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Four Tips for Handling Shareholder Activists

Tip Sheet - PR News 09.08.08

BY BETSY BROD, MBS Value Partners, New York

While there are no tried-and-true steps to take when a shareholder activist contacts a company’s management, there are actions that can mitigate potential damage. A study that evaluated 13D filings between 2001 and 2005 found that most interactions between activist shareholders and companies are not intended to be hostile and, when they do escalate, it is typically a result of a lack of engagement and/or communications by the company target.

Most of the actions that would be recommended for company being targeted by an activist shareholder are things that public companies should do regularly as part of an ongoing IR and PR program to ensure good relationships with their investors, including the following best practices:

Know who owns the stock, and talk to the shareholders on a regular basis. There is probably nothing more important than maintaining an ongoing dialogue with your shareholders both in good times and when things are not going according to plan. Companies tend to hide when the news is not good instead of getting in front of the situation. Any experienced IR professional will tell you that it is important to meet with investors during tough times to discuss what has happened and to present an action plan to remedy the situation.

Shareholders are more willing to stay with a company when they clearly understand the strategy and have benchmarks to evaluate the company’s progress. However, if you have never established a dialogue with your investors, it is difficult to go to them for their support when an activist shows up at the doorstep.

Evaluate your governance and recognize that weak spots are obvious to all. There are well-recognized standards of corporate governance. It is important to be familiar with them and to understand where the company may be vulnerable. If the company is profitable and growing, it is likely that this won’t be an issue. However, when something goes wrong, this is one of the first areas activists target and subsequently take public.

Common examples of areas that attract the attention of activists include imbedded takeover defenses, board composition and a CEO compensation package that is above industry norms. If it is impossible to correct the governance issue in advance, at the very least develop a credible explanation for why the situation exists and what, if anything, the company is doing to rectify it.

Research the "activist" to determine their strategy and evaluate their record. Basically, there are two types of activists: those who have the clout and financial resources to stage an all-out attack on a company, and those who make noise and call others to action.

It is important to understand which you are dealing with, as that can give you a clearer understanding of the tactics the company can use to delay action and keep the activist’s side of the story out of the public eye. More often than not, a company is contacted by the activist before anything is made public. This is the time the company should begin a dialogue with the activist.

Develop an active media relations program. Many companies shy away from media outreach efforts because of recent poor performance. However, a good PR professional with relationships in the financial media can help develop a story and pitch it to the appropriate targets. While the company’s performance may be lagging, it is important to understand why and to see if there are other positive aspects that can be developed into an effective investment story.

For example, if the company is in an industry that is out of favor and all companies in its peer group are under pressure, it might be a turnaround story. Plus, knowing the investors that are buying the stock and the reasons why analysts are recommending the stock can often lead you to a story. It may be that Wall Street believes management has positioned the company to outperform when the industry rebounds and that the strategy will pay off.

To develop an effective media relations program in an activist situation, it is always helpful to have a strong IR expert on board who can help the company with their investment community relationships and develop an understanding for the company’s investment merits. Together, they should have the ability to develop a sound investment story, determine the appropriate target publications and gain positive financial media coverage before an activist has the opportunity to go public and potentially damage the company’s hard-earned reputation. PRN


Betsy Brod is a partner with MBS Value Partners and member of the Worldcom Public Relations Group. She can be reached at betsy.brod@mbsvalue.com.