A new study conducted by the Investor Responsibility Research Center Institute and PROXY Governance, “Effectiveness of Hybrid Boards,” finds that a company’s shareholder value increases under a hybrid board. The study comes in the midst of a relatively new trend of dissident members joining boards in recent years, with a 150 percent increase in newly hybrid boards between 2005 and 2008.
The study found that hybrid boards, which are formed when activist shareholders elect dissident directors to the board, produced an average shareholder value increase of 19.1 percent, which is 16.6 percentage points more than their peers, within the first year of becoming a hybrid. When the dissident members owned a significant percentage of shares, the positive results tended to be stronger. With a dissident director who owns between 10 and 25 percent of shares, the company outperformed their peers by an average of 67.7 percentage points.
One hundred and twenty hybrid boards formed between 2005 and 2008 were examined for the study, which was conducted to examine the effect of hybrid boards on business strategy and corporate governance structures, as well as shareholder value. Of these 120, 35 percent were composed of dissident members who intended on selling the company, but only 15 percent of them had announced or completed a sale by January. The companies that were sold went for 27.1 percent more than the undisturbed share price. Five percent of the companies studied have declared bankruptcy, although this was not a goal of any of the dissidents.
The study also offers six case studies to provide context to the findings. The stories of H&R Block, Datascope, WCI Communities, Take-Two Interactive Software, Topps, and Vineyard National Bancorp are all analyzed in depth to show how different dissident interests can affect the company.
The full report on “Effectiveness of Hybrid Boards” can be found at www.irrcinstitute.org and www.proxygovernance.com.