OPINION: Butterfly effect had bank in a flap

When a hedge fund with a minute proportion of the equity of ABN Amro bank launched an attack on the management of that company, the initial reaction of most people was to dismiss it as being of no consequence.

OPINION: Butterfly effect had bank in a flap

Owning barely one per cent of the bank’s shares, it lacked the clout to exert any influence on the board and could safely be ignored, they presumed.

Yet the opposite turned out to be true. That tiny hedge fund investment was the equivalent of a butterfly flapping its wings in one part of the world and setting off a chain of events that result in a tidal wave halfway across the globe. The protest struck a chord with other investors, brought in a wave of new, activist buyers who sensed the opportunity for change, and within a matter of weeks, ABN Amro found itself up for auction. It has now been taken over and will be dismembered. This was the most spectacular, but by no means the first, Goliath to fall to the Davids of the activist world. Lord (Conrad) Black was brought low largely as a result of the persistence of Tweedy Browne, a New York-based fund manager – which also used the power of publicity as a substitute for a lack of share-register muscle.

Astonishingly though, some people still don’t get how the world has changed. Knight Vinke, with a holding of barely one per cent, has decided to take on the management of HSBC, one of the world’s largest banks. Some people in the City say the whole exercise is irrelevant because the agitator is in no position to force change. But it is this arrogance towards minorities and the feeling among executives that they are immune to challenge that makes the activists’ case for them.

It is a truism in PR that the easiest target is one that does not respond, because you can just keep bashing away at the supine target. HSBC has not fallen into that trap – it has responded to some of the criticisms.

But the dilemma it, and any other giant, faces is how much attention to pay to such gadflies. If it ignores them, it stands accused of arrogance; if it is too accommodating, it risks giving its critics an undeserved credibility and opening the way for others to take a tilt. Perhaps the answer is that it should be big enough and receptive enough for it not to become an issue in the first place.

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