Shareholder activism has been on the rise for several years and is now at record levels. In 2014, we saw a number of watershed events, from Darden Restaurants’ shareholders voting to replace the company’s entire board with activist investor Starboard Value’s nominees, to Carl Icahn taking on eBay, and Third Point winning three seats on the board of Sotheby’s. As one Fortune 500 board director told me, “Activism is part of corporate life today. It should be expected and anticipated by every company.”
In the past, activist initiatives usually began with an aggressive overture to management, in many cases resulting in a change of control. While this form of activism still occurs, today’s activists are taking a more constructive approach. They seek to affect positive change in a company’s performance. In this environment, boards must engage with activists through positive dialogue that addresses legitimate concerns, rather than with a defensive reflex reaction.
Forward-thinking companies will also re-evaluate and refresh their boards. Nominating/ governance committees oftentimes meet potential board members with activist experience in advance of board retirement dates and are seeking faster and proactive change of their board members.
Shifting players aside, best practices dictate that a game plan must be in place to prepare for and respond to shareholder activism even before an activist arrives on the scene.
Here’s what I would suggest:
After an activist is detected, companies must:
Editor’s note: Recently, Chief Executive was approached by a representative of The Hartford Financial Group to run an article that had been written by their former CEO Liam McGee. The article was about his experience in turning the company around when an activist investor attacked. McGee passed away in February, but his wife requested that the company move forward in publishing it. It’s an excellent case study in how to handle an activist investor in a positive, productive manner, and it serves as a good example of how to put in action the suggestions being made in the article above.
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