DealLawyers.com Blog

Shareholder activism has evolved quite a bit over the years, and so have the tactics used by companies to respond to it.  In the early days, companies relied on 80s-style antitakeover defenses designed to “stiff-arm” activists. Companies quickly discovered that those tactics simply didn’t work in the new environment. So, their approach shifted to efforts to preempt activism – or appease activists – by “thinking like an activist” and addressing the vulnerabilities that activists might exploit.

This Camberview Partners memo reviews this history, and argues that companies wanting to mount an effective defense against activists need to shift their focus toward their institutional investors.  Here’s an excerpt:

Rather than “think like an activist,” the right approach for companies is to “think like a shareholder representative”: engage with investors, understand and incorporate their perspectives, and educate them on why the company is pursuing a particular strategy, particularly before an activist appears.

Ongoing dialogue enables companies to build credibility with key decision-makers within both the investment and governance teams at institutions, even if there are topics where these disparate teams are not in complete agreement. Even in situations where there is a large and supportive base of retail investors, it is these key decision-makers who will make the ultimate difference between winning and losing.

The memo points out that sweeping changes in the investor landscape have made this investor-centric approach essential.  In recent years, a few asset managers have amassed enough voting power in most major companies to effectively determine the outcome of an activist campaign – and are more willing than ever to exercise their vote.

– John Jenkins