Directors and Officers Liability and Insurance : The D & O Diary : Kevin LaCroix : Securities Laws, Corporate Fraud, D & O Litigation

In an earlier post (here), I examined the risk characteristics surrounding Private Investment in Public Equity (PIPEs) financing, and argued that PIPEs are an increasingly important part of small public company financing, and that companies should not be viewed as suspect merely because they have resorted to PIPEs financing. Since the time of my prior post, PIPEs have continued to increase in importance. According to CFO.com (here), in the first quarter of 2007 alone, there were 302 PIPEs transactions totaling $10.92 billion in equity raised, which represents a 48 percent increase over the amount raised in the first quarter of 2006.

In a PIPE, accredited investors (usually hedge funds) acquire company securities in a private offering as a discount to the securities' market value. The issuer undertakes to register the shares with the SEC, usually within 90 to 120 days of the private offering closing. My earlier post reviewed the benefits of PIPEs to issuers and investors.

A June 9, 2007 article by William K. Sjostrom, Jr. of Northern Kentucky University Law School entitled simply "PIPEs" (here) takes a closer look at PIPEs financing, reviews why hedge funds invest in these offerings, examines the regulatory issues (including the SEC enforcement actions) in which hedge funds get involved, and critiques the SEC's current regulatory stance on PIPEs.

The article emphasizes that PIPEs are an important funding source for small companies, Approximately 90% of 2006 PIPEs transactions involved companies with market caps below $250 million, generally because they have no financing alternatives. More than 84% of PIPEs issuers have negative operating cash flows and a majority would run out of cash without the PIPE.

Under the circumstances, it might well be asked who would invest in a PIPE; the answer is hedge funds.

Hedge funds constitute nearly 80% of the investors in microcap PIPEs, and the hedge funds invest in PIPEs because of the returns they can achieve. By using a strategy whereby they sell short the issuer's common stock promptly after the PIPE deal is disclosed, they are able to lock in the deal purchase discount (which, all in, ranges from 14.3% to 34.7%), as either a rise or fall in the issuer's share price after the PIPE would cause an increase in value of either the long or short position and a decrease in the complementary position.

To execute this strategy, the hedge fund must be able to borrow the shares to cover their short position. But since the stock of many PIPEs issuers is very thinly traded, the hedge fund may not have shares to cover the short position - a so-called "naked short," which while not illegal per se, may constitute illegal stock manipulation. (An SEC enforcement action against a hedge fund investor that engaged in a naked short in connection with a PIPE transaction can be found here.) A June 14, 2007 New York Times article about naked short selling can be found here.

Because of the popularity of PIPEs investments, as well as the fact that (as Professor Sjostrom puts it) some hedge funds "routinely push the legal envelope with their trading strategies," the SEC has stepped up its enforcement activities in this area and "has brought at least eleven enforcement actions relating to PIPEs deals."

The SEC has, for example, alleged that hedge funds have engaged in illegal insider trading by shorting the issuer companies' stock prior to the announcement of the PIPE transaction (refer here for a case example) and that the hedge fund investor has violated Section 5 of the Securities Act of 1933 by using the shares the hedge fund bought in the PIPE private placement to cover their open short position (refer here for a case example). The SEC's position is that the hedge fund should use shares purchased on the open market to cover the open short position. (A prior D & O Diary post discussing these enforcement actions can be found here.)

The SEC's regulatory response to tighten its control over PIPEs has been to declare that PIPEs deals involving more than 33% of an "issuer's float" constitutes a "primary" offering, which would render investors (such as hedge funds) in a PIPE of more than 33% of float into "underwriters" and therefore subject them to potential liability under Section 11 of the '33 Act. A December 27, 2006 Wall Street Journal article discussing the SEC's position can be found here (subscription required). The SEC's position was stated more recently in a January 27, 2007 speech (summarized here) by David Lynn, at the time the SEC's Chief Counsel of the Division of Corporate Finance. (Lynn recently left the SEC and joined the CorporateCounsel.net team, refer here.)

According to another recent article (here) discussing the SEC's new cap and commenting on the possibility that under the SEC's new guidelines PIPEs investors might take on underwriter liability exposure under Section 11,

Most PIPE investors are unwilling to ... accept such liability. PIPE investors who might be willing to accept liability as underwriters certainly would require the full panoply of the underwriter's traditional protections: representations and warranties, indemnity, conflict letters, opinions, and extensive due diligence. The speed and efficiency associated with PIPEs would be lost.

