Some settlements reached between activist hedge funds and corporations represent an “unconditional surrender” by the targeted firm rather than a truce.

At least that’s the view of State Street Global Advisers’ vice president of asset stewardship, Philip Vernardis, who spoke with The Deal for its Activist Investing Today podcast about why he thinks companies could do a better job of talking to their long-term holders (Read: State Street) before reaching agreements that add insurgent-backed director candidates to corporate boards.

“With shareholder activism rising in recent years …, we’ve also have seen companies entering into settlement agreements with activists more often and much faster than ever before,” Vernardis said. “These agreements are being negotiated between companies and activists behind closed doors, therefore without the voice of long-term investors. In some cases, they resemble an unconditional surrender by the company …”

In a wide-ranging conversation, Vernardis said State Street, which has $2.8 trillion in assets, is urging companies to set up longer standstill agreements with fund managers, so hostilities can’t reemerge quickly in subsequent years. He also believes companies should require activists to hold shares for longer periods “to align them with longer-term shareholders.” Directors affiliated with the activist should tender their resignation if the insurgent fund’s stake falls below certain thresholds, he added.

Corporate governance is another big issue for State Street — since 2014, the fund has voted against directors at 1200 companies over board refreshment issues. Vernardis notes that the index fund screens corporate directors by the length of their tenure and whether companies have staggered director elections as well as other factors.

“It’s always about board accountability,” he said. “Annual elections can help increase accountability within a firm, so we take that into account.”

Finally, Vernardis also explained State Street’s policy when it comes to the growing trend of corporation’s conducting IPOs giving insiders control of the vote, a significant accountability issue for the fund.

Here’s the podcast:

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