Wednesday, June 22, 2011

Investor Class Warfare Unproductive

By Eric Jackson, Senior Contributor06/22/11 - 06:00 AM EDT

NEW YORK (TheStreet) -- I attended a fantastic conference on corporate governance last week at the Millstein Center at Yale University in New Haven. The conference (like the center itself) is organized by Ira Millstein, the famed corporate lawyer from Weil Gotshal & Manges.

I'm a believer in strong corporate governance and come at it from the perspective of equity investor via my hedge fund. I've gone to bat against several boards over the years (most famouslyYahoo!(YHOO_) that I perceived of as weak and not best representing their shareholders.

One would think I would hold very different views on governance than Ira Millstein, as he and his firm are paid by corporate clients to protect their boards from "overly-aggressive" investors like me trying to push for "distracting" changes.

But in fact I found myself agreeing with almost each point Ira made during the various panels and off-line discussions at the group. He's a very practical and sensible man and he wants to see strong boards that protect their shareholders' interests, not insulate their managements from legitimate criticisms.

I was more surprised to find myself disagreeing with many of the participants at the conference who I would have thought I'd be on the same side with -- other long-term investors from pension funds, unions, institutional asset managers and even economists, think-tank types or academics who would seem to be on the side of the investor versus "fat cat" managers.

One of the more common criticisms on these investors' minds at the conference was how "short-term investors" were hurting our capital markets even more than bad CEOs or bad boards.

Marty Whitman of Third Avenue seethed on one of the panels saying: "It's offensive to even call these short-term guys "investors." I would refer to them as nothing more than "market participants."

Heads nodded. There was clapping encouragement. And the questions that followed from audience members overwhelmingly concurred.

According to most of these attendees, the average hold time of most investors in American companies today is six to eight months. The reason for that is not them (remember they are pensions, labor funds, and mutual funds). They are long-term holders. They are trustworthy. They are doing God's work. The bad guys who caused the flash crash and who force "good" managers to focus on short-term quarterly results are hedge funds (like me). Hedge funds are short-termists. Hedge funds are opportunists. Hedge funds are bad.


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