September 11, 2018

Activism: Directors Need to Keep “Heads on a Swivel”

Football coaches often tell players that they need to keep their “heads on a swivel” – because they never know from which direction a big hit might come. This recent “Corporate Board Member” article by Kirkland & Ellis’ Shaun Mathew and Lauren Casazza says that in today’s environment, corporate directors need to do the same thing. Here’s the intro:

When it comes to the unique challenges facing directors today, it is safe to say that “we’re not in Kansas anymore”. A look back at the first half of 2018 shows that shareholder activism continues at record pace, passive asset managers are growing larger and have found their ESG-centric voice, and corporate crises (from cyber breaches to #MeToo-driven executive exits) are proving to be fast-moving and wide-ranging. Successfully addressing these complex and often competing challenges requires more than ever that boards be well informed and prioritize advance preparation.

The article recommends that boards prepare for the inevitable crisis by engaging constructively with shareholders in the off-season, refreshing disclosures to ensure that the company’s message is being communicated effectively, maintaining close surveillance on movements in the company’s stock, & appropriately updating structural defenses. This excerpt says that it’s also essential to establish an effective crisis response protocol:

This past year has shown that not all corporate crises come in form of an activist shareholder launching a public attack. Boards can avoid appearing flat-footed by preparing for a broad variety of potential corporate crises by putting in place measures to anticipate and mitigate risk while also preparing a comprehensive response protocol. The reputational impact of a major corporate crisis such as a cybersecurity breach or allegation of sexual misconduct by a senior executive is amplified by the fast-moving nature of social media and can lead to significant market value loss, consumer boycotts, customer/supplier issues, and shareholder litigation.

The best way to help ensure an effective & efficient response to the variety of potential crisis situations that boards may confront is to plan ahead of time with experienced crisis advisors. Without this advance planning, manageable problems can explode into uncontrollable wildfires.

John Jenkins