Challenges companies face with surveillance
Sectors go in and out of fashion for activists while today’s hot-button topic wouldn’t necessarily cause a stir in the next proxy season. But stability shouldn’t equate to complacency.
‘I worked at a highly stable, very mature, healthy company, with well-developed processes and favorable governance scores,’ recalls Steve Austenfeld of The Honest Company, talking about his activist experience at a previous company.
‘As a result, an activist campaign wasn’t on our radar – and we were caught completely by surprise.’
Today, he describes himself as being much more attuned to activist campaigns. ‘We are constantly looking at our stock surveillance reports and talking to our stock surveillance advisers,’ he says. ‘We speak to them about peer holdings and any activist campaigns they are aware of, to make certain we’re attuned to any campaigns that might be relevant to our company. I look at whether there is anybody new in our top 50, anyone deemed to be an activist or that I’m aware of ever having been an activist.’
Austenfeld explains that he reviews the stock report – and talks to his surveillance provider – on a weekly basis. ‘The data is about a week or so in arrears, but obviously much more reflective of our current shareholder base than 13F data,’ he notes.
He also runs a quarterly audit with his surveillance firm to examine any gaps in intelligence. But even with careful attention to the stock report, he says an activist can creep into the stock.
Laura Turano, partner in the corporate department at Paul Weiss, agrees, pointing to two big challenges companies face when it comes to surveillance. ‘First, activists often accumulate ownership through derivative positions,’ she says. And in the US, the beneficial ownership regime ‘doesn’t currently provide an effective early warning to companies.’
Candace Brûlé, vice president of investor relations at Hudbay Minerals, points to another challenge: ‘We’ve seen an increase in high-frequency trading and ‘dark market’ exchanges over the past several years. This has reduced visibility into daily trading information from market data platforms, such as Bloomberg.’
These issues only make surveillance more important, say both Brûlé and Turano. In fact, Brûlé describes the company’s shareholder surveillance provider ‘as an extension of our IR team’, pointing to its ability to review trade settlement reports and provide insight into the buying and selling of a particular block trade, for example.
We are constantly looking at our stock surveillance reports and talking to our stock surveillance advisers
I look at whether there is anybody new in our top 50, anyone deemed to be an activist
Clearway Capital’s Gianluca Ferrari says it’s ‘very important for a company to know and to continuously engage with shareholders and take their views and opinions.’ He stresses though that ‘this should be done in the interest of driving value for shareholders, not in making sure that you’re not vulnerable to an activist.’