Professor Sjostrom's article points out that this constraint effectively puts a cap on the size of PIPEs deals, and that the lower the dollar value of a company's public float, the less money it will be able to raise through a PIPE transaction. As the author notes, the SEC's cap "hits small companies the hardest, the very companies that have few, if any, other financing options." The author calls on the SEC to take into account the effect its regulation has on the PIPEs financing market, "considering that it represents the sole financing option for many small public companies." The author concludes that "a more measured and transparent SEC approach to PIPE regulation is in order."

A very good and detailed (albeit more technical) discussion of the regulatory issues, including the practical implications of the SEC's screening process under the new guidelines, can be found here.

As I discussed in my prior post, PIPEs are likely to remain an important part of the financial landscape, in part because, as Professor Sjostrom argues, companies that engage in PIPEs often have no other financing alternatives. There are, as I previously pointed out, some PIPEs elements that characterize riskier PIPEs deals, but a transaction should not be suspect simply because it is a PIPE. That is, a PIPE should be viewed , and, as Professor Sjostrom argues, regulated, with a more "measured" approach, and the focus should be on the riskier deals (such as the so-called "structured PIPEs") that represent the relatively greater risk to issuers and investors.

Do Activist Investors Hurt Bondholders?: While I'm on the subject of hedge funds, I should reference the June 13, 2007 CFO.com article (here) about a recent Moody's study showing that demands of "short-term shareholder activists" (read: hedge funds) are "generally negative for credit quality." This can be caused by the actions responsive to activist investor pressures, such as the company's sale of significant assets with the proceeds passed to shareholders; increases in dividends or share buybacks; or a more leveraged financial strategy. These activities have "the potential to change the company's credit profile over the short to medium term." The short-term activists also "distract management from running the business to deal with their demand, eating up corporate resources and wealth."

There are, however, a "minority of cases" where following activist intervention "a company embarks on a more focused strategy...and makes significant improvement to practices, including disciplined capital allocation."

A Full Disclosure Endnote: The full name of the Northern Kentucky University Law School is the Salmon P. Chase College of Law. The school's name refers to the 19th century Ohio Senator and Governor who served in Lincoln's cabinet as Secretary of the Treasury and who also served as Chief Justice of the United States Supreme Court from 1864 until his death in 1873 (refer here for more detail). While serving as Chief Justice, Chase presided at the impeachment trial of Andrew Johnson. In addition to the Law School, Chase Manhattan Bank (now part of JP Morgan Chase) is also named after the former Chief Justice.

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When the giant hedge fund Amaranth imploded in late September 2006 in the largest hedge fund failure ever, it made the front page of the Wall Street Journal (here, subscription required). Amaranth lost more than $6 billion after the natural gas bet of one of its traders, Brian Hunter, took a severely wrong turn. Investors understandably were upset, but Amaranth nevertheless reportedly appealed to investors to agree not to sue the firm in exchange for a speedier liquidation (here).

The possibility that the fund might evade litigation costs disappeared on March 29, 2007, when one of the fund investors, the San Diego County Employees Retirement Association (SDCERA) filed a lawsuit in federal court in Manhattan against Amaranth Advisors (the fund's management company), three of its officers, and Hunter, the fund's former natural gas trader. A copy of the Complaint can be found here. SDCERA's press release about the lawsuit can be found here.

The Complaint alleges that on September 1, 2005, SDCERA invested $175 million in Amaranth, but that as a result of the fund's September 2006 collapse, the fund lost over $6 billion and SDCERA lost more than $150 million. The Complaint alleges that the advisory company and its principals induced SDCERA to invest in the fund based on a series of allegedly false statements to SDCERA and its representatives, as well as a series of allegedly false statements in the fund's private placement memorandum and amended private placement memorandum. Specifically, SDCERA alleges that the advisory company and its principals misled SDCERA by representing in face to face meetings and in documents that the fund was "a multi-strategy hedge fund" that invested in six different market sectors and used sophisticated risk management controls. The Complaint further alleges that, in contrast to those representations, the fund "was being run, either intentionally or negligently, as a defacto single-strategy natural gas fund, placing billions of dollars at risk in highly volatile markets and with no exit strategy."

