Shareholder engagement is a key tool in a board's toolkit to
prepare for and respond to potential activist investor
campaigns. A shareholder engagement program can provide
valuable information on investor opinion, allow the board to head
off issues before they become the subject of an activist campaign,
and cement the support of important long-term investors.
Based on dialogue with institutional investors, investor
associations and advisors, the EY Center for Board Matters reports
that most investors believe that whether activism is beneficial
over the long term depends on the particular circumstances.
Many investors stressed that in an activist situation, they talk to
both sides – the activist and the company – before they
develop their views.
A board that is already engaged in a conversation with its key
shareholders before an activist arrives is in a strong position to
convince them that the board is the better steward of their
interests. By contrast, a board should expect that when they
get a call from an activist, the activist has already reached out
to their major shareholders. If the board is not already
engaged in dialogue with those shareholders, it will begin the
campaign at a disadvantage.
When company and long-term shareholder views are aligned, those
shareholders can be powerful allies for the company, including by
actively reaching out to other shareholders to argue in support of
Investors consider the company's track record of
responsiveness to their concerns when considering where to put
their support. A company that is perceived to be interested in
investor concerns only when it is faced with an activist challenge
Shareholder engagement is also an opportunity to engage
dissatisfied shareholders and the activists themselves. Engagement
with activists is expected by investors, and allows the company to
consider the activists' credibility and appeal, as well as the
merit of their ideas, and to formulate a considered response.
A company's proxy communications are a key piece of its
shareholder engagement program, and can provide a foundation for
more substantive engagement conversations. The EY Center for Board Matters spoke to investor
groups about what they find valuable in disclosure
Top areas where investors want to see more disclosure are board
composition and refreshment, including director diversity and
recruitment processes, and executive compensation.
Clarity and conciseness is important. Graphics, tables and
hyperlinks allow comprehensive information to be conveyed in a more
succinct and comprehensible manner, while extensive boilerplate,
legalese and repetition tend to obscure company messaging.
Investors would like to see engagement disclosures discuss
shareholder concerns, unusual governance circumstances or
challenges, as well as the company's response and the rationale
behind any changes made or not made.
A letter to shareholders from an independent chair, lead
director, committee chair or the board as a whole can be a valuable
vehicle for explaining the board's reasoning on governance
A strong shareholder engagement program provides an opportunity
to build relationships, demonstrate responsiveness, and gain
insight into investors' evolving governance views. By
remaining engaged with its investors, a company can address issues
and bring important investors onside long before an activist
arrives on the scene.
Norton Rose Fulbright Canada LLP
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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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