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.