SDCERA further alleges that having induced SDCERA to invest, the advisory company and its principals made a number of statements, to fund investors in general and to SDCERA and its representatives in particular, that misrepresented the extent of the fund's natural gas investment, the extent of its capital commitment to its natural gas investments, and the extent of the advisory company's risk management controls. SDCERA also alleges that the advisory company and its principals timed their disclosures to avoid periodic withdrawal windows, in effect trapping SDCERA in the fund as it was melting down, and at the same time providing misleading reassurance that minimized the fund's natural gas exposure.

SDCERA seeks recovery from the advisory company and its principals for alleged violations of Section 10(b) of the Securities and Exchange Act of 1934; common law fraud; gross negligence; breach of fiduciary duty; and vicarious liability. SDCERA also seeks recovery from the advisory company for breach of contract and from Hunter for gross negligence.

SDCERA's attempt to increase its recovery through litigation represents an interesting gamble. The lawsuit potentially could have exactly the opposite of the intended effect. As the March 31, 2007 Wall Street Journal article discussing the lawsuit (here, subscription required) noted, "the funds... to defend the case would have to come out of the limited assets still remaining" because the hedge fund's structure "provides that investors effectively indemnify the management company ... in the event of lawsuits."

By the same token, SDCERA's lawsuit is not a class action; if SDCERA manages to overcome the circularity of the indemnification provision in the management agreement, and manages further to increase the amount of its recovery, it will either be: decreasing other investors' recoveries; exacting some kind of payment from the individuals' own assets; or perhaps even extracting some form of insurance recovery. These possibilities will compel the other fund investors to consider whether they too should pursue their own lawsuits, and risk possibly even further reducing the overall recoveries, or forbear, and lose the chance to augment their own recoveries - or even watch their recoveries diminish to the benefit of the more litigious fellow investors.

Of course, it remains to be seen whether SDCERA's litigation strategy will succeed or backfire. The larger significance from SDCERA's lawsuit may be in its potential implications for other hedge fund advisory companies and their principals. There have of course been other investor lawsuits brought against hedge funds in the past, but none as high profile as this lawsuit following Amaranth's collapse. The prospect of large institutional investors suing hedge fund advisory firms and their principals when the hedge fund's investment strategy goes awry potentially presents a significant layer of risk to the hedge fund management equation. It also make the various insurance solutions available in this sector a much more urgent consideration for hedge fund advisory firms and their principals.

In the meantime, Brian Hunter, the erstwhile trader whose strategy triggered the largest hedge fund failure in history, has formed a new commodities trading firm, and is seeking to raise hundreds of millions of dollars from investors in Europe and the Middle East. According to a March 23, 2007 Wall Street Journal article (here, subscription required), the new fund proposes to charge investors 2% of its assets and 20% of profit; in addition, each manager gets to keep his own 20% profit fee and as much as half of the 2% annual fee. Those who may wonder which investors would possibly consider investing in Hunter's new fund will recall the old adage about who is born every minute.

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Hedge Fund Hardball Update: In an earlier post (here), The D & O Diary commented on the new game of "hedge fund hardball," drawing on a Wall Street Journal article (here, registration required) with that title. As discussed in the prior post, hedge funds are demanding, when the companies in which they invest miss filing their periodic report with the SEC, that the companies either pay the face amount of the debt or pay substantial penalties. A recent ruling by a New York trial court in an action that three hedge funds initiated against BearingPoint demonstrates the risk these actions present.

BearingPoint has failed to file a series of its periodic SEC filings as a result of previously disclosed issues with its internal controls and financial accounting. An indenture trustee, acting on behalf of hedge fund investors holding over 25% of a $200 million subordinated debenture issue, sued BearingPoint alleging that the company's failure to file the periodic reports breached covenants under the indenture agreement and represented a default. In a September 18 ruling (here), the NY trial court granted summary judgment on the trustee's behalf, ruling that the company's failure to file its periodic reports represented a default under the indenture agreement. The court reserved the question of damages for trial.

