Submitted by: Submitted by bearmud
Views: 434
Words: 499
Pages: 2
Category: Business and Industry
Date Submitted: 02/06/2011 11:47 AM
Pros:
Block holders usually own a large amount of company’s stock and might have voting rights to
influence the company. In general, the presence of large block holders sitting on the board can
monitor the management and maintain a counter balance, thus improve the corporate governance.
Because controlling block holders hold a large proportion of ownership shares, they are likely to
be elected as board member. They are representatives of common share holders and will speak for
the benefit of shareholders when making important corporate decisions. Block holders on board is
a very important force to protect shareholder’s rights and prevent management from misusing
their rights.
For example, in the most recent acquisition agreement between Charles River Labs and Wuxi
Pharma Tech, large stakeholders like JANA Partner, Neuberger Berman, Relational Investors and
other Charles River’s large shareholders voted against the proposed deal. The block holders
believe the acquisition deal cannot generate value for its shareholders due to lack of synergies,
inadequate returns and poor capital allocation. The two parties finally ended their merger
agreement because of the opposition from large shareholders and proxy advisory firms. This is a
great example of good corporate governance. Although the management believed the transaction
would result in long term benefits for the business, they have to take shareholder’s opinion into
consideration. HP’s acquisition of Compaq is an example of bad corporate governance without
the presence or voting rights from large block holders. Should Hewlett and Packard on the board,
they would not allow the deal going through. In summary, the presence of one or more block
holders on board can improve the corporate governance.
Cons:
The presence of large block holders can also hurt small investors’ interests and benefits,...