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IR Magazine, April 16, 2009 article


Crossbow logoPeople on the street

Steering clear of shareholder activists

Apr 16, 2009

New boardroom checklist from the Conference Board

The Conference Board’s governance center this week issued a roadmap for corporate boards hoping to avoid run-ins with shareholder activists.

Low valuations and an environment of change are ushering in ‘a new wave of investor demands,’ according to the New York-based business organization. Activist funds, though hampered by their own deleveraging, have shifted from campaigns pushing for ‘cash extractions’ to ones promoting strategic and governance-related changes.

‘With the change in the economic climate, it has become extremely difficult for an activist investor to make the argument that cash should go to shareholders rather than being retained to support and finance the company during these difficult times,’ says Matteo Tonello, associate director, corporate governance, at the Conference Board. ‘We’ve seen activists changing their approach to focus much more on strategic, organizational and governance issues.’

Activists’ old strategy could yield a quick return, and that drew support from other investors while bolstering a short-term investment horizon. Now they may have to wait years, not months, for their campaigns to play out. ‘One of the positives coming out of this situation is that those short-term strategies are gone for now,’ Tonello says.

Tonello co-authored the report with Damien Park, president and CEO of Hedge Fund Solutions, a Philadelphia-based consulting firm specializing in activism issues. They say directors should proactively make changes to avoid their company becoming an activist target and give suggestions on making an action plan, including responding to activist publicity campaigns.

The report provides a summary of 41 current activist campaigns and 10 recent settlements. It also sums up shareholder activism’s history and outline RiskMetrics’ 2009 voting guidelines around anti-takeover defenses.

The checklist for directors includes: understanding investors’ intentions; doing outreach as a preventive measure; and addressing gaps and vulnerabilities. The report also gives tips on updating defense measures and responding to activists’ demands.

‘Avoiding shareholder activism’ was designed a follow-up to the Conference Board’s working group report from September 2008, ‘Hedge fund activism: Findings and recommendations for corporations and investors’. Tonello says he is beginning work on a comprehensive ‘annual report’ to be released by year-end. More information can be found here.

By Neil Stewart





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