July 24, 2023
Activism: Be Prepared!
In a recent HLS blog, Kirkland & Ellis partners Shaun Mathew and Daniel Wolf detail ten important questions to consider to make sure your board is prepared for a public attack by an activist or a hostile takeover attempt. The blog suggests preparedness has only increased in importance as sophisticated hedge funds specializing in short attacks have expanded their targets to more mature & global companies, companies face increasing tension between the pro-ESG and anti-ESG camps and the landscape for director and officer liability for Caremark claims evolves. Here are some of the questions:
– Does the board know what may be coming? Is the board receiving periodic briefings from relevant experts inside the company (e.g., compliance, legal, cyber, government relations) on the company’s most likely vulnerabilities? Are outside advisors providing input to management and the board on industry-wide developments, company-specific threats and relevant current issues (e.g., the impact of universal proxy on the company’s vulnerability to shareholder activism and the potential impact of relevant DOJ corporate enforcement priorities)? Is the company monitoring the shareholder base (including its list of registered holders) for suspicious activity and informing the board of critical investor feedback? Is it monitoring the corporate website to detect visits by activists, potential bidders and their respective advisors, as well as from government agencies and regulators?
– Does the board periodically evaluate its structural defenses to activism and takeovers? Have management and advisors reviewed with the board potential updates to its charter and bylaws to address the new universal proxy rules and where applicable state law (e.g., officer exculpation for Delaware companies)?
– Are there policies designed to protect directors (and officers) from potential Caremark claims? Is the board regularly briefed on enterprise risks and is there a process for internal and external yellow and red flags (including from whistleblowers) to be elevated to senior management and ultimately the board? Have policies and procedures been implemented to develop a record of the board’s good faith efforts to implement and monitor oversight systems and develop policies to escalate risks that are mission critical to the company?
– Is there a protocol for directors and senior executives to follow if they receive inbounds from an activist, unsolicited bidder or other third party? Does the board receive periodic reminders of best practices for notetaking, emails, texts and other communications with a view toward protecting attorney client privilege and preparing for potential litigation and proxy fights, taking into account key recent cases and enforcement actions where emails and texts were the primary source of evidence for civil plaintiffs and/or regulators?
– Meredith Ervine