Shareholder activism is in the news daily, with both existing
shareholders and activist fund investors of publicly-traded
companies demanding improved corporate governance and
performance. No longer are activists viewed as the corporate
raiders of the past. Their demands for change, particularly
for the election of their nominees to boards of directors, are
being endorsed by the influential proxy advisory firms and
supported at the ballot box by large institutional investors.
All industries, and companies of all sizes, have become subject to
increased scrutiny. PepsiCo, Mondelez, Cadbury Schweppes and
Kraft are examples of food and beverage industry giants that have
been challenged by activists.
Today's activists are focused not just on corporate
governance and corporate social responsibility, but on maximizing
value. They demand changes to boards of directors and
management, financial restructurings, strategic actions like
spin-offs of divisions, and the blocking of significant
transactions proposed by management. When a dissident shareholder
approaches management, it will have had the benefit of months of
preparation to assemble a team, prepare a "white paper"
criticizing the issuer's business strategy, and develop a
plan for communicating with other shareholders and the media and
winning support for its position.
The good news is that an issuer can take action now to both
reduce the likelihood of shareholder activism and to be better
prepared should a dissident emerge. Ongoing corporate
governance reviews are essential, to ensure that the board of
directors is perceived as independent and engaged. As well,
analyzing the business strategy for weaknesses that may be
highlighted by an activist is critical. But equally important
is a robust investor relations program designed to achieve a full
understanding of the company's investor base and to reach out
to individual shareholders to obtain their input and assess their
support. Further, in order for an issuer to be in a position
to respond quickly and effectively to an activist's demands, it
should do some advanced planning now to determine who will comprise
its response team, review the steps to take if challenged and
update members of its board of directors on their duties and next
Focusing now on corporate governance and performance, and
developing a preliminary action plan should an activist surface,
will pay off in both the short- and long-term.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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