If you’ve ever been involved in an activism campaign, you know activists are smart . . . they’re well-advised . . . and they are likely go after seats on your board. With the director-nominating season in full swing, more than a few companies will be dealing with activists seeking board seats.
Sophisticated activists know the mechanics of your by-laws, understand the director-nomination process and are prepared to request and complete your D&O questionnaire. So, it’s unlikely they’ll make a technical mistake when nominating directors. They also understand the importance of passive investors and the role of ISS and Glass Lewis in the proxy process. So, to garner support for their director nominees, activists are beginning to consider issues of diversity, overboarding and independence when making director nominations or creating a dissident slate.
To de-escalate an activism campaign or avoid a proxy fight, many boards are engaging and granting activists board seats. Engagement can give boards certain advantages including the potential ability to:
- Better control the agenda;
- Negotiate director-nominee qualifications and background;
- Set expectations for activist-director roles and behaviors; and,
- Enter into a stand-still agreement to mitigate the disruptive effect of an activism campaign.
Of course, once an activist is on the board the challenges don’t end. It’s important for directors to remember the human element: treat each other with respect; be candid and engaged, and put your fiduciary responsibilities to shareholders first.
Now what’s the role of investor relations in all this? I believe this is where investor relations’ role as a steward of corporate value comes to the fore. As a steward, investor relations champions corporate value on behalf of the company’s owners under the direction of the owners’ appointed representatives – the board and management. Investor relations hears the voice of the company’s owners and has a responsibility to regularly communicate investors’ viewpoints internally. This includes providing context around investor perceptions of valuation, management credibility, peer and industry performance as well as the overall competitive environment.
It’s also important for investor relations to share perspectives on investor behavior – not only about activists and their followers, but how the existing investor base is or may change. Such knowledge can help inform decisions as the interplay of who enters or exits a stock can affect valuation, signal confidence in the company’s strategies and be indicative of potential proxy fight outcomes.
In the end, activism brings change on many levels. Investor relations needs to deal with that as the corporate narrative evolves. The notion of being a steward of corporate value can help center investor relations’ focus and approach to navigating that change.
Lead-IR Advisors, Inc.