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How to deal with activist shareholders.

Byline: Rich Steeves

Shareholder activism is one of the hottest topics in corporate governance right now, and public companies are looking to figure out how to navigate the tricky waters that flow from these campaigns. A panel at SuperConference 2015 looked to provide some insight as to what companies should do in the event of a shareholder activist campaign.

The panel, "Rules for Dealing with Activist Shareholders," featured Tiffany Fobes Campion from Latham & Watkins; Phillip Goldberg, partner, Foley & Lardner; and David Rawlinson II, vice president, deputy general counsel and corporate secretary, W.W. Grainger.

"The activists are the rockstars," says Goldberg, who has represented dozens different activist investors in the past 18 years and has noticed how the narrative surrounding activist shareholders has evolved, especially in the past three or four years.


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Activism is on the rise, and Campion said that "no business is safe from activism," and she also noted that activists have had a great amount of success when it comes to proxy battles. Goldberg supported her statistics, remarking that activists are now targeting some of the biggest companies in the land.

Rawlinson mentioned that there are a great deal of social and environmental activist campaigns, but he stated that it's the financial activist campaigns that are on the mind of general counsel and boards. And Campion brought up the notion that activist shareholders are savvier than ever, writing whitepapers and using search firms to identify board nominees.

"Activists are not just hedge funds; you're seeing them team with pension funds," remarked Goldberg. "That's been a recent phenomenon that has changed the landscape." Proxy firms like ISS and Glass Lewis have been favoring activists in many cases as well. And Rawlinson noted that long-term passive investors have reached out to activists to address concerns with the way certain companies are being run.

"The days of 'greenmail' are gone," said Goldberg, noting that activists rarely take a settlement to "go away" and that this will make it difficult for them to perform a future campaign.

The panelists then turned to speak about the most common tactics of activist hedge funds. Goldberg stated that the activists he represents start by doing research on potential targets, then accumulating a percentage of the company, waiting for the right moment to pass the 13D threshold. Often, the activists will then speak to the company and voice concerns, hoping to sit down with the company and discuss certain matters.

At that point, says Rawlinson, it's best for companies to sit down and talk to these activists if they approach in good faith. He recommends that companies dictate the terms of the meeting, such as who attends.

Campion recommended taking a close look at the members of your board, in order to make sure you identify any board members that are potentially too entrenched. If you do so, you can address this matter before an activist investor forces you to deal with it.

If the fight moves on to the submission of letters to management, requesting board seats or a change in structure or management, companies should hope they have a plan in place to deal with this phase of activism.

For more on SuperConference 2015, follow InsideCounsel on Twitter and check back for more updates all week.
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Publication:Inside Counsel Breaking News
Date:May 13, 2015
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