How To Cope With The New Activism?
Advice From Bill Fiske of Georgeson, Bruce Goldfarb of Okapi Partners, Tom Germinario of D.F. King, Michael Mackey of Alliance Advisors, Ron Schneider of RR Donnelley and Artie Regan of Regan & Associates.
We ask some of the leading lights in the proxy solicitation and advisory space for their thoughts on trends, potential new developments and, most important, for their advice on what companies and their boards should be doing these days…
Bill Fiske, Senior Managing Director at Georgeson, Inc.:
“There are not so many new trends where the issues are concerned…they are pretty much the same as they’ve always been. The really big change is that the “asset class” of activist investors has grown so substantially over the last year or two. We see new firms sprouting up every week; In fact, we counted 86 new ones so far this year....”Sons of activists” I’ve been calling them…and they do represent the “next generation” of activists to a big degree.
“There has also been a big change in the sophistication of activist approaches – better researched, and more nuanced – and, another big change, we see many of the more ‘traditional investors’ supporting their efforts, and calling for change. It used to be that activist investors were fairly easy to attack. But today we see them issuing detailed white-papers, offering up highly accomplished director candidates and raising questions about the skill sets, tenure, diversity and the overall character and performance of existing boards.
“A company’s best defense is to have a really strong and cohesive board. They need to have to have a very strong support team – of securities lawyers, investment bankers and proxy solicitors and advisors, since these days, it’s all about the numbers: Not just the bottom line, but who rounds up the biggest vote count come the end.
I am a big believer in having practice sessions with the board and senior management and their key advisors. My biggest practical tip is for all the participants to listen – especially to the kinds of things they do not want to hear – and to come away with complete conviction come the end. Another thing worth remembering when thinking about activists is that most of them don’t really want to be on boards, and attending meetings: For most, it’s all about driving alpha.”
Bruce Goldfarb, President & Chief Executive Officer, Okapi Partners LLC:
“2015 will likely be another year of board shakeups, heated proxy contests, shareholder proposals and even new forms of activism. We are already hearing from both corporations and investors that they are gearing up for some interesting campaigns. “In some instances, target companies will be larger in size, as activists have more capital to allocate. And, because of new guidance from the SEC on proxy advisors, votes may be harder to come by on both sides.
“We expect activist achievement to remain high in 2015 as a number of mutual fund companies, both with active and passive strategies, come to believe that at least some activist investors, especially those that bring strategic advice to the table, can add longterm value to the companies they own.
“Still, not all activist situations will be contentious in 2015. More companies are listening to advice from investors (and some more humbled advisors) and deciding it may be helpful to add some new perspectives to the board or move toward strategies that are designed to enhance value.
“After talking with shareholders at a targeted company, all parties may come to the conclusion that a proxy fight might reach almost the same outcome as a settlement. In this environment, we expect to see more dialogue between activists and companies in 2015. The best advice for companies is to understand that articulating the value proposition and the strategic plan for creating value is critical to gaining investor support.”
Tom Germinario, Senior Vice President of D.F. King & Co., Inc., and Co-head of its Corporate Proxy Division:
“The rise in shareholder activism is definitely the primary concern among public companies, large and small this year. Companies need to be more aware, and more proactive than ever in terms of the way they stack up with peer groups on capital allocation strategy, on maintaining non-core operations, on their governance vulnerabilities and, of course on the overall performance of the business.
“Engagement with significant institutional investors is at an all-time high and is extremely important strategically: Building relationships with both the investment side and the governance/compliance side at important investors - and engaging in off-proxy season timeframes - is critical to achieving support at proxy time.
“The 2015 season is shaping up to be an interesting one, with focus on the NYC pension funds, and their focus on proxy access proposals, continued focus on executive compensation, the impact of the new ISS compensation scorecard policy, increased uncertainty regarding support levels on independent chairman proposals and a special focus on companies making unilateral by-law amendments. Companies need to be on top of their game on understanding policy changes, staying away from trip-wires of activists and articulating their viewpoints with high-level engagement programs.”
Michael Mackey, Owner, Alliance Advisors LLC:
“My top observation about activist investors these days is the sheer quantities we’re looking at today – the huge number of activist funds and the huge amounts of money that are flowing to them, which I’m sure all your other commenters will note too. Every week we see new activist funds splintering off from older ones.
“So my own top-tip is to be prepared – and to do your homework with special care. And if you are underperforming your peer group in any way, prepare even harder.
“Second, while every smart company will have some sort of ownership identification program in place, we say, pay extra-special attention to your activist investors. We have a a program called “Activist Watch” that focuses specifically on this segment of a company’s shareholder base: Who’s coming, and maybe going, and what exactly are their hot-buttons when it comes to choosing sides - and to proxy issues in general.
“Lastly, we are great believers in something we call “Insight”- a detailed pre-meeting analysis of the investor base – and how investors voted last year – followed by a detailed post-meeting analysis of the actual voting behaviors, since sometimes, there are important surprises to take note of and possibly to follow up on.”
Ron Schneider, Director of Corporate Governance Services, RR Donnelley Global Capital Markets:
“Proxy disclosure and voting issues have become far more complex – and far more contentious than ever before – even where once seemingly ‘routine’ things are concerned.
“No surprise then, that we find more and more companies spending very high-quality time on their documents, and looking to incorporate ‘best practices’ – on the way the important items are ordered, on trying to simplify the language - and to highlight the most important items with headlines, sub-heads and the use of color - on using charts and graphs, and in general, trying to make the reading experience easier, so the big and most important points will jump out. Companies are also realizing that the web – and the use of tablets and i-phones to access and to act on proxy voting information - is making it important for them to improve the reading experience here too.
“And, of course, if you fear a potential “Vote-No campaign”, or a potentially tough vote on your say-on-pay, or on some other proxy proposal – or, worst of all, find yourselves in an actual proxy fight – having clear and compelling communication of your official positions is absolutely critical to winning the day.”
Artie Regan, President and Owner at Regan & Associates, Inc.
“whom your editor calls the king of community-centered proxy fights”: “Thanks to the New Activism, small and mid-cap companies will find themselves the targets of activist campaigns – and outright proxy fights – to a greater extent than ever before.
Many of the targets will be community banks and thrifts, or in other smallish community-oriented companies that are often in their third or fourth generation as public companies. Typically, they have been very conservatively run…which is what attracted attention in the first place. And here, thanks to different ‘generational priorities,’ the community is often split almost evenly down the middle on whether to sell or merge – or to continue as an independent ‘mainstay’ of the community.
Most of these companies – and sometimes, many of their key advisors too – will find themselves totally unprepared for an activist attack - which is not a good thing So start thinking and prepping now. Two other important facts to take to heart if you find yourself in this situation: First; recognize that tactics that win on Wall Street won’t always win on Main Street…But, more importantly, the group that has the best advisors - and the best laid and best executed plan to win – will almost always win.