NACD Directorship: Striking the Right Tone for Activist and Overseas Engagement
The National Association of Corporate Directors (NACD) and FTI Consulting recently hosted a prestigious group of directors at the Harvard Club in New York City to discuss two major issues facing boards: activist investors, and mergers and acquisitions (M&A) in foreign markets.
What to do when confronted with an activist investor is arguably one of the biggest issues a board will face. While a contest or proxy fight may not be completely unavoidable, Steven Balet, a managing director in FTI Consulting’s strategic communications practice, noted that proper engagement is critical and can help a board set the tone for how interactions with the activist will go.
“What frustrates activists is a sense that the conversation is one-sided and that they aren’t making any progress. Having a member of the board involved in the initial or follow-up engagement helps,” Balet said. “If a board ultimately decides that the activist’s outlined plan is not in the best interest of the shareholders, having had an open and honest engagement deprives the activist of declaring just the opposite to investors and proxy advisory firms such as ISS [Institutional Shareholder Services].”
Balet also warned that increasingly active activist investors develop relationships with institutional investors due to their repeated contact during activist engagements. “Management and boards may speak to certain, more passive investors just once or twice a year, while activists are interacting with these investors five to eight times a year,” he said. This is increasingly important as activists have largely shifted away from a “sell the company” tactic to a “balance sheet” approach that calls for more divestitures, buybacks, increased dividends, and, in general, a capital allocation stance designed to return as much cash as possible to shareholders — including advocacy of companies.
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