Three Steps to Prepare for Shareholder Activism

Latham & Watkins, the law firm, provides this easy to read series of recommendations for dealing with increasing shareholder activism.  Other valuable articles for corporate executives and board members may be viewed at www.lw.com.

Three Practical Steps to Stay Ahead of Shareholder Activism

by Steven B. Stokdyk, Joel H. Trotter & Patricia Judge

Activist investors continue to shape corporate governance. Last year saw more than 300 activist proxy campaigns, proposals and contests. Activism-focused funds manage over $100 billion in assets.

In this climate, no company is too large to avoid activists’ influence. There is no guaranteed safety — not corporate governance, share price appreciation or outperforming peers. All companies should remain prepared for engagement.

Experience shows that preparation can make a decisive difference. Companies that establish and maintain a good reputation with institutional investors will have an advantage when interacting with activists.

To prepare effectively, we recommend three broad ongoing practices:

  • monitoring exposure to activists;
  • communicating with shareholders and analysts; and
  • planning for activist campaigns.

Monitoring exposure to activists

Companies should continually monitor available information to assess their exposure to activists:

  • Monitor outside groups, including the company’s peer group, sell-side analysts, proxy advisors, pension funds, activist investors, print media and online sources.
  • Understand institutional holdings and the relationships among the holders, especially those who may team up with others, by monitoring Schedule 13G, 13D, 13F and Hart-Scott-Rodino filings, parallel (wolf pack) trading and debt trading patterns.
  • Watch the proxy advisory firms and institutional investor groups, such as Institutional Shareholder Services (ISS), Glass, Lewis & Co., the Council of Institutional Investors  and TIAA-CREF. Although ISS can influence up to 30% of the vote, some investors use ISS’s position only as a starting point. For example, institutional investors such as Fidelity and BlackRock have their own internal proxy departments.
  • Review corporate governance ratings, correct any inaccuracies and identify potential changes that could improve the company’s governance rating.
  • Maintain a feedback loop by monitoring earnings call participants, conference attendees, follow-up requests and other investor contacts, always seeking candid feedback and facilitating open communication.

Communicating with shareholders and analysts

Use inbound and outbound communication to build key relationships:

  • Use relationship building to keep your friends close and your major institutional investors closer. Engage regularly with both portfolio managers and proxy departments. Know institutional investors’ guidelines, key decision makers and how to reach them. Establish credibility with shareholders and analysts in advance.
  • Seek out inbound communication and candid feedback. Use ongoing dialogue to ensure that management and the board of directors understand investor sentiment.
  • Use outbound communication as part of a concerted communications strategy. Ensure that communications consistently describe the basic strategic message. Focus especially on relative performance, proactively addressing any shortfalls as compared to peers.

Planning for activist campaigns

Formulate a plan to prepare for an activism crisis:

  • Evaluate protections in the company’s charter, bylaws and applicable laws for potential measures that could be used in response to an activist campaign.
  • Develop and maintain a public communications plan, which should include steps for strategic outreach to the media, regulators, political groups and others. Keep these relationships current to facilitate public messaging.
  • Identify team members and have key players ready in advance to assist quickly in response to emergencies. Identify your lineup of counsel, investment bankers, proxy solicitors and public relations specialists.

Taken together, these three steps — monitoring, communicating and planning — offer concrete actions that companies can use to ensure their preparedness for an activist campaign.

Steven B. Stokdyk
steven.stokdyk@lw.com
+1.213.891.7421

Joel H. Trotter
joel.trotter@lw.com
+1.202.637.2165

Patricia Judge
patricia.judge@lw.com
+1.202.637.3352

Proxy Advisors’s Success Draws Attention

It’s no surprise that as proxy advisory firms have had greater impact on corporate America (view my prior post), companies would mount a counter-offensive.

The NY Times “Dealbook” describes a recent encounter hosted by the SEC.

Click here to read the NY Times “Dealbook” article.

