Why 2009 Will Bring More Activism

With the market's tumultuous last few months driving down the price of equities, activist investors around the world have seen their stock investments take major hits.

• Carl Icahn has watched the value of his Yahoo! (YHOO) stake drop in half since May;
• Ralph Whitworth of Relational Investors recently resigned from the board of Sprint Nextel (S) but kept his stake in the company, even as shares have dropped 80% this year;
• Chris Hohn of The Children's Investment Fund exited his J-Power position at a loss earlier this year, after his calls for change were beaten back by the Japanese utility.

Some market-watchers suggest that after 10 to 12 years of growth as a strategy, investor activism is dead. Why? Poor returns, they say, and because the freezing-up of the credit markets prevents activist shareholders from calling on companies to lever up with debt to fund stock-buyback plans or increase dividends.

However, 2009 could very well prove one of the busiest years for activist investors in the last decade. I count 10 reasons why.

1. Obama will look favorably on pro-shareholder measures. Republican Securities and Exchange Commissioners have typically supported pro-management/Business Roundtable policies. Democrats have been much more supportive of shareholder activists. The Business Roundtable and other pro-management groups have portrayed shareholder-friendly measures -- such as making it easier to run alternative board candidates on the company's proxy -- as moves that empower fringe, or special interest, shareholders such as the AFL-CIO and Teamsters at the expense of plain-vanilla investors (retail or institutional).

Obama supports a different view and will likely equate more shareholder rights that promote better governance with better shareholder returns over time.

2. The new SEC Chair will sponsor several new shareholder-friendly measures. Obama will appoint an SEC chairman in the image of the last Democrat to hold that position, Arthur Levitt -- someone who will fight for openness, fairness and rights for all shareholders.

"Proxy access" was an initiative supporting the rights for shareholders to put forward alternate names of directors to be elected at the annual meeting proxy vote. Instead of having to fund a proxy contest themselves (vs. an incumbent board funding their re-election with the shareholders' money), "proxy access" would have allowed for these alternate names to appear on the company's own proxy and let the shareholders simply vote for the most qualified people to represent shareholder interests. This initiative died when the two Democratic SEC Commissioners retired and were not replaced.

Expect "proxy access" to return in the new administration in some form, helping to ensure the best possible people are serving as directors on our boards.