PwC Report: Listening to Activist S'holders Key Part of Effective Co. Response Plans

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By Susan Bokermann

March 26 — Good ideas can come from anyone, even activist shareholders, according to a March PricewaterhouseCoopers LLP report, which is one reason that listening is the most beneficial way for a company to respond to an activist campaign.

“There may be circumstances that call for more defensive responses to an activist's campaign,” the report states, but developing shareholder engagement programs typically “can enhance the company's resiliency, strengthening its long-term relationship with investors.”

The report explains how a company generally can prepare for and respond to a wide range of shareholder activists, which are growing increasingly powerful. According to the report, activists held $115.5 billion in assets as of November 2014, a 24 percent increase from the beginning of the year. A Freshfields Bruckhaus Deringer LLP report recently found that activist investments in U.S. listed companies increased 61 percent from 2013 to 2014.

According to the PwC 2014 Annual Corporate Directors Survey from October 2014, 29 percent of directors say their board has interacted with an activist shareholder and held extensive board discussions about activism in the last 12 months.

Know the Spectrum

Preparing appropriately for an activist campaign means knowing the spectrum of activism available to shareholders, from hedge fund activism on the more aggressive end to say-on-pay engagements on the other, according to the March PwC report.

The report notes that it is important to know “who the activists are, what they want, when they are likely to approach a company [and] the tactics most likely to be used,” among other things.

The report emphasizes that knowing the differences between the types of activism—hedge fund activism, “vote no” campaigns, shareholder proposals and say on pay—is the key to successfully navigating an activist campaign.

Preparation, Targeting Factors

The best way to prepare for an activist campaign is to put the company in the shoes of an activist, according to the report. There are four steps that a company or its board should take to do this:

• critically evaluate business lines and market regions from an activist perspective, which might include reassessing how data is gathered and presented;

• monitor the company's ownership and know whether any activists are current shareholders;

• evaluate the risk factors to determine what issues the company should address proactively; and

• develop an engagement plan that is tailored to the company's shareholders and potential issues.


According to PwC, a company is most likely to be targeted by hedge fund activists when, among other things:

• the company has a low market value relative to book value;

• the company has a well regarded brand;

• when institutional investors own the vast majority of outstanding voting stock; and/or

• when the board composition does not meet current best practices, such as having new directors during the past three to five years.


In contrast, a company is most likely to be targeted by non-hedge fund activists when, among other things:

• the company has underperformed its peers;

• a proxy advisory firm has expressed concern about the company's executive compensation or say on pay vote results

• the board is conducting a search for new leadership; and/or

• a shareholder proposal receiving majority support has not been implemented.


Response Tips

The appropriate response when an activist approaches a company involves three basic elements, according to the report.

The first is an objective and deliberate consideration of the activist's suggestions by the company's executive management and the board. The activist has presumably carefully developed specific proposals and expects the ideas to be considered carefully.

The second is finding ways in which the company can work with the activist. The report states that in “2013, 72 of the 90 US board seats won by activists were based on voluntary agreements with the company, rather than via a shareholder vote.” This suggest that companies are avoiding proxy contests by working with the activists. Recently, Dow Chemical Co. avoided a proxy fight with activist investor Third Point LLC by agreeing to add four new independent directors.

Lastly, the report suggests that companies proactively engage key shareholders to “tell the company's story.” The activist will already be engaging with other shareholders, so it is helpful if the company has established credibility and can facilitate its message being communicated to these other shareholders.

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

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

The PwC report is available at


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