A New Era of Shareholder Engagement

In the delicate dance of shareholder engagement, a new tune is playing – and everyone is watching their step. A recent FW Cook blog dives into the aftermath of the SEC’s February guidance which subtly but significantly redefined what it means to be a “passive investor.” Based on conversations with clients and investors, they discuss the ripple effect on how investors now interact with portfolio companies.

From Dialogue to Disclaimer:

• Hitting the pause button. Some investors put a brief hiatus on engagement meetings following the 13D guidance as they recalibrated their approach.
  
  
• A slower tempo. Engagements are increasingly “listen only” – regardless of whether the investor has over a 5% interest or not.
  
  
• Treading lightly. Investors are reading “disclaimers” to specifically state they do not intend to influence the control of the issuer.
  
  
  • Meetings are less likely to have an agenda, and fewer direct questions are being asked.

Speak Loudly, Even if No One’s Asking. If investors pull back, companies must lean in harder.

• Understanding investor priorities and voting expectations is more important than ever.
  
  
  • Stay on top of investor policy guidelines and be prepared to speak to how and why company programs and policies align or differ from the investor’s expectations.
    
    
• Don’t assume that no questions means that the investor is satisfied with your compensation approach. Anticipate concerns and be prepared to bring them up on your own.
  
  
• Communication materials must do the heavy lifting.
  
  
  • Clarity, context and connections to investor guidelines can preempt misunderstandings and demonstrate alignment before concerns surface.

Bottom line. The quieter the engagement, the harder it may be to detect trouble until it’s knocking at your door. Institutional investors may be playing it safe for now, but that doesn’t mean companies should.

Meanwhile, activist investors continue to be a real threat in times of uncertainty. Kirkland & Ellis outlines five tips for companies to address shareholder activism during uncertain times.