Company resistance to activist shareholders is most successful if management is transparent, is willing to listen to activist shareholders, is open to new ideas, has a pre-existing plan on how to deal with activist shareholders, and closely monitors transient shareholding so companies know in advance who may be ringing their door bell.
A panel of experienced directors advised an audience at the October 20 meeting of the National Association of Corporate Directors-New England Chapter that activist shareholders seek contact with directors as well as stockholders. There was a division of opinion as to the role of directors in interfacing with activists. Some believed that bringing “relevant directors” into contact with activists, or indeed with long-term investors, could be valuable in giving a “sense of how the board supports or challenges company corporate strategy.” Others expressed concern that not all directors were “suitable” to interface with shareholders, citing fears of selective disclosure and violation of SEC Regulation FD.
The one institutional investor on the panel set forth the standards that that institutional investor used to evaluate companies, noting that they had their own specific criteria and did not follow recommendations of proxy advisors such as ISS: Does your board have sufficient subject matter expertise in your space, have you avoided anti-takeover provisions, is its compensation tied to performance over at least a three- to five-year period such that management has “skin in the game,” and earnings performance over “at least” a five-year period? Since institutional investors will likely own your company for the long haul, and since most activist investors will not, this institutional investor is particularly selective in determining whether to support, or not support, the activists.
Most startling takeaway: None of the panelists, when asked about “diversity” on the board of directors, seemed particularly interested in gender or other diversity, emphasizing in all instances the need for robust specific subject matter experience: financial expertise, domain expertise, experience with the government in those industries involved in defense. Skill sets, not gender or other diversity issues, were universally emphasized.