In recent years shareholder activism has increased
significantly. There have already been more activist campaigns
announced against S&P 500 companies in 2014 than in any other
year. 2014's year-to-date total of 29 campaigns is over three
times the activity against S&P 500 firms in 2006.
When faced with an activist shareholder, a company must assemble
a team as soon as possible, to include lawyers, proxy solicitation
firms, auditors, PR advisors, valuators, bankers, etc. Once the
team is assembled the company must then formulate a response based
on available information: what is the company's shareholder
base, what are the chances of success if the company opposes the
activist, what does the activist want, likelihood of settlement
with activist, who is the activist, who controls it, primary
investors, its activist history, etc. Is negotiating with the
activist group the best way to proceed or is it better to deny and
defend? It is often sensible to avoid a fight and settle if at all
possible as fights can be very time consuming and costly. That
being said, the board of the company can oppose actions if they
bona fide believe it to be in the best interests of the
The company cannot delay in responding to the activist and if
the activist was public in its attack of the company then the
company will need to respond publicly. Any delay could lend a
degree of credibility to the activist and undermine the
company's eventual response.
If the company has determined to oppose the activist shareholder
the company should have its legal advisors consider any possible
legal arguments and challenges against the activist. In assessing
this avenue of action the company will need to determine whether
the activist has complied with all relevant governing legislation
and disclosure requirements. The company can also consider other
defensive strategies including transactional defenses including
sale of corporate assets, the placement of securities into friendly
hands, use of stock loans, options, derivatives and litigation.
In creating a company that is less susceptible to shareholder
activism, the company could also adopt:
advance notice provisions to the extent it has not already done
so. These are provisions in the articles of a company that require
advance notice to the company of any intention to propose nominees
adopt a poison pill if permitted under the securities
regulatory regime governing the company.
multi-class capital structures if permitted under the
securities regulatory regime governing the company. Usually this
will need to have been put in place in advance of an IPO as
implementing one after the company is already public could be
difficult, if not impossible as certain exchanges prohibit the
implementation on a post IPO basis. A variation of this is the
issuance of a series of blank cheque preferred stock with special
voting, conversion or control rights to "management
friendly" holders. When issuing such stock, the board must be
careful that it has consistently and properly exercised its
a staggered board if permitted under the securities regulatory
regime governing the company.
enhanced quorum requirements for certain actions such as the
removal of directors.
change of control provisions in agreements the company has with
its board, key management and debtholders.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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