Post by Dennis McCarthy

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Canadian Activist Update Webinar

For my friends at Canadian public companies, here is an upcoming webinar (Oct 16th) recapping 2013 and suggesting what 2014 may hold in store.

Two of the webinar hosts created the following video to promote the webinar.

Click this link to take you to the related blogpost.

Dealing with Greater Shareholder Activistism

Trends suggest that companies, large and small, will encounter greater shareholder activism over the next years and should, therefore, prepare for this.

Skadden, Arps, Slate, Meagher & Flom LLP prepared a valuable article describing the forces at work to support greater activism and certain preparatory actions that companies should undertake.

Click here to take you to the article, or copy and paste the following link in your browser:

http://www.jdsupra.com/legalnews/activist-shareholders-in-the-us-a-ch-83602/

 

Proxy Season 2013 Recap and Alert

Latham & Watkins, the law firm, and Georgeson, the proxy solicitor, have teamed up again to recap the significant events of the 2013 proxy season.  I attended this webinar and, as usual, it was high quality with great information and insights.  The link to the replay is below.

Click here (registration required).

 

 

On-Demand Now Available

 

2013 Proxy Season:
Lessons Learned and Coming Attractions

 

 

 

Program

In this program, halfway through the 2013 proxy season for the Russell 300 companies, Latham & Watkins’ Jim Barrall, Mark Gerstein and Steven Stokdyk, and Georgeson’s  Rhonda Brauer review the 2013 proxy season, including Say on Pay voting results and battleground issues, the impact of executive compensation lawsuits, the positive results of shareholder engagement, increasing shareholder activism, share ownership and voting developments, and look ahead to the prospects for the remainder of the 2013 proxy season, as well as discuss coming attractions on the horizon for the 2014 season. 

Questions

For more information and questions about this webcast, please contact Michele Bravo at michele.bravo@lw.com or +1.213.892.3054.

 

 

To Access the Program

Click here to access the on-demand webcast.

 

You will automatically be directed to the lobby page to launch the webcast.

 

 

Fight or Settle – “Say on Pay” Suits

By Dennis McCarthy – (213) 222-8260 – dennis@mbsecurities.com – 

If public company executives didn’t already have enough to deal with, now there’s one more item.

Corporate Counsel magazine reports a significant rise in lawsuits by plaintiff’s attorneys claiming inadequate disclosure in company’s “say on pay” proxy disclosure.

These “say on pay” lawsuits are filed by the same law firms which show up filing suit claiming M&A proxy disclosure is inadequate.

These suits also follow the pattern of M&A litigation in which plaintiffs seek an injunction to prevent a shareholder vote.

To date, most companies have chosen to settle these “say on pay” suits requiring the companies to revise their proxy materials plus pay several hundred thousand dollars to plaintiff’s attorneys.

So far, the absolute number of these “say on pay” lawsuits is small but unless companies choose to fight them, I suspect the number will grow.

I’ve attached a link to the Corporate Counsel magazine article which itself has links to several helpful sources.

As always, please contact me to help your company with any capital market transaction.

Link to the article or paste this:

http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202590630080

My friend and colleague, Roger Zickfeld at Columbia Capital sent me an additional article from CFO Magazine which provides more color on the topic (Link)

Katten Muchin Rosenman also prepared a valuable background slide deck (link).  


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Corporate Proxy Videos

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

As a follow-up to my recent posts on the 2012 proxy season entitled, “Silent Majority Speaks” and “Just a Small Leak“, I’d like to pass along to you a website that provides valuable information about corporate proxies.

This website, I’m pleased to report, will not likely cause your eyes to glaze over with boredom.

Created by Equilar, the compensation consulting company that I’ve mentioned in prior posts, this website presents short and informative videos on corporate proxy issues.

I’ve listed the website below for your review.  Let me know what you think.

As always, please call me to help your company with raising equity or debt or to complete M&A projects.

Equilar website:  http://www.equilar.com/knowledge-network/episode-8.php

Corporate Proxy Video

Corporate Proxy Video