In its September 26, 2006 8-K (here), BearingPoint outlined the problems that the ruling presents for the company. The company noted that holders of other debt instruments could also try to establish a default and that "there could be material negative consequences on the Company's other outstanding debt obligations, indemnity agreements...and customer contracts" if the court's ruling should cause bondholders or parties on these other instruments to seek default or acceleration. The company also announced that due to the uncertainty surrounding the court's ruling the company was delaying filing its annual report with the SEC. Bearing Point's shares declined sharply on the news.

The hedge fund plaintiffs' motives in the action may be gleaned from the comment of one of the hedge fund principals quoted in the September 28, 2006 Washington Post article entitled "Bondholders Seek $21.5 million in Damages from BearingPoint Default" (here, registration required). The hedge fund principal is quoted as saying that "of course, it is just a technical default. But they breached the covenant. We wanted damages due to us as a result of the default." The principal also commented that "it was ludicrous" to suggest that the $21.5 million that the plaintiffs are demanding would hurt the company. (Keep in mind that the hedge fund plaintiffs supposedly own about 25% of the debt issue in dispute, so if that is true the face value of their investment is about $50 million -- their demand represents over 40% of the face value of their investment, all for what they concede is a technical default.)

It is pretty clear that the hedge funds are seizing upon technical default to wring money from the company. As noted in The D & O Diary's prior post, this tactic is of particular concern right now, because the number of companies who have had to delay their filings is at an all-time high, in part due to the number of companies that have had to hold up their filings because of options backdating issues. Even though the BearingPoint lawsuit is only against the company itself and not against any individual defendants, the threat of litigation surrounding these issues, as well as the larger threat of bankruptcy looming in the background, underscores the potential D & O risk these circumstances present. The conflicting interests between the company and its investors creates an environment where accusations of wrongdoing can more easily arise.

The CoporateCounsel.net Blog has a detailed post (here) discussing the legal issues in the BearingPoint case. Hat Tip to the CorporateCounsel.net Blog for the link to the NY trial court ruling.

More About MBOs, Going Private Transactions, and D & O Risk: In prior posts (here and here), The D & O Diary discussed the increased risk of D & O claims arising from the involvement of public company management in private investors' takeover transactions in the form of "management buy-outs" (MBOs) or "going private" deals. A purported class action lawsuit filed on September 26, 2006 in a Texas trial court (complaint here) against Freescale Semiconductor, its Chairman and CEO, and five other directors, presents an example of the kinds of claims that can arise.

The complaint alleges that the defendants sold the company for inadequate consideration in a transaction "tailored to meet the specific needs of a private equity consortium led by the Blackstone Group," and that the defendants rejected a more richly priced offer from a group led by KKR. The complaint alleges that the agreement with the Blackstone-led consortium imposes barriers to competing bidders, including a $300 million break-up fee if another bidder succeeds. The complaint further alleges that the individual defendants "will reap disproportionate benefits" from the transaction - although the complaint omits any specifics of these benefits. The complaint seeks to enjoin the consummation of the agreement with the Blackstone consortium and to compel the defendants to complete an auction to ensure that the shareholders receive the benefit of the highest acquisition price.

In addition, in a September 21, 2006 8-K (here), Metrologic Instruments announced that two derivative lawsuits have been filed against the company and its board alleging that the consideration shareholders will receive for the planned transaction to take Metrologic private is inadequate. Among the investor participants in the takeover is Metrologic's founder and CEO. The first of the two complaints alleges that the defendants timed and structured the transaction to allow themselves to capture the benefit of the company's future business potential without fair consideration to shareholders. The second complaint alleges that the defendants failed to maximize value and that the proposed takeover represents an attempt to engage in a self-dealing transaction.

As The D & O Diary has previously noted, the increasing involvement of private financing in public company ownership give rise to complicated D & O claims possibilities including allegations of conflicts of interest and of wrongdoing. These possibilities represent a growing area of D & O risk.

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In a prior post (here), The D & O Diary commented on "Private Money and D & O Risk," noting the heightened potential for disputes to arise when the new "power players" (private equity funds, hedge funds, and buyout firms) have interests that conflict with those of management, other investors or creditors. An August 29, 2006 article in The Wall Street Journal (here, registration required) entitled "Hedge Funds Play Hardball with Firms Filing Late Financials" presents a particularly vivid example of the problems these conflicts of interest can create.

