DealLawyers.com Blog

In late September, I shared the results of a Spencer Stuart survey of public and private company directors about shareholder activism. That study included a data point — that 44% of public company directors would consider joining an activist slate — that surprised me. I thought that number would be lower due to concerns about “being on the other side of the table.” So I was interested to see the discussion under the heading “Normalization of Serving as a Dissident Nominee” in this Wachtell alert, which links this “normalization” to the trend of speedy settlements post-UPC.

The speed of settlements has also been facilitated by an increase in the quality of individuals willing to serve as dissident nominees, which can include sitting directors and former public company CEOs and CFOs (including those of the target itself). Many of these individuals are sourced through the same search firms used by companies in their own director refreshment process and some may have no prior relationships with the nominating activist.

Within this larger trend, however, we are seeing situations in which a potential dissident nominee has informed the activist that the nominee is willing to participate in a consensual settlement, but not in a publicly fought election contest. In these situations, the activist has extra incentive to reach a negotiated settlement.

While companies should scrutinize the qualifications and entanglements between activists and their nominees, if a company intends to settle, there are benefits to doing so before a fight becomes too acrimonious and relationships with prospective directors are harmed.

The alert also says you probably don’t want to hear that one of your sitting directors or officers has joined an activist slate at the same time as the rest of the world, even if at a totally unrelated company. It suggests:

One approach would be to revise director governance guidelines to require notice to the company, not just before a director or officer joining another board, but before a director or officer agreeing to be nominated as a candidate for another board.

– Meredith Ervine