In bow to investors, Tenet lets majority shareholders convene meetings

Tenet Healthcare Corp., in a sign it may be willing to bend to activist shareholders, is letting its investors call formal meetings where they could potentially vote on significant changes, such as selling the company.

The county's third-largest investor-owned hospital company changed its corporate bylaws this week to let majority shareholders request meetings. Before, only the CEO, board chairman or board of directors could do so. Since no single shareholder owns a majority stake in Tenet, the request would need to come from multiple shareholders.

Activist hedge fund Glenview Capital Management, far and away Tenet's top investor at nearly 18%, has pressured the company to give investors more of a say in how the company operates. Two of Glenview's executives resigned from Tenet's board in August, citing "irreconcilable differences regarding significant matters impacting Tenet and its stakeholders."

It's unclear what exactly prompted Tenet's bylaw change. "These amendments are consistent with the Company's commitment to strong governance, and provide a clear process for shareholders to decide on company matters that are important to all shareholders," Tenet spokesman Dan Waldmann wrote in a statement.

There's been a broader trend recently of companies changing their bylaws to give shareholders more control over how they operate, said Jefferies & Co. healthcare analyst Brian Tanquilut. Activist shareholders have cropped up demanding more of a say in company decisions, many of them acting on advice from proxy consulting firms that specialize in corporate governance.

"Outside of the annual shareholder meeting, if the CEO or the chairman of the board is entrenched and they don't want to enact change or listen to what shareholders are requesting, they can drag their feet and sit on the issue," Tanquilut said. "But with this, shareholders can actually call for a meeting and put matters to a vote even without the buy-in of the CEO or the chairman of the board."

The change does carry some limitations. The requests can't fall too close to the stockholders' annual meeting, and they can't rehash business that was already discussed at a meeting or bring up items already scheduled to be discussed at a forthcoming meeting. Tenet can also reject a proposed discussion item if it's "not a proper subject for stockholder action under, or was made in a manner that involved a violation of, applicable law." Shareholders must submit their meeting requests in writing to the company's Dallas headquarters, including the purpose of the meeting, matters proposed to be acted on and the signatures of all shareholders requesting the meeting.

Shareholders must hold their meeting within 90 days of the request, according to the bylaws.

Frank Morgan, an analyst with RBC Capital Markets, wrote in a "first glance" analysis that the bylaw change "could potentially make it much easier for a majority shareholder to cause a sale of the company."

Morgan noted that Tenet is already undertaking a major cost reduction initiative to cut corporate overhead by 20%, including 2,000 job cuts designed to save $250 million. The company is in the midst of selling off hospitals and announced it will sell its revenue-cycle management company, Conifer.

A few months after Glenview's board members resigned, Tenet announced it had found three new directors, including the former CEO of the Federal Reserve Bank of Dallas, Richard W. Fisher.

In a September filing, Glenview signaled its ongoing distaste with Tenet's actions, writing that the firm plans to "from time to time engage with the board and other relevant parties" regarding its recently adopted "poison pill" shareholder rights plan, designed to prevent an unwanted change of ownership. Glenview said it also will monitor the separation of duties between the executive chairman and the current CEO, the timing of the company's 2018 annual shareholder meeting, among other items.

Glenview representatives declined to comment.

The day after Tenet announced its bylaw change, Glenview submitted a request that Tenet change another portion of its bylaws that would make its shareholders' ability to act by written consent without a meeting to be "more consistent with best corporate governance practices."