Shareholder activism traces its roots back to the Great Depression but has exploded during the past few decades. Today, we are living in what some call the “golden age of activist investing.” Activist investors, by definition, agitate for corporate change through their status as shareholders. They focus on an array of corporate issues, including corporate governance, mergers and acquisitions, cash dividends and stock buybacks, spin-offs, company strategy, and operations. And, they target companies both small and large. In recent years, companies such as Apple, Hess, JPMorgan Chase, Proctor & Gamble, and Sony have all been subject to activist campaigns.
Public pension funds have joined the fray alongside prominent activist investors such as Carl Icahn, Bill Ackman, Paul Singer, and Daniel Loeb. Indeed, shareholder activism has become its own asset class, with an everexpanding universe of hedge funds dedicated to activism, and mutual funds such as the 13D Activist Fund allowing ordinary investors to participate financially in activist campaigns.
Activist investors have waged an extensive campaign to eliminate the “corporate-raider” stigma from 1980s-era activism and have found success by drawing support from numerous constituencies. Mainstream investors and strategic bidders are working in increasing numbers with activists.
Institutional investors are investing in activist funds. The financial press dedicates a beat to the goings-on of shareholder activists. Academics are supporting activist campaigns. And shareholder advisory firms, such as Institutional Shareholder Services (“ISS”) and Glass Lewis, are frequently siding with the activists in making voting recommendations to shareholders.
The success of the recent wave of activism has manifested in many ways. In the 2014 proxy season, for example, shareholder proposals for board declassification and majority voting in director elections received record shareholder support, respectively averaging 84% and 57.2% of votes cast. Additionally, in 2013 and 2014, shareholders successfully obtained board seats at eBay and Microsoft, achieved a higher price-per-share during Dell’s going-private transaction, and incited a division spin-off at Timken. In light of recent activist success and prevailing shareholder sentiment, many corporate boards now proactively eliminate certain activist defensive measures such as staggered boards and protective bylaw provisions.
Corporate boards and management should be proactive in managing activist risk and should be aware of available defensive measures when faced with an activist campaign that may not be in the best interests of the company or its shareholders. The intent of this paper is to assist boards and management in confronting this issue by: (1) providing an overview of the various types of action or change sought by shareholder activists; (2) outlining the means by which management can identify an activist campaign; (3) recommending proactive and defensive strategies to prepare for and defend against actions that are not in the best interests of the company or its shareholders; and (4) discussing relevant legislative developments that may impact shareholder activism.
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