Archive for the ‘Investor Relations’ Category

Proxy Season Toolkit

January 14th, 2015 | By

NACD Proxy Season Toolkit

As the 2015 proxy season gets underway, are you looking for the latest information on the priorities of major institutional investors? Are you interested in benchmarking your board’s approaches to proxy statement disclosures and other critical shareholder communications?

To help you prepare, we’ve bundled five of our most recent and most relevant publications into the NACD Proxy Season Toolkit, a one-stop shop for public company boards.

  1. Investor Perspectives: Critical Issues for Board Focus in 2015
  2. Sample Board Expertise Matrix
  3. Preparing the CD&A: Priority Considerations for Boards
  4. Pay for Performance and Supplemental Pay Definitions 
  5. Enhancing the Audit Committee Report: A Call to Action 

For more insights on the issues currently facing public company boards and key committees, visit NACD’s Board Leaders’ Briefing Center. And be on the lookout for our exclusive proxy season preview, written by ISS’ Patrick McGurn, in the next issue of NACD Directorship magazine.

NACD BLC 2014 Breakout Session – Balancing Shareholders and Capital Markets

December 2nd, 2014 | By

On the morning of Tuesday, October 14, 2014, a group of Board Leadership Conference attendees  joined Alan M. Klein, Partner, Simpson Thacher; Jamie S. Moser, Partner, Joele Frank; and moderator Chris Ruggeri Principal, Deloitte for a power breakfast session entitled “Balancing Shareholders and Capital Markets”.

The Landscape

It is well known that there has been a rise in shareholder activism over the last few years. There are more than 400 activist funds today with more than $100 billion under management. If viewed as an asset class, activist funds are a top performer. Money flows to where it can generate the largest return, and activist-backed funds have flourished. In turn, panelists observed that this has emboldened shareholders of all stripes. In their quest to have a more prominent voice in how companies are run, these investors have changed the dynamics of company-shareholder interaction.

There are many different kinds of shareholders ranging from professional, established investors to newer, smaller entrants into the market. Moser believes that some larger organizations that tend to maintain long-term positions in companies can be considered activists as well. While they prefer not to run campaigns on their own, they feed ideas to others who will. Klein noted, “In a sense these ‘long only’ funds have outsourced their activism”.

Tactics

Panelists noted that activist shareholders don’t pick targets lightly. They spend a significant amount of time drilling down into companies, and have a surprising depth of knowledge. As such, it would be a mistake to disregard them or view them as superficial. Nevertheless, there is often a mismatch between the way those who run companies view their businesses and the perspective of many activists.

Governance issues can be used as part of a shareholder’s demands. Although they are not typically the crux of an activist fight, these issues can become part of the story and set the tone. For example, panelists cited topics such as related party transactions or sluggish board turnover as “low hanging fruit” for shareholders. Even if these issues have been properly disclosed, a shareholder may use them to put the company on the defensive.

On the other hand, some investors – particularly the more well-established fund – ask for reasonable conversations with the board and management. Panelists observed that if directors can demonstrate to them the validity of the current plan and why their thesis is wrong, some investors may listen or even back off. That being the case, engagement is extremely important.

Outreach

It is critical that directors understand the perspective of the company’s shareholders. The first question Moser asks  a company is, “When’s the last time you spoke with your top 10 shareholders?

Further, the board should engage with shareholders for the first time outside proxy season, when the discussion is often centered around voting. Then, if a proxy contest starts, the company can reply “our board has been speaking directly with shareholders; we’ve been active and engaged.” Meetings between the board and investors should demonstrate transparency and openness. Directors can simply ask investors, “what’s on your mind?” Of course, panelists noted that it is important to remain conscious of Regulation FD; avoid the discussion of material items in a one-on-one setting.

Boards can also go beyond annual “deep dives” to ensure the current strategy is still viable. For example, Klein suggested that boards invite a banker to give a presentation, valuing the strategic plan and showing how it stacks up to strategic alternatives. If the board has conducted this type of analysis, they are more able to speak to the current strategy’s strengths and how it will produce the most value for the company. It is also important that the strategic plan for the company is communicated in the most compelling way possible. “The first three-quarters of any ‘fight letter,’” Moser noted, should be about strategy – how your strategy provides more value than what the shareholder is proposing.”

Activist Investors on the Board

Finally, the panel discussed how boards can work with new activist directors once elected to the board. Klein noted that most activist situations  today end in a negotiated outcome:  Either a proxy fight doesn’t start, or the fight may end before it ever gets to a vote. Typically, as the result of a negotiation, the shareholder ends up with one or two seats. If these new directors can make their case in a logical manner, a fresh perspective may prove beneficial for a board.

Ultimately, panelists agreed that there has been a sea change regarding how companies and their shareholders interact. To the question of whether activism is good or bad, the answer is “yes”– it depends on facts and circumstances.

Responding to Activist Challenges in the Boardroom

July 17th, 2014 | By

Recently, NACD convened the spring 2014 meeting of the Nominating and Governance Committee Chair Advisory Council. Delegates discussed the impact of activist investor challenges in the boardroom, with guests Janet Clark, a former director of Dell and Bill McCracken, a former chairman of CA Inc. This session built on dialogue from the council’s previous meeting in November 2013, where delegates discussed shareholder activism from the investor perspective with two representatives of activist hedge fund Trian Partners: Nelson Peltz, CEO and founding partner and Brian Schorr, partner and chief legal strategist. Insights from the April meeting include:

  • Understand the specifics of key investors’ profiles and priorities: Boards should ask management to report on takeaways from the company’s dialogue with “both sides of the house”—that is, those making investment decisions, as well as those who vote the proxy statements.
  • Activist campaigns often have a significant impact on board dynamics: Directors may have differing views on how to respond to an activist campaign, which can create tension among board members.
  • Senior management should maintain a focus on employees during an activist campaign. Many delegates agreed with one who urged boards to keep an eye on culture and employees: “We have to keep generating revenue and retaining our talent, in an uncertain and potentially very contentious environment.”
  • Use outside perspectives to help prepare for potential activist challenges:Independent assessments, including analyst reports, shareholder surveys, and third-party reviews of board members’ tenure and skill sets, as well as perspectives from the firm’s independent advisors, can be useful in this regard.

The forum also included a discussion on building the boardroom of the future through effective “board refresh practices.” For an in-depth discussion of these and other insights and questions, click here to read the full Summary of Proceedings.