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Poison Pill Adopted Against Founder of Papa John’s

On Sunday, Papa John’s board voted to adopt a poison pill in attempt keep founder John Schnatter, who stepped down as the board’s chair, lost privileges to his office at the company’s headquarters, and was removed from some marketing materials after using a racial slur during a conference call in May.

The poison pill adoption comes at a time when, Schnatter, who has reversed course and lawyered up, is intimating that his personal attachment to the brand and 29.4% stake in PZZA won’t go out without a fight.

In the wake of this turmoil, the company’s stock has seen a sharp decline. Following Schnatter’s resignation on July 12th, the stock has dipped 9%.

The Year of the Activist

A further example that mega market cap no longer serves as a moat to external investor pressure and agitation even in the extant bull market. According to Lazard’s 2018 First Half Review of Shareholder Activism, investors globally spent $40 billion targeting 136 companies thus far. This is an effort to gain board seats, oust the CEO and push for spin offs, respectively. Simultaneously, pensions and passive funds are supporting.

Now is the right time to make sure management’s strategy and the company’s governance is intact and resonating with your investors.  Engage your investors in sunny days, don’t wait for the storm clouds to appear on the horizon and allow an activist to engage your holders first.

Shareholders for Change

New industry body Shareholders for Change (SfC), has announced plans to put one large company on notice for aggressive tax evasion methods in the coming months. This group, which consists of smaller institutional investors from Italy, Austria, Spain, Germany and France, aims to engage on a number of important ESG issues. While the group of investors only manage roughly $22bn in assets, they hope their initiatives will promote change in governance practices, while also giving a voice to the smaller investors of the world.

“We want to cover ESG topics that are not as much in the spotlight, including human rights, workers’ rights and also aggressive tax evasion,” said Tommy Piemonte, head of sustainability research at Germany’s Bank für Kirche und Caritas, one of the founding members of SfC.

While change is the central goal, the group also realizes that size matters. Mauro Meggiolaro, among other representatives, pointed out that many of the shareholder engagement platforms have become too big and bureaucratic, leading to smaller investors losing their voices. By banding together, Shareholders for Change looks to unite smaller institutional investors and highlight issues that pose financial risks to the investment communities.

Who’s at the Door?

Activists knock from the inside. Waiting for that knock to act—to engage with your investors and gain an unbiased understanding of their perceptions and expectations of your company and strategy—will provide an activist with an advantage your board and management team can ill afford. Despite the acknowledgement of the ongoing concern of activism, too many companies are still at risk of being underprepared.

The recent decision by the Superior Court of Washington for King County in Blue Lion Opportunity Master Fund, L.P. vs. HomeStreet, Inc. should serve as a reminder that every public company should have a carefully drafted advance notice bylaw as part of the activism defense strategy. The court ruled in favor of HomeStreet, affirming that advance notice bylaws are common, and that the dissident failed to comply in this instance. The board’s decision to reject Blue Lion’s notice was an exercise of its business judgement, thus protecting the business judgement rule.

A new Rivel study, regarding shareholder activism of global investor relations officers (IROs) at approximately 630 companies, found that most companies are unconcerned, have not hired advisors and do not have a plan in place to respond to shareholder activism. Considering the continued rise in activism, the constant threat it poses to all companies and the fact that a majority of companies have engaged with an activist, the study results are concerning.

Key findings include:

  • IROs believe that shareholder activism is here to stay.
    • 64% believe activism will increase over the next couple of years, and 30% expect activism to remain constant.
  • Most companies have engaged with one or more activists.
    • 56% of the IROs surveyed have had direct experience with activism, a significant increase from 2014 when 45% of IROs reported having engaged with an activist.
  • Despite the prevalence of activism and expectations that it will continue to be a major force, most management teams are not particularly concerned.
    • 54% of the survey participants expressed that their senior management team is “not very” or “not at all” concerned about being targeted by activists.
  • Many companies have done little or nothing to prepare for shareholder activism.
    • Only 31% of companies have gathered structured feedback from their shareholders with a survey.
    • Only 27% have a communications plan in place to respond to activism.
    • Only 17% have preemptively engaged an investment bank for activism defense services.
    • Only 17% have preemptively engaged a communications consultant.

The poll also found sharply divided sentiments regarding the impact of shareholder activism. Thirty percent of IROs view activism as a “negative force in the equity markets,” while 23% consider it a positive force. Global buy-side investors have a more definitive view: nearly seven in ten global buy-side investors (69%) view activism as a positive force in the equity markets.

Rivel Prism Webinar – Activism 2.0

On November 1st, Dave Bobker was joined by Jim Woolery, Head of M&A and Corporate Governance, King & Spalding, and Steve Frankel, Partner, Joele Frank, for a discussion on the latest developments on shareholder activism.

Activism 2.0: The New Paradigm

Jim and Steve provided a very insightful look at the strategy of investment funds, the evolving activism landscape and proactive steps for companies to take. We discussed the importance of open dialogue with investors on a growing number of topics, and the challenges many companies face in determining which investors to contact, how to gain an audience and how to assess relative strengths and weaknesses.

You can listen to the full presentation here: Activism 2.0: The New Paradigm

If you would like to receive a copy of the presentation, or discuss how your company can effectively engage investors on any of the issues discussed on the webinar, please contact Dave Bobker at