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Banking

Shareholder rights: Pennsylvania bails out Sovereign Bancorp

US state’s decision to pass a law protecting a bank from shareholder activists is seen as a setback for investors.

Pennsylvania governor Rendell: criticized by activist investors

Investor groups and corporate governance specialists view the February passage by Pennsylvania’s state legislature of a law specifically aimed at protecting Sovereign Bancorp from activist investor demands as a setback for all US shareholders. For some, the fact that Pennsylvania governor Ed Rendell signed the law solely to protect Sovereign, and is now concerned that it might prompt shareholder disputes at other companies, only makes the situation worse. “From a public policy perspective, this is terrible, and smacks of favouritism and special interest,” says Beth Young, senior research associate at The Corporate Library, a corporate governance research firm. “This reminds me more of the actions of an emerging market country, not a US state.”

Proxy recommendation service Institutional Shareholder Services has also spoken out. “This blatant abuse of legislative power is bad for investors, bad for the state of Pennsylvania and its people and, perhaps, in the long run, will prove to be bad for the very officials who signed it into law,” says a spokeswoman.

The dispute

The dispute began last October soon after Relational Investors, which owns 8% of Sovereign, said it would run independent director candidates for election to Sovereign’s board.

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