The article discusses the "new game of hardball" that hedge funds are playing with the companies in which they invest when the companies fail to file quarterly reports on time; the hedge funds are demanding immediate payment of debt or extracting substantial fees. This problem has been exacerbated recently as numerous companies have delayed filings as they deal with the accounting issues arising from options backdating problems. The Journal reports that of the 138 companies with market capitalizations over $75 that filed late second quarter financial reports, 48 companies blames options investigations. (The number of companies filing late apparently is a record, according to other news reports.)

In the past, bondholders would work with company management facing delayed reporting issues to let them work out their problems. This past forbearance was in part a result of a tacit agreement between bond investors that they would not force a problem that could trigger an acceleration of all of the company's debt, potentially forcing the company into bankruptcy. Hedge fund investors, aiming to produce outsized returns for their investors if they can force a company to redeem its bonds (which the hedge funds purchased at a discount) at their face value. In the last 18 months, at least 25 companies have had their bonds accelerated this way or were forced to pay multimillion dollar fees to bondholders.

In at least one case cited in the article, this kind of dispute has led to litigation. The article reports that a trustee representing BearingPoint bondholders filed an a lawsuit against the company claiming that it was in default on two bond issues because it missed an SEC filing deadline due to accounting issues. BearingPoint's 8-K describing the litigation can be found here.

While the BearingPoint lawsuit was filed against the company itself, the threat of litigation surrounding these issues, as well as the larger threat of bankruptcy looming in the background, underscore the potential D & O risk these circumstances present. The conflicting interests between a company and its investors creates an environment where accusations of wrongdoing can more easily arise.

An August 30, 2006 post on CFO.com entitled "Backdating Sparks Bond Battle," (here) provides a detailed description of the actions that UnitedHealth Group's bondholders have taken, and the company's response, based upon the company's delayed second quarter SEC filing.

Delaware Court Rejects "Deepening Insolvency" Tort: The threat of bankruptcy arising from debt acceleration includes the threat of claims against the bankrupt companies' directors and officers. One bankruptcy related claim that has gained some currency in recent years is the allegation that the Ds & Os acted improperly while the company was in the "zone of insolvency" or that they were responsible for "deepening insolvency." While there is a body of case law supporting claims based on this legal theory, an August 10, 2006 decision (here) by Delaware Court of Chancery Vice Chancellor Leo Strine rejected deepening insolvency as an independent cause of action. Chancellor Strine stated that adoption of the this legal theory would "fundamentally transform Delaware law" by imposing liability on a board of directors who, "acting with due diligence and good faith, pursue business strategy that it believes will increase the corporation's value, but that also involves the incurrence of additional debt." Rather, the board's conduct should be evaluated based on "the traditional fiduciary duty rule," under which the fact of insolvency is a contextual consideration to be taken into account when evaluating the board's conduct. The board would also be entitled to the protection of the business judgment rule.

Special thanks to alert reader Robert Benjamin for the link to the Court of Chancery decision.

William Smith and David Topol of the Wiley Rein law firm have written a good brief summary of the Court of Chancery opinion, here. Francis G. X. Pileggi has an interesting post (here) on his Delaware Corporate and Commercial Law blog rounding up the commentary in the blogosphere about the decision.

The August 2006 issue of CFO Magazine has an interesting article entitled "Delaware Rules," (here) discussing the role of the Delaware Court of Chancery in the evolving world of corporate governance. The article has interesting background about the Court, the chancellors, the important decisions that have become before the Court in the past, and the issues that will likely come before the Court in the future.

Lawyers, Boards and Options: Law.com has an August 30, 2006 post (here) entitled "Sonsini on Boards of Several Companies With Dubious Stock Awards." The article delivers less than the title implies, but it is still interesting.

Thanks to Adam Savett of the Lies, Damn Lies blog for the Law.com link (and for the link to the article on the Delaware Corporate and Commercial Litigation blog).

Chart of the Day: A scary look at what has happened to home values over the last few years, here. This looks a lot like the "before" view of the NASDAQ composite index chart (here), circa March 2000. If the "after" version of the home values chart has as steep a decline as the incline, we could be in for a very rough ride. A brief, interesting discussion of how a housing slump could affect the economy can be found here.

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Along with the burgeoning growth of the hedge fund industry has come the increasing importance and influence of activist hedge funds. This activism has taken a variety of forms, from public pressure on portfolio companies to change business strategy, to the running of a proxy contest to gain seats on the boards of directors of portfolio companies, to litigation against present or former managers.

