With recession fears growing, many shareholders appear to have growing concerns about the strategies companies have executed over the last two years and the strategies companies propose to use in the face of a potential economic downturn next year. Corporate board members may find that shareholders are not very patient in 2023 and may launch efforts to oust board members and/or ask for representation on corporate boards.
One such example involves shipping and mailing company Pitney Bowes Inc. which, according to news reports, has been urged to make significant changes by its shareholder Hestia Capital Partners. Hestia Capital owns a 6.9% stake in Pitney Bowes and plans to nominate more than five candidates for election to the company’s nine-person board and replace the CEO next year, citing operational underperformance, poor capital allocation, destruction of shareholder value and declining creditworthiness.
According to news reports, Kurt Wolf, who heads Hestia Capital, has asked the Pitney Bowes board to re-evaluate its capital allocation and e-commerce strategies as well as consider forming a board committee that could focus on capital allocation and strategic planning. Other suggestions, like the sale of underperforming business units, were also discussed. Since Hestia Capital has contacted other shareholders with its concerns, it is likely there will be a significant effort made to unseat several Pitney Bowes directors in 2023. Other companies may face a similar situation, especially since universal proxy card rules make it easier for shareholders to nominate candidates during board elections.
Re-evaluate Your Strategy Before Shareholders Do
When company performance begins to falter, shareholders appear to want boards to deliver fast responses that can get things back on track. This means that in 2023, more boards may be asked about their strategic planning and growth strategies in greater detail.
It’s probably a good idea for boards to consider re-evaluating their strategic plan for 2023 and beyond – and then meet with their largest investors to communicate how that strategy will lead to sustainable growth. Articulating how the board intends to mitigate the short-term negative effects of a recession will also be important. Boards will win extra points with shareholders if they can articulate strategies to grow revenues and profits during a possible recession. Shareholders will be comforted by the fact that the board is on top of such issues and does not have to be pushed to address them. (The fact that a Pitney Bowes shareholder had to suggest the board create a committee to focus on capital allocation and strategic planning is not good for anyone involved.)
If boards wait until shareholders point out what is wrong or offer solutions to long-standing problems, the board’s credibility will have been damaged. Regaining that credibility will be extremely difficult and may cost directors their jobs.
