DealLawyers.com Blog

December 9, 2015

Board Survey: Proactive Steps to Deter Hedge Fund Activists

Here’s the intro from this blog by Cooley’s Cydney Posner:

The recent PWC survey of almost 800 directors of public companies contains some interesting data on directors’ views of communications with hedge fund activist and institutional shareholders, as well as proactive approaches to mitigate the risk of an activist challenge. (For survey results regarding board diversity, see this PubCo post.)

As expected, the level of director communications with institutional shareholders has increased from 2012, up from 62% to 69%. More significant perhaps is the change occurring in the breadth of topics that directors are now willing to discuss. Although it‘s still the case that “shareholder proposals” is the only topic that more directors view to be “very appropriate’’ for discussion (44%) as compared to “somewhat appropriate” (42%), the percentages registered for “very appropriate” increased across all topics.

Similarly, the percentages of directors viewing any of the surveyed topics as “not appropriate” decreased across the board. To unpack the numbers, the survey indicated that, for 2015, 77% of directors believe it is at least “somewhat appropriate” to discuss executive compensation with shareholders compared to just 66% in 2013. Similarly, 66% of directors now believe it is at least “somewhat appropriate” to discuss company strategy development and oversight, compared to only 45% in 2013.

The survey also showed an increase from 46% in 2013 to 66% in 2015 in the percentage of directors that believe direct shareholder communications regarding the use of corporate cash and resources to be at least “somewhat appropriate”; the survey speculates that the increase “may be a response to the concern many activists have expressed about dividends, stock buybacks, and other uses of cash.” Relative to data for 2014, board composition and management performance are two topics that saw significant increases in the percentages of directors who view them as “very appropriate” topics and significant declines in the percentages that view them as “not appropriate.”