In the previous blog we had discussed what shareholder activism is, who are shareholder activists, their modus operandi and the companies they are likely to target.
In this blog we will look at methods to deal with shareholder activists when a company is a target.
Preparing before an activist targets the company
- Know your vulnerabilities: A company should know its vulnerabilities which may attract the attention of a shareholder activist. Examples of such vulnerabilities are: large cash and equivalent balance, underperforming division, unrelated diversification etc. Conducting a perception audit amongst its current and previous shareholders will enable the company to know the investors concerns which can be exploited by activist shareholders.
- Establish and prepare response team: A team comprising of senior executives from various functions should be formed to enable the company to be ready in case it is an activism target. This team should meet at regular intervals to discuss and update strategy.
- Monitor shareholder base: Company should regularly monitor its shareholder base to see if any activist or its known associates have acquired a stake. This will enable the company to establish contact and gauge the motive.
- Reach out to investors: The Company should communicate regularly with its investors with respect to its strategy, future business plans, targets achieved, etc. This will help to gain their confidence and trust.
- Review current plan and strategic alternatives: Company should periodically review its current plan, the progress v. the targets, and also explore other strategic alternatives.
- Prepare likely responses: In case the company is not performing well it should be ready with the reasons for such underperformance and also course corrections steps that company is taking/intends to pursue.
- Keep the board informed: Top management should inform the Board about the issues the activist may raise and ways by which the company will deal with it. This will help earn the board’s confidence and backing for the contingency plan.
Steps to be taken after an activist has approached the company:
When discussions are private
- Engage proactively with the activist: The Company should engage with the activist to know his concerns and respond to all points raised by the activist sincerely.
- Try to keep the discussions private as far as possible: The discussions with activist should be kept private as the news may harm the company’s reputation and have a bearing on its stock price.
- Keep the board informed: The board should be informed regularly about the concerns raised by the activist and the company’s response to it.
- Be open to various alternatives: The Company should be open to consider various alternatives that the activist would suggest to be able to realize its goals.
- Be fast, practical and sincere in your approach: The Company should be fast, practical and sincere in its approach. This will assure the investor that the company is taking the concerns raised by it seriously and is eager to resolve the issues.
- Have a clear strategic focus: Clear strategic focus will help the company to convince the activist about the steps it is undertaking to achieve the strategy, and the time frame required.
When activist goes public
- Engage media, legal and public relations consultants: As the fight is now in public domain, it would be prudent for the company to engage various consultants in the field of legal, media, PR etc. as everything the company says should be done after careful examination of its possible legal repercussions and impact on its image.
- Be ready with responses for points raised and likely to be raised by the activist: This helps the Company to respond swiftly and also creates a positive image
- Stay in touch with and update current investors, journalists, and analysts regularly: This helps the company to put its point across to a wide audience without distortions and also helps assuage any fears that they may have.
- Update employees and other stakeholders frequently: Employees and other stakeholders may become anxious on reading about the fight with the activist shareholder. Informing the stakeholders about the company’s position at regular intervals will help soothe their nerves.
- Keep the board informed: Keeping the board informed is necessary as any agreement reached with the activist would require board’s approval. An informed board is also able to answer queries it may be asked by the media and offer suggestions towards an amicable resolution.
- Don’t engage in personal attacks: The Company should never resort to personal attacks as it may further infuriate the activist shareholder and is seen as a sign of the company losing the battle thereby denting its image.