Strategic Preparations for Shareholder Activism

Here are some essential actions to be better prepared:

1. Assemble a skilled response team now

Some of the most powerful tactics activists bring to the dance, is the ability to call out a company’s poor performance and profitability, poor operational execution and perceived weaknesses on the board of directors. These issues, if made public, can gravitate quickly and draw immediate attention. The first 24 hours after an activist approach could be seen as crucial, depending on the situation.¹

Having an advisor team in place and a preliminary response plan helps you and your executive team to not be caught off guard. The right team includes legal advisors, proxy solicitation experts, financial advisors and PR specialists. A savvy proxy solicitor like D.F. King, equipped with advanced analytical and research capabilities, can provide invaluable early warnings and proper preparation for any situation. Early preparation enables corporate leaders to keep the board informed, prepare communication strategies and take proactive actions to respond to criticisms before a high-profile public campaign.

2. Maintain a robust shareholder engagement program

Developing strong relationships with shareholders is crucial. Engage with large shareholders regularly to understand their expectations and concerns. Develop a good listening mindset to read between the lines in addition to presenting your business plan. Ask for feedback on the company’s strategy and convey the company’s vision for the business in the short- and long-term. 

Strategic engagement builds trust and can help identify potential triggers for an activist campaign before it escalates. A proper engagement strategy also demonstrates to investors that the company and its board are thoughtful and diligent in their approach to management decisions and increasing shareholder value, which increases investor confidence.²

3. Utilize the board as a strategic asset

In the era of universal proxy cards, the individual strengths of directors and your board’s collective effectiveness to oversee the business is paramount. Advocate for and build credibility around your directors well before any proxy fight. Highlight each individual’s relevant experience and strategic contributions. Use creative approaches, such as videos on your website and social channels to showcase why each director is valuable to the business. 

Communicate to investors the individual skillsets of directors and a board that is unified in its strategic vision to increase shareholder value for all shareholders. Educating the board in advance about activist tactics and the importance of unity can prevent activists from exploiting divisions.³

4. Develop and clearly communicate your vision

Investors want to know where the company is going and why. A common misstep when communicating with investors is focusing too heavily on past achievements without articulating a compelling future vision. 

While a strong track record builds credibility, winning shareholder support requires a forward-looking strategy. Activists often present a vision of improved performance under their plan for the company. Clearly communicating your company’s strategic direction for the future and how it will create long-term value for shareholders could provide an edge in an election contest.