January 12, 2018

Activism: Proxy Contest “Dos & Don’ts”

This Forbes article has an interview with Damien Park & Greg Taxin from Spotlight Advisors on “dos & don’ts” for companies dealing with activist proxy contests.   Here’s what Damien has to say about the biggest mistake companies make when dealing with activists:

I would say one of the worst things a company can do is disregard an activist’s recommendations or treat them with contempt. Management and board members must remain objective and unemotional when analyzing an activist’s perspective and requests for change.

It’s important to establish a constructive dialogue in an attempt to gain a better understanding of their concerns and to determine if a resolution can be obtained before a full-blown, costly and distracting proxy contest ensues. Ignoring an activist’s demand for change just simply isn’t an option. Suing an investor is almost always a bad idea. Adopting a poison pill, changing advance notice provisions and implementing other governance changes to thwart an activist shareholder are also generally bad ideas.

Companies engaged with activists are, in our experience, better served by providing transparent, honest disclosures about the board’s rationale for its decisions and actions. Explaining how value will be created with the current strategy, capital allocation plan, management team, and incentive compensation structure is usually more productive than ignoring an activist or disparaging them.

Other topics addressed in the interview include whether directors should be involved in shareholder engagement, the advisability of attacking the activist, and the toll contested meetings take on boards & management.

Incidentally, Damien will once again be a panelist on this year’s edition of our popular “Activist Profiles & Playbooks” webcast scheduled for March 6th.

John Jenkins