Activist investors can use a variety of tactics to bring pressure on corporate boards, but it’s ultimately their willingness to “go to the mattresses” & launch a proxy contest that ensures that they’ll get the board and management’s attention. This Fried Frank memo provides a helpful overview of the proxy contest process. Here’s an excerpt:
Today the most common types of proxy contests are contests by activist stockholders seeking board representation or control, generally with the objective of maximizing return on the activist’sinvestment in the short-term. The proxy contest serves as a tool to drive change, including:
– Adding directors who are sympathetic to the activist’s goals or who bring fresh perspectives to the board, orchestrating a change in executive management or corporate policy, or securing other changes in corporate governance.
- Catalyzing changes in strategy, changes in capital allocation, a sale or break-up of the company or other value-enhancing transactions—changes that the activist may instigate or accelerate even if itsefforts to change composition of the board are unsuccessful.
Besides traditional proxy contests, investors today have other tools available to express dissatisfaction and drive change, including solicitations exempt from the proxy rules such as “withhold the vote” campaignsand, in the case of companies that have adopted proxy access bylaws, rights of eligible stockholders to nominate a minority of candidates for director in the company’s proxy statement.
The memo addresses a wide range of topics, including the market environment, advance preparation, timing and strategic issues, key legal considerations, as well as the process of conducting the fight & negotiating a settlement.
– John Jenkins