How Do You Prepare for an Activist Campaign? ‘Think Like an Activist,' Panelist Says

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By Susan Bokermann

Feb. 27 — If you’re going to be prepared for an attack by shareholder activists, “you need to think like an activist,” said Ted Dysart, vice chairman at Heidrick & Struggles, during a Feb. 26 webinar.

The panelists spoke about how to prepare for shareholder activists, focusing on what attracts activists, the tools they use and building the right board of directors to handle activist attacks.

The webinar, “Emerging Trends in Shareholder Activism,” was hosted by the National Association of Corporate Directors.

What Attracts Activists?

Not surprisingly, said Sharon Flanagan, managing partner at Sidley Austin LLP, the things that typically attract shareholder activists are declining stock prices and under-performance by the company.

However, Flanagan mentioned that there could be other attractions, like large amounts of cash on the balance sheet. “Think of Apple and dealing with Icahn—an activist may push for buy-backs or dividends.”

You need to “be looking at [excess cash] all the time, because it makes you a target,” said Rita Foley, director, PetSmart Inc., Dresser-Rand Group Inc., HealthCare Chaplaincy Network. You need to determine what to do with the excess cash—make an acquisition, share repurchases—it should be part of your capital strategy.

Flanagan said activists could also be seeking operational changes, such as changes in strategy or management performance, Foley said.

Activist Tools

There is a broad spectrum of tools that activists use to pursue their agenda. “On the quieter end of things, there could be a letter to the board or the CEO asking for a meeting,” said Flanagan. However, that can quickly move into the public forum, and then public relations become extremely important, she said.

Other avenues include stockholder proposals, withhold vote campaigns and, at the extreme end, proxy contests and litigation.

Who's at the Table?

The board of directors plays an important role when facing an activist, and building the right board is crucial to successfully navigating an activist attack.

You have to make sure “you have the right people sitting around the table,” said Dysart. You have to assess the board from an “outside in” perspective and consider whether you have any vulnerabilities you need to address. The company should take advantage of their proxy disclosures to “really articulate why each and every board member is on the board.”

You also have to look forward to where the company is going, said Dysart. This includes thinking about succession planning and making sure there is enough board member turnover.

Dysart noted that this means not only choosing the right people for the board now, but thinking about “how are we going to groom and develop people for board leadership” in the future. Researching and keeping individuals in mind can be an important tool for a board to use when approached by an activist. One of the easiest ways to reach a settlement in that situation is to “bring some new blood on to the board.”

It Will Happen Quickly

There are a number of things a company can do to prepare for shareholder activists. “When it happens, it will happen very quickly,” said Flanagan. Companies can engage with institutional investors, assemble a team ahead of time, including lawyers and Delaware counsel, PR specialists, and a proxy solicitor and asses the company’s current takeover defense profile ahead of time.

“No company is too big” to be in danger of shareholder activism, said Flanagan, citing Apple and eBay among others. Shareholder activism is on the rise—one in seven companies in the S&P 500 has fielded an activist attack in the last five years—and companies should put thought into how best to prepare themselves for an attack.

To contact the reporter on this story: Susan Bokermann in Washington at

To contact the editor responsible for this story: Kristyn Hyland at