, you know, trying to spend some political Capital with the White House to get like executive orders on this subject and who really cares? Well, companies care. And it was wondering what what they care about and why so I I kind of thought of four different areas that the proxy advisors kind of get into, which are potential ways that they could annoy companies. And the only one that makes any kind of sense is the executive kind of one, but let's look at the others, you know, the big one. That everyone focuses on, of course is ESG stuff and the proxy advisors are all being accused of, you know, being too woe or sympathizing or whatever or not being sensitive to a company specific situation when they recommend on a proposal and so forth. And that's again, that's what they're recommending to thousands of shareholder. Investor clients how to vote on You know, a few hundred at least in the US a few hundred. Mostly environmental social, some governance, you know, those those tend not to be that kind of controversial, but the ens ones are the ones that get the attention and they get their being accused being political. But if you look at the numbers, You know, in very kind of rough. Terms. You know, last couple years there have been 800 or so proposals or maybe not under a thousand proposed at companies in the US. And if there's four thousand, US public companies and kind of rough numbers. The likelihood of one company getting more than like getting two or more of these people. It's the big companies and the consumer facing companies, right? Exactly. It's it's Amazon, it's on mobile, it's the biggies. You know, most companies aren't going to really see it and if they do, they get one, you know, and and don't forget their predatory. The the failure rate is high Okay. Very you know. So maybe they have to like you know, devote some pressure's proxy real estate. You know refuting this or something like that but this this strikes me as not worth all the the pressure on proxy advisors just to get them to change how they handle ESG stuff. All right. So there's a couple other areas. Of course, the proxy advisors also. Analyze proxy, contests what I do or stuff like that. And, you know, and they and that's where this, you know, for the special situation group. But I assess and Related Group at class Lewis and they, you know, carefully look over activist director candidates, and the whole case, they do very detailed analysis of the finances. And you've got to make the case for Change and look at the directors and so on and so forth. They do a really thorough job. Probably more thorough than any given investor might even do, which is why it's so valuable. And if you've never read them, they're reports are really, really good. Yeah, but again, look at the numbers. There are. 30, 40 of these in a year. Okay, and half the time or more. The proxy advisors support the company. Yeah. Okay. They're very, they tend to be pretty, pretty, even handed. Okay, I can't believe that companies would make such a huge case against proxy advisors because of their work on activists stuff and proxy contest. Okay, third area has to do with just routine uncontested Board elections. So this is one area where proxy advisors touch every company. Every year, they tell all their clients how to vote and every director that standing for election, All right, and periodically, you know, once in a while, they're going to recommend to their clients that they vote against one or another student or a whole you know committee. That tends to result from years of a company's neglective. Its shareholders are ignoring shareholders are really, you know, presiding over a huge decline in value. Okay? But just like, almost every Institutional Investor, I asked, in glass Lewis, routinely support, almost all directors in, Their, you know, in uncontested elections, you know, the rate is, you know, well over 90% support, okay? So, most of the proxy, advisors, or most of the opposition can't revolve around just routine board. Recommendations because you know, companies rarely see that most of the time you get there ISS 3 points, okay they're supporting all right you know it's uncontested it's a big deal. The last year, of course, is what I was starting to talk about, which is exact comp. Okay. This gets to be a little more interesting. All right because here just like with the uncontested Board elections ISS and glass Lewis touch every company pretty much every year. There's some say on pay votes that are every three years, but most votes are annual Okay, and every year ISS and glass Lewis, do a deep dive into a company's proxy and it's pay. They do extensive benchmarking. They figure out their own peer groups if they don't like the company's peer groups, all right? They look at, you know, all sorts of History, they have models. It's there's some black box aspects to it, even though the proxy advisors have made an effort to try to get out from that. Okay. And I can't think of a more sensitive subject to a CEO that how much they're getting paid, all right? And they have, there are going to be many cases where they start to kind of resent. ISS you missed this thing or you you're not you're not looking at the right thing and so forth and it's it's it gets kind of like I said, kind of personal. So so my Hypothesis here is that? Because ISS and glass Lewis have such and it's generally some influence, you know, they they certainly have a lot of knowledge. About, you know they know as much about a company as payback package probably is their pay console as the board pay console, okay? And they you know, they're not they're a little more willing to Recommend an adversary on Pavo to negative saying Pavo vote compared to like Board elections, okay? And and there's company. And there's companies and CEOs over there, just don't want to risk that because if you know because then they get to if you get an - and pay boat and you gotta go meet with all the shareholders, the next and listen hard and figure out what do we do? Wrong on. Pay to get here so forth. That's a hassle. She holders are a nuisance. Remember, sorry, so