...The expansion of rights of equity investors in U.S. public co mpanies carries the potential of substantial risk for bond- holders with limited or no covenant protections. The corporate governance improvements at U.S. corporations in recent years have benefited bondholders, including marked improvements in the qualit y of financial controls and the rigor and independence of board oversight by some companies. However, the balance of power at U.S. companies appears to be undergoing a substantial shift in which sharehold- ers are demanding and winning new rights that give them more direct and active influence over decisions that are the traditional purview of management and boards of directors. We raise this concern now, because once awarded, share- holder rights are rarely withdrawn. It would be of less concern if these new powers belonged only to public pension funds and other long-term share- holders because such shareholders have interests that are generally aligned with bondholders...

Report Type: Special Comment
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