Activism’s New Paradigm

There has been a pronounced change on the part of shareholders—their makeup, tactics, goals and powers—a fact that every public company must pay close attention to today.


For public company board members, these changes bring a new reality of engaged investors, with heightened reputational stakes for directors. Noisy, public campaigns challenge the judgment and composition of the board. And proxy fights are more distracting and expensive than is often imagined. In fact, it’s hard to overstate the all-consuming nature of such battles.

Having been involved in more than 50 activist campaigns, we can tell you definitively that once embroiled in a proxy fight, the CEO, CFO, and board members will be forced to spend substantial time dealing with tough, daily decisions, and the costs often run between $4 million to $6 million for a full campaign at a mid-cap company. These costs have been escalating as campaigns go on longer and often involve many advisors; some protracted fights will cost a company well over $20 million. Obviously, some battles are worth fighting, but remember the odds: Companies very often lose—and will get stuck with the bill and distraction anyway. The best defense is to make smart governance moves in times of peace.

Since long-tenured boards have proven to be an easy wedge for activists, boards must proactively consider their refreshment, casting a critical eye on the mix of tenures and expertise. Think about setting a target “average tenure” for the board as a governance policy. It’s rare to find a well-composed, self-refreshing board come under successful attack from an activist.

“the practice of activism has professionalized, with a bevy of advisors that help both investors and companies to engage in these campaigns.”

Structural and strategic moves also help avoid activist campaigns before they begin. The board and management should lead an active, objective review and analysis of popular activist hot-button issues (e.g., capital allocation, capital structure, strategy, operational plans, executive compensation, business configuration, personnel, etc.). One good option is to bring in a third party to help the board “think like an activist” to provide fresh input and objective thinking and identify vulnerabilities (which can be opportunities for improvement) ahead of time.

Creative thinking on investor relations is also crucial. Consider “radical transparency” with investors about the roads taken and the roads not taken. Why did your company take a different path than peer companies? Directors must be prepared to provide rationales about choices made and differences in operating models, strategies, or performance.


Even with the above tactics, a surprise activist campaign involving your company is always possible. How do you respond? As a first step, the board should be immediately informed, ensure there is a response team, and designate a representative to liaison with the team. Most companies turn to their corporate counsel first. And while counsel is critical in these situations, remember that an opinionated investor is not primarily a legal problem. Advisors can be helpful, but too many can be unwieldy.

It is critical to know where your other shareholders stand on the points raised by the activist. But, be cautious in assuming management knows the true feelings of your shareholder base. Investors don’t always tell their true feelings to management.

The management team should actively engage with would-be activists to understand their thesis and points of view. At first, activists almost always seem friendly and express a desire to engage “constructively.” Be wary. At the same time, always remember that being
gracious pays off.

The company must contemplate its approach and words carefully, depending on the activist. Your board can prove a great asset in this engagement. Ensure that one or more directors are designated to speak to investors, should the need arise. (We recognize that many corporate advisers prefer to hide the board from investors. This approach, though common has serious risks in our experience. Directors are shareholders’ representatives and should be willing to meet with those whom they represent.) Whoever speaks for the company should know that there may be a tricky dance required to be both open and compliant with disclosure rules.

This is especially true because activists often suggest things that are actively being considered or are under way, which makes for difficult conversations if the company’s activities are not already public. In meeting with the activist, avoid defensiveness and a closed mind.

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