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12 May. 2010 | Comments (0)

Experts agree one of the most important issues for a board and its management to deal with every proxy season is to evaluate their exposure to shareholder activism. Like every risk management process, that entails the board asking the right questions to assess the gaps and vulnerabilities. During the second of a three-part Conference Board Webcast last week on The Changing Face of Shareholder Activism: Best Practices for Companies for Engagement, Assessment and Response, Paul DeNicola, Governance Center director, moderated a panel led by Damien Park, managing partner of Hedge Fund Solutions and co-author of The Shareholder Activism Report and Portal: Best Practices and Engagement Tools for Public Companies. [For more about the report, click here.] Arthur Crozier, co-chair of Innisfree M&A Inc., and Matthew Sherman, partner with Joele Frank, Wilkinson Brimmer Katcher, dispelled the notions that hedge funds are short-term investors (they actually hold shares for an average of 20 months) and that most activists are intent on selling the company or getting cash out of it (many now focus on strategic, operational and governance issues). But more importantly they pointed out some rather important questions boards and senior management should be asking themselves about the activism process. “What’s the market perception of us?” Crozier said. “How do our corporate governance practices line up with our peers? What is the outreach to our shareholders?” Sherman had some additional questions. “What is the story we tell on the Street?” he said. “Is it credible? If we ourselves are the recipient of a 13-d filing letter, do we have the team to mobilize [to deal with the activism campaign]?” As for reaching out to the activists (whether they are hedge funds, traditional funds, state pension funds, corporate governance groups), Sherman had a bit of advice. “Absolutely not,” he said in response to a question about whether a company should approach an activist before a campaign). “You don’t want to be the tall blade of grass that will be cut. It might not be the best use of management’s time. But if they call, it makes sense to return the call because all they may be asking for is public information anyway.” “Ignoring them may not make them go away,” Crozier added. Park and Matteo Tonello, the co-author of The Shareholder Activism Report and Portal as well as director of governance research at The Conference Board, addressed the assessment of gaps and vulnerabilities for target companies as one of the recommendations in the report. They recommend that companies and boards evaluate exposure to activism by taking the following six steps: •    Identify critical issues •    Assign senior management responsibilities •    Validate major financial decisions •    Reassess strategic goals •    Remain abreast of emerging governance standards •    Explain departures from best practices. The last part of the Webcast series, which airs at 3 p.m. Thursday, will focus on Avoiding and (if Necessary) Responding to Shareholder Activism. It will feature David Katz, corporate partner of Wachtell, Lipton, Rosen & Katz, and Justus O’Brien, who co-leads the North America CEO succession and board services practices of Egon Zehnder International. [To watch a replay of last week’s Webcast or register for Thursday’s Webcast, click here.]
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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