March 28, 2023
Conducting a Strategic Review Process: Should You Publicly Disclose It?
Boards may face pressure from shareholders to publicly announce that they are considering strategic alternatives, including a sale of the company, but announcement comes with significant risks, some less obvious than others. This HLS blog post by Patrick Ryan of Edelman Smithfield, citing research from Jenny Zha Giedt at the George Washington University School of Business, acknowledges the potential benefits—a more robust process and possibly higher premiums—but notes that the significant consequences excerpted below, beyond share price impact and negative attention, often lead financial advisors to recommend against announcement:
– A public process consumes substantial time from directors and management, distracting them from overseeing and running the business.
– The company may face challenges retaining and recruiting employees.
– Relatedly, productivity can suffer as employees worry about things like job security and whether they’ll have to relocate in the event of a sale.
– Other stakeholders including customers, especially those with long-term contracts, often have concerns about how a sales process could affect them.
– Competitors may capitalize on the perceived instability following the announcement, costing you market share.
Whether a board chooses to disclose at the start of the process, or eventually makes a public statement once news has leaked or in the face of activist pressure, the blog presents some practical advice for a well-planned communication strategy to preserve shareholder value (see the post for details on each recommendation):
1. Identify likely stakeholder concerns pre-announcement and prepare a detailed and prioritized outreach plan to address them to the extent possible.
2. Acknowledge and place bounds on uncertainty.
3. Ensure consistency of messages when tailoring communications for various stakeholders.
4. Communicate with employees frequently and empower people managers.
5. Thoughtfully manage press leaks.
6. Maintain communications with Wall Street.
– Meredith Ervine