Practical Advice to Prepare for Shareholder Activism

Kerrii Anderson knows about being the target of shareholder activists. She is the former President of Wendy’s International. Today, she sits on the boards of Laboratory Corporation of America Holdings, and Worthington Industries, Inc. She was the Chairwoman of the board of Chiquita until they were taken private in January 2015.

I had the good fortune of hearing Kerrii speak about preparing for shareholder activism at the West Coast Summit Peer Exchange hosted by the NYSE Governance Series in February of this year. Her tips were incredibly insightful and I wanted to share those with you today.

Last year, I wrote about how to prepare for shareholder activism by highlighting some of the trends in activism. This post will be a nice follow up to that as I share top tips from Kerrii’s discussion for taking a proactive and pragmatic approach to activism.

Conduct a Vulnerability Assessment

It makes sense for every public company to determine if they are vulnerable to an activist campaign – even if you’re a successful one. Kerrii’s takeaways outlined an approach that offers early detection.

Be in touch with a trusted financial institution that can review your company’s valuation and the areas of weakness to forecast what a shareholder activist may find concerning. The first time you think about this sort of thing can’t be when an activist shows up.

Put Specialists in Place

Part of the planning is understanding who your outside counsel will be when it’s “go time.” It might not be your regular outside counsel; in fact, it’s very likely to be a specialist who deals with shareholder activism matters.

Another key preparation step is to have your public relations team in place – one that is very experienced with dealing with shareholder activism. You might consider keeping these folks on retainer so that if the time comes, they are ready to go immediately (and haven’t already been engaged by other parties).

Get Your Committee Together

Next, who is going to be on the independent committee from your board to deal with activist threats? This can be an extremely time-consuming assignment, so it makes sense to at least consider ahead of time whom you might want to be on this committee.

It’s also ideal if the people on this committee have experienced activism in another context or are, at the very least, familiar with the issues. And consider temperament: you want committee members who are able and willing to listen to and engage with activists, and not immediately dismiss all of their suggestions out of hand.

Have a Sense of Urgency

Remember that activists have been known to send letters to companies demanding a response in a very short period of time lest they take their concerns and suggestions directly to themainstream media. Being able to move quickly is critical. The need to move quickly should infuse the planning process with an appropriate level of urgency.

Understand the Social Media Landscape

Be prepared for the social media element of an activist campaign against your company. Investor and activist Carl Icahn is especially well known for using his Twitter account to air his concerns and thoughts about corporations he’s invested in.

This can feel very unfair to the company subjected to social media commentary.  Unlike activists, public companies are bound to strict communication guidelines (see my latest post on social media and regulation FD here). The PR team you’ve hired to handle shareholder activism can help you determine the best way to handle this.

Forge Relationships and Listen

Kerrii aptly pointed out that being in an activist campaign is really like being in a political campaign. You have to get your vote. If you truly believe your company should not follow the path that an activist is suggesting, you need to be able to communicate that to your shareholders.

That means identifying your proxy solicitors – those who are in charge of getting the votes in a proxy battle – and communicating your position using the strategy put in place by your public relations or communications team.

Keep in mind, Kerrii said, that the face of activism has changed over time. By the time shareholder activists go public with their position today, they’ve probably already spent a considerable amount of time talking about their ideas and plans with your institutional shareholders.

This brings up the question: Is management talking regularly with institutional shareholders to understand their mindset and where their concerns lie? These relationships need to be developed before the activists show up.

This post at the Wall Street Journal pointed out that institutional shareholders are, in fact, guiding activists nowadays, too:

10 years ago, activists and institutional investors were not talking very much,” said Ken Squire, the founder of 13D Monitor. “Now institutions are calling activists and saying you need to go after this company.” Companies, Mr. Squire explained, know that by talking to the activists they are also listening to the voices of some of their largest investors.

Activists today also know it’s about winning votes, so of course they are careful to forge productive relationships with proxy advisory services like ISS.

Unthinking, Reflexive Resistance is Futile

What if you don’t take these proactive steps and merely resist activist shareholders who come knocking?

In the end, regardless of your resistance, there are likely to be significant changes to the company and its board. You just won’t have a seat at the table to help protect the firm’s value on behalf of its shareholders – and you certainly won’t be around to help pick the new CEO when the time comes.

Remember, not all activists are bad or wrong. Doing an assessment ahead of time might show you where your company genuinely has work to do in order to improve itself for the benefit of your shareholders.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: phuskins@woodruffsawyer.com.