my hunch hunch. Is it all revolves on an exact time now if that's the case. Let's dispense with all this other about, whether it's political or whether, they're not really being sensitive. It's one size, fits all or whatever. Let's just call it what it is that they just don't like the proxy advisors for, for looking at a really critical aspect of corporate governance, which is really a company pays them. Yeah, shareholders vote on pay is because Congress mandated it. So yeah aspect, but it's because one that federal law says you have to, I mean yeah. So my my question you is this sound even remotely know? I think it's very I not as quickly dismiss some of the other recommendations as you do, but I can definitely believe which ones like, well, I mean, Supports have complain about before is whether boards are really independent because boards, you know, they like they say for the exchange listing rule of purpose is we have certain independent standards, like the exchange that have independent standards in the boards, get to designate who they think are independent under exchange rules and exchanges don't really enforce them. But the proxy advisors they will dispute like you said this is an independent but we don't think they're independent. I don't think birds like that at all. Like they have been very upset about the way the Texas Stock Exchange. I we really have to watch its corporate governance rules when they finally become public because I think there have been hints that they're planning on weakening some of these standards but we'll see. No kidding, you think? Yeah, Texas. But anyway, so alright. So I think they don't, you know, that whether that can lead because I think that that has not gone effects. If I assess whether they're not really independent, even though the company says they are, that is all kinds of knock on effects. Maybe cleansing down. The line or whether or for your candidacy for later. Yeah, exactly. So that's one of the things and also I think that even though, Most companies, don't get these predatory proposals, let alone, ESG, you know, those ESG Cheryl liver proposals. Most companies don't get it. But the big ones that are the big ones do. And I do think that, then this is So like we had asked on a prior show. Like why do they care their predatory? And the email that we got was well boards care, because if they get a predatory proposal and shareholders vote in favour of it, and they ignore it. Then the proxy advisors the next year, will start recommending against board nomination, so probably the enforcement arm of the predatory proposals. So even though like and Boards. So even though they're technically, they're predatory, it's not just recommended stations on the, on the proposal itself. But its recommendations on what happens if a board ignores a child in favor and I think they comment on governance stuff. Like staggered boards and poison pills and Boards. Don't like that, even outside of activists candidacies. And I think with precatory and the thing about Preparatory, proposals in another reason why boards hate them. Is I think my suspicion is always been that the reason part of the reason boards, hate, these special the es proposals, the environmental social is that boards don't believe their own shareholders. Like literally like a big institutional shareholder votes in favor of an environmental proposal or a diversity proposal. I think boards think those shareholders are lying. They think those shareholders are voting for the environmental or diversity proposal. Not because it maximizes shareholder value. Even though they say they are but because they're trying to because they think it's like Good PR. It's good PR if this institution votes for the diversity proposal, or this institution feels bad. If it votes against the diversity proposal, that kind of thing. And so boards are kind of like this is A performance, it's not real. It doesn't reflect the Real views of our shareholders and if it's not the real news of our shareholders it's really offensive to. Then have the proxy advisor come along and say and now you and reinforce it. And then I think also Boards. Like let's say, a shareholder has a proposal that'll say one half cent per unit on a thing. Yes. And the board might think, maybe you're right, maybe it will but we're focused on the things that'll say two cents per unit on a thing. And we don't want to have to get into it with you about why we just don't have the attention capacity for your idea, which may be as plausible, but we're focusing on the bigger version. There's other more important things for us, right? But they don't want to say that like you can't put that in your opposition that we're just really too busy to pay attention to this. Yeah, see, and I I'm if they were to do that, I didn't find with that. That I'm cool with that. Just tell me just tell me that really. So that means they feel like they're hobbled in there, what they can say to oppose these books. So I do think that, even if it's not every company, it's still enough companies that it creates these resent that's kind of resentment this resentment anyway. So I be kind of curious. I want to know what others Think about this this angle. Yeah, so we'll have to say, we'll have to, we'll have to maybe I'll try to develop some evidence at some point that would be kind of interesting when it's to see if there's some facts that's important. Yeah. So anyway, all right cool. Let's um let's move on. All right, let's let's in fact, that's wrap up. How about All right. Cool. This is shareholder. Primacy hosted by Anne Lipton and me Mike Levin. I'm an independent activist investor and I'm also an advisor to investors about their activist engagements and is the professor of law and the Lawrence wuth chair of Business Law at the University of Colorado, law school. You can find me Mike at the activist. Investor one word, the activist investor.com and you can find an at law dot Colorado, DOT edu. Our podcast is produced and distributed as always by freefall media. Thanks for listening. We will see you again very soon.