June 6, 2017

Takeover Defenses: Dealing with Proxy Advisor Pushback

I recently blogged about the differences between the takeover defense arsenals of IPO companies and more seasoned issuers. While newly public companies start out with more aggressive protections than established companies, keeping them in place risks receiving withhold recommendations on director nominees from ISS & Glass Lewis.

This Cooley blog has some advice for companies that find themselves in this position.  Here’s an excerpt on how to respond if proxy advisors give a “thumbs down” to your nominees due to takeover defenses:

– Assess the impact of the negative recommendation on your stockholder base; if stockholders are heavily influenced by proxy advisory firms, consider possible outreach to stockholders before annual meeting (if appropriate)

– Educate the board (if not previously done) on the issue and evaluate the appropriateness of the stockholder protective measures (e.g., peer company practices); consider any action items following the annual meeting

– Consider various courses of action and pros/cons: changes to protective provisions, stockholder engagement, disclosure in next year’s proxy statement regarding outreach/rationale for maintaining the provisions

– Regularly assess and monitor your governance practices as the company matures and your stockholder base evolves

For most newly public companies, negative recommendations won’t have a big impact for the first few years due to the size of the insiders’ stake.  But the blog notes that even if ISS & Glass Lewis don’t determine the outcome of an election, their policies are often viewed as best practices & serve as starting points for board discussions on corporate governance.

John Jenkins