When it comes to engaging with shareholder activists, one size does not fit all. It's crucial to think about the activist's goals and possible outcomes. Is the activist seeking governance reforms, or a short-term return on an investment? How likely is it that the engagement will be productive? In his article on "Activism and Engagement," first published by NYSE Governance Services, our colleague Ken Koch discusses the differences between engaging with governance activists and with financial activists, and the particular challenges of dealing with financial activists. Ken also recommends eight specific steps companies should take to prepare for and respond to an attack by a financial activist, which are briefly summarized below:
- Consider whether the company is potentially vulnerable to financial activists.
- Design public disclosure to communicate management's strategy to shareholders before there is an activist challenge, so that enough of the company's strategy has been disclosed to enable the company to respond to particular shareholders in the face of an activist challenge without violating SEC Regulation FD.
- Establish plans and protocols for responding to activism and reaching out to key shareholders.
- Run a mock activist "fire drill."
- Build a team of lawyers and investor relations specialists who can help you respond to an activist attack, and communicate with them periodically to discuss strategy and learn about current activist trends.
- Engage with the activist (even if it is unlikely to be effective) to show shareholders that management and the board are not afraid of dialogue.
- Identify and engage with key shareholders who might be targeted by the activist (again, while keeping in mind the restrictions of Regulation FD).
- Articulate the board's and management's strategy clearly, including its anticipated benefits.
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