Activist investors have met their Waterloo (in Paris). Photographer: Joel Saget

It's Hard to Win Against a CEO With a 300% Stock Market Return

(Bloomberg Opinion) -- European shareholder activism has suffered a painfully public humiliation. The lesson for investors is clear: Pick your battles.

Paris-based investment fund CIAM wanted to split the chairman and CEO roles at French re-insurer Scor SE, which has been run for 17 years by Denis Kessler. In addition, it tried to prevent the reelection of the company’s lead independent director Augustin de Romanet. The specific trigger was Kessler’s rejection last year of an unsolicited takeover approach for Scor from its biggest shareholder, Covea Group, another French insurer.

The challenge to Kessler’s authority may only have reinforced his dominance. The specific votes on him and Romanet were rejected by 74 percent and 85 percent on Friday. Maybe shareholders were worried that backing CIAM would have led to Kessler quitting with no apparent successor. Either way, the support for the status quo is hard to ignore.

CIAM scored one notable victory: Kessler’s remuneration met with substantial opposition. Even that was approved by a narrow majority.

The activist campaign didn’t lack merit. The idea of separating Kessler’s role is sensible in principle and would have made it easier to hold a powerful leader to account. Scor’s shares languish 9 percent below the 43 euros a share that Covea was dangling, and it’s possible that the bidder could have been teased up to a higher level had Kessler played the situation differently.

What’s more, it’s not as if CIAM was even seeking to stop Kessler running the company’s operations – it just wanted him off the board. Senior management pay at Scor does indeed look excessive.

But these factors weren’t enough to win over the rest of the shareholder base. The reality is the numbers were on Kessler’s side. Scor has outperformed the CAC 40 index of France’s biggest listed companies by almost 300 percent on a total return basis during his tenure. Kessler has fans who remember the dire state of the business when he took over in 2002.

There are examples of companies that have performed well despite idiosyncratic governance, until disaster struck. For CIAM, the vote will have to be the end of the beginning rather than the beginning of the end. If there’s a consolation for activists, it’s that it shouldn’t be too hard to find other businesses where the governance is poor – and the financial results are equally bad.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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