Page 12 - Demo

II. Developments in Corporate Governance and Shareholder Activism
II. Developments in Corporate Governance and Shareholder Activism
The year 2015 was marked by a resurgence in the number of shareholder proposals, most notably led by the efforts of the New York City Comptroller’s Boardroom Accountability Project, which as discussed below presented proxy access proposals at 75 large cap companies. For public insurance holding companies, however, the most interesting development on the shareholder activism front undoubtedly has been the continuing situation at AIG. We discuss that first, followed by the overall governance and activism trends.
A. AIG Situation
As most readers know, in the wake of the financial crisis that began in the latter part of the last decade, Congress passed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Among the many measures included in the Dodd-Frank Act were provisions establishing the Financial Stability Oversight Council (“FSOC”) and permitting it to designate certain non-bank financial institutions as “systemically important financial institutions.” These “non-bank SIFIs” are subject to regulation by the Federal Reserve, which may eventually result in higher levels of capital being required to be held by them. Those capital requirements may in turn result in the designated companies becoming uncompetitive in certain business lines, or at minimum require them to hold capital at levels that depress their returns on equity compared to their non-SIFI peers. To date, three insurers have been designated as non-bank SIFIs – MetLife, Prudential and AIG. MetLife filed suit in early 2015 to contest its designation, while Prudential and AIG have accepted their designations.
Industry insiders have wondered since the Dodd-Frank Act was passed whether designation as a SIFI would lead insurers to make structural changes in their operations to eliminate or minimize the impact of such designation. In late October 2015, Carl Icahn commenced an attempt to push AIG in this direction.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
In an open letter to AIG CEO Peter Hancock, Icahn urged AIG to spin off its P&C, life and mortgage insurance operations on a tax-free basis into three stand-alone businesses. In Icahn’s words, “We believe all three companies would be small enough to avert the increased capital requirements and regulations associated with non-bank SIFI status. In the face of a changing and potentially punitive regulatory framework, you must realize that insurance businesses of AIG’s caliber are more valuable to shareholders if held directly than they are as part of a SIFI conglomerate.” Icahn’s push did not stop there, however; he also urged AIG to bring down its operating costs, citing a perceived “lack of cost control.” Notably, Icahn’s letter quoted investor John Paulson, who agitated for change at The Hartford in early 2012, as also supporting a break-up and lower costs, although Icahn did not make any statements suggesting that he and Paulson were working together.
Icahn’s letter unleashed a storm of publicity around AIG, with a number of pundits, analysts and investors endorsing his proposals. On November 23, 2015, Icahn spoke again. In a public statement, he said that he did not believe that AIG management would ever endorse his proposals for change, and as a result “we intend to commence shortly a consent solicitation that will enable shareholders to express their views directly to the board, which may include a proposal to add a new director who would agree in advance to succeed Mr. Hancock as CEO if asked by the board to do so.”
Despite Icahn’s clear statement of intent to launch a consent solicitation prior to AIG’s annual stockholders’ meeting, as of the current writing Mr. Icahn has not taken any steps to do so. His inaction is puzzling. Did Icahn get a call from the Fed or another regulator warning him off of a consent solicitation? As experienced insurance lawyers know, merely holding proxies covering more than 10% of the outstanding shares of an insurance holding company can be an event that requires making a Form A filing in advance. His proposed consent solicitation may have been seen in some quarters as crossing the line into an illegal attempt to control the AIG insurers. Or is he merely waiting until January 26, the date on which AIG will, according to a recent announcement, hold an open
11