Del. Judge Urges Companies Not to Cave in to Activists

By Michael Greene

March 18 — There is a growing cynicism over the interplay between activists and target companies, Delaware Supreme Court Chief Justice Leo E. Strine Jr. said March 18.

The skepticism stems from the fact that when targeted by activists, many companies abandon their pre-existing business plans and settle on terms that may not be in the organization's best interests in the long run, Strine said during a panel at Tulane University's Corporate Law Institute conference in New Orleans.

In those cases, employees, long-term investors and communities “take it on the chin” when there is a change in business strategy, he said.

Strine urged management and boards, as a best practice, to regularly review their long-term strategies and stand their ground when facing activist campaigns.

Busy Year

Shareholder activism reached record levels in 2015. Among other high-profile campaigns, Starboard Value LP pushed for Office Depot Inc.'s sale to Staples Inc., and may be gearing up for a proxy fight at Yahoo! Inc. this year.

Also in 2015, Elliott Management, Paul Singer's $27 billion hedge fund, pressured EMC to be acquired by Dell, in the largest tech takeover in history .

At the Tulane University conference, panelist Roger Altman, founder and executive chairman of Evercore Partners Inc., suggested that once an activist shows up, it is too late for a company to put a more positive cast on its long-term projections. By then, the activist has the upper hand and the board feels weak, which results in the company rushing to settle on the activist's terms and alter its business plan, Altman said.

Directors with Expertise

In other comments, Altman said a matter that hasn't garnered enough attention is the looming shortage of directors. While it is beneficial to “inject fresh blood” into boards, Altman said it is becoming more and more challenging for large companies to recruit good-quality directors with “major league business experience.”

Strine stressed that companies need directors with competence and the ability to spot problems. “I think we have hyper-fetishized pure independence” at the expense of having directors with real industry expertise, he said, adding that companies are empowering directors who have less stake in the business and less substantive knowledge.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com