Last year, public corporations suffered more than 225 “activist attacks” and more than 160 board seats were won by activists in proxy contests. But, it seems, this is an incomplete picture; much activity is going on “under the radar.”
According to an expert panel convened this week by National Association of Corporate Directors – New England, many activist approaches are now low key. This is particularly true with larger targets, where activists can accumulate a substantial block of stock, and thus have leverage, without being required to file a Form 13D (based on percentage ownership) with the SEC. The new activism often is not designed to create a public conflict, at least initially.
What then does the expert panel suggest to boards:
First, do not react emotionally. A tactic of activists is to obtain an emotional reaction; the activists are only interested in the money.
Second, be fully prepared before you are approached. Have your legal and public relations team primed, and identify a board member who might be able to be communicate with the activists. Ask counsel to review your charter and bylaws.
Third, understand your own business plan. Are there weaknesses in it? Address them. Activists are well prepared, and not necessarily wrong.
Fourth, when executives leave your company, build into their severance agreement a “standstill” which prevents them from assisting an activist attack; activists tend to obtain some of their best information from former senior employees.
Lastly, reach out to the advisory agencies upon which institutional investors often rely (ISS and Glass Lewis), find out what they are thinking and explain your business strategy.
Humor of the day: when a director’s company is approached by an activist, the director is advised to get a dog. “Why?” the director asks.
“Because by the time this is over, your management will hate you, your employees will hate you, you will spend so much time on this that your family will hate you. At least, when you finally come home exhausted, there ought to be somebody who will give you a friendly welcome.”