The Cost of Entrenchment

  The Cost of Entrenchment by The Activist Investor

Entrenchment brings many costs. We think of all manner of indirect costs when executives appoint directors and control the election process. Directors in turn shield executives from shareholder scrutiny, the essence of entrenchment.

Costs include wasted capex, executive perks, excessive corporate expenses, and crappy deals. A couple of years ago, we proposed a framework for thinking about the range of agency costs that arise from this unfortunate situation.

What about direct costs? The actual expense of fending off investor efforts to influence a company? We have a real live instance where these costs matter, at Chico’s FAS (CHS). As it happens, entrenchment costs real...