In Preparing for Shareholder Activists, Board-S'Holder Communication Is Key

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By Susan Bokermann

March 13 — “Companies who try to insulate their boards from their shareholders are doing their company a great disservice,” Stuart Grant, co-founder and managing director of Grant & Eisenhofer, P.A., said March 12 at the Georgetown Law Corporate Counsel Institute.

Speaking on a panel about shareholder activism, Grant said “if [a board doesn’t] think about what to do when an activist comes knocking until they come knocking, [they’ve] already lost.”

Activist shareholders underscore the importance of communications between the board and investors, according to Margaret M. Foran, chief governance officer, vice president and corporate secretary of Prudential Financial Inc.

Being a ‘Straight Shooter.'

Investors are interested in a number of board issues, Foran said, including board methods of self-evaluation, tenure, diversity and proxy access. “When you get the call from an activist, [the issue they have] should not be a surprise,” she said.

Foran discussed the engagement strategy that the Prudential board uses to communicate with institutional shareholders and gauge where their interests lie. If an activist investor approaches the board, “you want to be seen as a straight shooter.”

She said simply talking to investors about what’s on their mind is extremely informative. Specifically, meetings between shareholders and the board are useful communication channels.

Foran said she was present during the first-ever meeting between the Pfizer Inc. board and some of the company’s institutional investors. She said it was a good opportunity to create a dialogue and for the investors to see that the board members were not just “smoking cigars and eating bonbons” during the meeting.

She added that not every board member needs to engage with shareholders. “It’s a skill,” said Foran, “you have to be camera ready.”

Grant added that it is OK for board members to ask questions. “I think we’re starting to see boards be more inquisitive now,” he said.

New Developments at SEC, in Delaware

The panelists also touched on new developments related to shareholder activism. Elizabeth A. Ising, partner at Gibson Dunn & Crutcher, noted that companies “are doing different things” in response to the Securities and Exchange Commission's recent announcement that it will be reviewing the rule that allows companies to omit from their proxy materials resolutions that directly conflict with a management proposal. Ising said the spectrum of responses was wide, highlighting on one end of the spectrum General Electric Co., which amended its bylaws to allow proxy access without a shareholder proposal.

Grant also mentioned the proposed legislation by the Delaware State Bar's Corporation Law Council that would prohibit stock corporations from enacting fee-shifting bylaws or charter provisions. He said that the law has a “decent liklihood of passing,” but joked that “nobody's safe when Parliament's in session.”

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

To contact the editor responsible for this story: Ryan Tuck at