6 Tactics for Fending Off Activist Shareholder Attacks

Here are six pieces of advice from experts.

Be professional at all times. Even if an activist shareholder has a nasty reputation, experts urge CEOs to deal with equanimity. “The CEO, management and board need to engage in honest, constructive dialogue with the shareholder,” advised Christopher Hewitt, a corporate attorney with the Tucker Ellis law firm. “It will not be sufficient to gladhand the shareholder in the hopes they will go away.” And if the troublesome shareholder actually has some good ideas, “embrace them,” Hewitt told CEO Briefing. “Don’t simply fight [them] as ‘not made here.’”

Create a “war cabinet”. This is a standard part of a playbook for defending against activists, said Gardner Davis, partner at the Foley & Lardner law firm. Include senior officers, investment bankers, proxy solicitation and PR advisors and lawyers. “The team needs to understand the activist’s attack strategies, assess the company’s particular weaknesses and prepare a blueprint for responding,” Davis told CEO Briefing.

Don’t depend on the benefit of the doubt. The days in which management received that are long gone, said Kim Van Der Zon, head of the U.S. board practice at Egon Zehder. Both boards and CEOs must make the case, and make changes if necessary, that will prevent an activist’s incursion from rupturing into a full-blown struggle for control of the company. Activists end up with full or partial victories in 72 percent of proxy fights, Van Der Zon said.

Be decisive in maintaining control of the situation. Roger Bolton, former COO of Aetna, says “decisiveness is crucial.” Activists move quickly and depend on celerity to help achieve their goals as they square off against a stunned CEO and board. “These battles are decided on the ability to react immediately to address shareholder concerns.”

Choose positive messaging. When challenged publicly, said Matt Eventoff, a corporate communications advisor, “the visceral instinct is often to be defensive.” Don’t. Rather, respond as if the company “is simply getting recommendations on how to improve.” That strikes shareholders and other constituencies in a positive way and commends a leader.

Communicate internally. When an attack comes, CEOs should be especially open, available and communicative—as well as seen around the operation—rather than hunkered down in a corner office. “Your organization needs to know not only what is going on but what it means,” Eventoff advised. And, said Davis, make sure all board members are well advised on the threat and the company’s potential responses.