Consider your media, earnings and proxy positions
Steve Austenfeld of The Honest Company and Sobi’s Thomas Kudsk Larsen have had different activist experiences – one arguably ‘friendlier’ than the other. But each stresses the importance of treating activists as you would any other shareholder.
‘While activist campaigns can be inherently confrontational, it is important to treat activists like any other shareholder,’ says Austenfeld. ‘Have discussions with them, listen to their ideas and treat them with respect. Maintain your professionalism.’
Activists often have a very strong public presence, he adds, and might put forward their case in the financial news, pointing out changes they think your company should make. ‘It’s natural to want to respond,’ Austenfeld continues.
‘But I recommend seeking the guidance of your PR team or advisers before doing so. There have been several memorable examples of company executives participating in a financial news television program only to find themselves unexpectedly debating an activist on live TV after the activist was invited on by the news station.’
Instead, Austenfeld advises setting out the company’s position in a controlled forum, such as ‘via SEC filings like an 8K, the quarterly earnings release or during investor presentations at a conference.’ He adds that screening the earnings call Q&A can also be a good idea to avoid unplanned ‘challenging’ questions.
Coming from a more positive activist experience, Larsen points to the potential benefits of activist engagement. In Sobi’s experience, ‘[the activist] understood pharmaceuticals, it understood the industry and the business,’ he notes. ‘So you can actually benefit from speaking to [the activist], you can learn something.’
While the vast majority of activist action takes place well before a proxy fight, if an issue does come to a vote, you’ll need the support of both your biggest shareholders and the proxy advisers. Candace Brûlé says that at Hudbay an annual perception study is integral to understanding the issues that matter most to investors.
‘We have been using the same third-party company for our annual investor perception studies every year,’ she explains. ‘It has a deep understanding of our business, our strategy and our communications approach, which has allowed us to refine the study questionnaire to ensure our management team and board get insightful information out of the study.
It is important to treat activists like any other shareholder
‘In addition, having 10 years of historical annual results from the perception studies allows us to analyze trends and measure our performance on a comparative basis.’
While you should be meeting your biggest shareholders perhaps a couple of times per quarter, Austenfeld says it’s also important to have a call after the proxy has gone out. ‘At that time, [investors will] know the proposals they’re going to be voting on, enabling a productive discussion,’ he explains, adding that the discussion should be focused on any ESG concerns your investor might have, while giving you the opportunity to share the company’s perspective. This is particularly important for investors that do their own research rather than voting based on proxy adviser recommendations.
On the adviser side, Austenfeld says IR professionals should know when proxy advisers’ reports are going to come out before the company AGM. ‘It is not uncommon for there to be only a short period of time to review the report, check for any inconsistencies and attempt to get a correction made, supported by available documentation,’ he points out.
‘The quicker you can respond, the better chance you have of getting the advisers to change a recommendation, which could impact the percentage of votes in favor of a board member or shareholder proposal.’
To minimize the need for corrections in the first place, though, it is important that your company information is clear and easy to find. ‘Sometimes the information that ISS or Glass Lewis is seeking is already available on your website, so it should be easy to both locate and understand,’ says Austenfeld.
‘If a company doesn’t agree with our views, that is very fair,’ says Clearway Capital’s Gianluca Ferrari, adding that ‘over time, we may not always be right in our assumptions. It’s happened before where we bring an idea to management and it says, This is a bad idea for reasons A, B and C. The problem arises when management doesn’t provide the A, B and C – or not in a convincing fashion.’
