Yes, it’s Another Post about Activism

I’ve written about activism before, but a recent blog by Bloomberg Business caught my attention and spurred me to write again.

Though probably not a surprise to anyone, activism is on the rise, at least according to a survey conducted by law firm Gibson Dunn. Halfway through 2015, there were nearly as many activist campaigns afoot than for all of 2014. Further, the number of funds engaging in activist activities was higher for the first six month of 2015 than for the full year last year … 42 versus 35, respectively. According to the study, the most common reason for activist involvement so far this year has been board representation, followed by M&A, with return of capital a distant third. The New York Times recently noted that activist hedge funds now manage more than $129 billion in assets, compared with $29 billion just 10 years ago.

What does all of this activity mean? Is activism good for companies? Does it bring about positive change? A recent Wall Street Journal article asked the question: “Are Activist Investors Helping or Undermining American Companies?” After a comprehensive look at how activism has impacted large U.S. companies (greater than $5 billion in market cap), the resounding answer was maybe. According to the Journal, “Activism often improves a company’s operational results—and nearly as often doesn’t.” So, what’s the point?

As Wendell Willkie, II, visiting fellow at the American Enterprise Institute and of counsel at Steptoe, wrote for Fortune, activism has gone overboard, stating, “In their quest for quick returns, activists make the mistake of forgetting that it takes time and patience to position any company for success.”

A survey conducted by the National Association of Corporate Directors (NACD) reported in Accounting Today, showed that more than 20 percent of corporate board directors said their boards have been approached by activist investors during the past year. However, 46 percent of those polled do not have a plan in place for responding to activist challenges.

What should companies do when faced with activism? Or perhaps the better question is what should companies do before being faced with activism? Warren Buffet believes that “The best way to keep activists away is to perform reasonably well in your business and also to communicate well with your shareholders,” as noted during a speech at Fortune’s Most Powerful Women Summit in Washington.

Willkie says companies should plan for the emergence of an activist by taking proactive steps to increase shareholder value including share repurchases and cost reductions. But what if you can’t head them off at the pass? The Wall Street Journal recommends the growing popular belief that companies should not shun an activist or completely agree to all demands. The NACD survey pointed out that most frequently, boards have expanded compensation explanations in their proxy statements, revised executive compensation plans or implemented (or changed) their dividend and/or stock buyback policies in response to shareholder demands.

In my experience, when an activist comes knocking, most CEOs take it personally and dig their heels in to mount a defense. While that may be the proper response in certain cases, there is no one-size-fits-all solution. Know your shareholder base, treat each investor with respect (activist or not) and carefully evaluate any proposals that are sent to the board to ensure that whatever route you take will ultimately result in a win for the company’s shareholders.

– Laurie Berman, lberman@pondel.com

Join us in Orange County

Some big names in the world of public companies have agreed to share their insights at two fall conferences at which PondelWilkinson is among the sponsors: UCI’s Audit Committee 2015 Summit and the Orange County Public Company Forum.

UCI Audit Committee Summit 2015, October 23

James Schnurr, SEC Chief Accountant, will be flying in from Washington, D.C. to discuss the confluence of significant changes being contemplated or enacted by the SEC and other regulatory bodies that significantly impact audit committee responsibilities. Following Schnurr’s keynote address will be two interactive panel discussions.

The event will take place Friday, October 23, 8 a.m. to noon, at the Pacific Club in Newport Beach, 4110 MacArthur Boulevard. To register, visit merage.uci.edu/RegisterEvent/2015Audit.

Orange County Public Company Forum, November 18

David E. I. Pyott, former Chairman of the Board and Chief Executive Officer of Allergan, will provide his insight into the world of M&A, gained in part, from one of the highest profile M&A deals of the year, when Actavis acquired Allergan, and then changed its corporate name to Allergan. Pyott’s keynote address will be followed by an expert panel from all walks of the M&A spectrum.

The Forum will take place Wednesday, November 18, 7:30 a.m. to 9:45 a.m. at the Westin South Coast Plaza Hotel, 686 Anton Boulevard, in Costa Mesa. To register, please follow this link.

– Roger Pondel, rpondel@pondel.com

If David Letterman was an IR Guy

Perhaps even more unlikely than injuring yourself while playing Mahjong is the sliver of possibility that David Letterman will be leaving his new retirement life to become … wait for it … an investor relations professional. I can’t even imagine what the probability of something like that might look like as a percentage: .00000000000001%?

Source: Mass Communication Specialist 1st Class Chad J. McNeeley

Source: Mass Communication Specialist 1st Class Chad J. McNeeley/Released

What is possible, however, is coming up with one of Letterman’s famed top-10 lists to define key concepts of IR, especially for management teams that are new to life at the helm of a publicly traded company. Following is our initial list, and we encourage you to add to it on Twitter at #LettermanDoesIR.

1. Under promise and over deliver

2. Treat your shareholders with dignity, even if they’re seething with disdain

3. Love (or at least do not fear) thy activist

4. Show investors, don’t tell

5. Strategize, execute, perform, communicate
or
Strategize, communicate, execute, communicate, perform, communicate

6. Transparency wins

7. The numbers will tell

8. Perform, not promote

9. Do not bury the lead

10. The story is the business, not the stock price

– Evan Pondel, epondel@pondel.com