This increase in hedge fund activism has attracted sharp criticism. Martin Lipton of the Wachtell Lipton law firm lists "attacks by activist hedge funds" as the number one key issue for directors. He has issued a series of client memos (here, here, and here) advising companies how to prepare to fend off hedge fund attacks. He characterizes the activist hedge funds as "self-seeking, short-term speculators looking for a quick profit at the expense of the company and its long-term value." Lipton has been a vociferous advocate for greater regulatory supervision of hedge funds.

A July 2006 research paper (here) written by New York University law professor Marcel Kahan and University of Pennsylvania law professor Edward Rock, entitled "Hedge Funds in Corporate Governance and Control," takes a comprehensive look at hedge funds' impact on corporate governance. The article is replete with specific, heavily-footnoted examples of activist hedge funds' corporate governance activities. In general, the authors regard activist hedge funds' role in corporate governance as positive, and one that hedge funds are favorable position to play because of their investment approach and freedom from regulatory oversight. One particularly colorful example the authors examine involves Third Point LLC's criticism of Star Gas's CEO Irik Sevin, to whom Third Point wrote:

It is time for you to step down from your role as CEO and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites....We wonder under what theory of corporate governance does one's mom sit on a Company board. Should you be found derelict in the performance of your executives duties, as we believe is the case, we do not believe your mom is the right person to fire you from your job.

Bowing to Third Point's pressure, Sevin resigned one month later.

While the authors contend that hedge funds have unique incentives and advantages that better position them (compared to other institutional investors) to address corporate governance issues, they do acknowledge that activist hedge funds' actions can raise certain concerns. First, hedge funds' interests can diverge from those of fellow shareholders, as, for example when a hedge fund is a potential buyer of a company in which it has a stake. Second, with billions of dollars of assets, hedge funds put stress on existing corporate governance structures, as, for example, when loose hedge-fund coalitions target a shareholder vote. The authors acknowledge these concerns, but find them no worse than concerns surrounding other institutional investors, and argue that these concerns are not sufficient to justify greater hedge fund regulation.

The most serious criticism of hedge fund activism, the one Marty Lipton raised, is that hedge funds exacerbate short-termism. The authors argue that the market will enforce adaptive approaches to deal with the potential negative effects of hedge fund short-termism. The authors cite Lipton's own "Hedge Fund Attack Response Checklist" as an example of just such an adaptive device, about which the authors state:

[Lipton's suggestions] are terrific ideas, not just to deal with activist hedge funds but in general. If companies follow Lipton's advice, hedge funds will have already made significant positive contributions to the management of U.S. companies. Moreover, if hedge funds can succeed despite companies taking these measures, we think chances are reasonably high that they have a good point.

The authors' conclusion is that "market forces and adaptive devices take by companies individually in response to activism are better designed to help separate good ideas from bad ones than additional regulation."

The increasing influence of activist hedge funds has important implications for D & O risk. Specifically, activist hedge funds' corporate governance activities can involve litigation, including litigation directed against directors and officers. A prominent recent example is Cardinal Value Equity Funds' litigation campaign involving Hollinger International and allegations of Conrad Black's self-dealing and other transactions, which culminated in a derivative lawsuit for breach of fiduciary duty against Hollinger's board of directors. After an independent Board committee investigation, Cardinal negotiated a $50 million settlement with the directors not directly implicated in the self-dealing. The settlement was funded by Hollinger's D & O insurers. (Hollinger's press release may be found here. )

Hedge funds have even sought appointment as lead plaintiffs in securities fraud lawsuits. Indeed hedge funds often are the investors with the largest losses, but because they often engage in short-selling, they may be subject to unique "reliance" issues and therefore many not be "adequate" class representatives. For that reason, courts have often, though not uniformly, rejected the appointment of hedge funds as lead plaintiffs.

But because activist hedge funds view litigation as an essential part of their activist strategy, the role of hedge funds as "the prime corporate governance and control activists" has very important implications for D & O risk. While hedge funds' activism potentially could contribute to improved corporate governance, the willingness of hedge funds to achieve their goals through litigation against directors and officers represents a dangerous variation of D & O exposure. Marty Lipton may not have been far off the mark when he described the threat of activist hedge funds as the most important issue for corporate officials.

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