An “Offensive Playbook” for Shareholder Activism

Global “swarming” in the first quarter saw a record high since 2019 according to Lazard’s analysis of early 2023 activism trends, fueled by high levels of new campaigns in the U.K. and Germany and increased activity in APEC countries. Despite a decline in new activism campaigns in the US, the changing landscape of activism to include non-traditional activists who possess a wider and often more unconventional range of priorities, combined with the new universal proxy contest rules means companies should keep a watchful eye on activism efforts in their industry.

A recent Wachtell article in the Harvard Law Corporate Governance blog discusses the importance of anticipating activism and offers tangible steps management should take to avoid an attack and prepare strategies in the event of a campaign. Careful planning and some offensive moves increase the likelihood of a favorable resolution.

Preparation Prior to Activist Activity

• Create a SWAT analysis that objectively assesses the business - identifying weaknesses in operations and how threats may be mitigated. Evaluate how areas of strength can be further improved.
  
  
• Develop a robust and ongoing shareholder engagement program. Ensure management has a strong understanding of investor preferences, priorities, and an accurate view of how an investor may consider an activist challenge.
  
  
• Effectively communicate the company’s strategy, progress towards goals and be able to articulate rebuttals or misguided criticisms. Closely monitor enterprise initiatives such as transformation, innovation, succession as these areas have become increased areas of interest for activists.
  
  
• Anticipate initial warning signs of activists – understand common tactics and adjust plans as necessary.
  
  
• Button up corporate governance practices to ensure non-public records like board meeting minutes and confidential information are safeguarded.

 Engagement During Activism

• Arm the board with knowledge of an activist’s history and how they have interacted with companies in the past. Prepare the CEO and directors to align on consistent messaging between so everyone is equipped to respond to inquiries and criticisms.
  
  
• Proactively engage with activists when possible to understand their specific demands, keeping dialogue constructive while maintaining the company as the decision maker.
  
  
• Partner with public relations/media teams to be in front of negative press led by the activists. Create contingency plans and draft statements for thoughtful yet prompt responses.