Short-termist activist hedge funds could gain undue influence on companies' boards as a result of expected new rules allowing shareholders to vote on company directors, Paul Atkins, a commissioner at the Securities and Exchange Commission has warned.
In a speech to company directors and corporate governance experts on Monday night, Mr Atkins said giving investors greater say on the composition of boards could have the unintended consequence of increasing the power of hedge funds.
He said hedge funds' ability to borrow and short-stock before crucial corporate meetings and use financial derivatives to own shares without having an economic interest in the company could lead to the appointment of "special interest directors".
"What if a shareholder who participates by voting at a meeting holds no economic interest or possibly a negative interest in the corporation?" Mr Atkins said at the Corporate Directors' Forum in San Diego, California.
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