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Steering clear of
shareholder activists
Apr 16,
2009
New boardroom checklist from the Conference
Board
The Conference Board’s governance center this week issued a roadmap for
corporate boards hoping to avoid run-ins with shareholder activists.
Low valuations and an environment of change are ushering in ‘a new wave of
investor demands,’ according to the New York-based business organization.
Activist funds, though hampered by their own deleveraging, have shifted from
campaigns pushing for ‘cash extractions’ to ones promoting strategic and
governance-related changes.
‘With the change in the economic climate, it has become extremely difficult
for an activist investor to make the argument that cash should go to
shareholders rather than being retained to support and finance the company
during these difficult times,’ says Matteo Tonello, associate director,
corporate governance, at the Conference Board. ‘We’ve seen activists
changing their approach to focus much more on strategic, organizational and
governance issues.’
Activists’ old strategy could yield a quick return, and that drew support
from other investors while bolstering a short-term investment horizon. Now
they may have to wait years, not months, for their campaigns to play out.
‘One of the positives coming out of this situation is that those short-term
strategies are gone for now,’ Tonello says.
Tonello co-authored the report with Damien Park, president and CEO of Hedge
Fund Solutions, a Philadelphia-based consulting firm specializing in
activism issues. They say directors should proactively make changes to avoid
their company becoming an activist target and give suggestions on making an
action plan, including responding to activist publicity campaigns.
The report provides a summary of 41 current activist campaigns and 10 recent
settlements. It also sums up shareholder activism’s history and outline
RiskMetrics’ 2009 voting guidelines around anti-takeover defenses.
The checklist for directors includes: understanding investors’ intentions;
doing outreach as a preventive measure; and addressing gaps and
vulnerabilities. The report also gives tips on updating defense measures and
responding to activists’ demands.
‘Avoiding shareholder activism’ was designed a follow-up to the Conference
Board’s working group report from September 2008, ‘Hedge fund activism:
Findings and recommendations for corporations and investors’. Tonello says
he is beginning work on a comprehensive ‘annual report’ to be released by
year-end. More information can be found
here.
By Neil Stewart
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