AGMs are a natural forum for activist grandstanding and top companies are always likely to attract criticism, but good intelligence gathering in advance can help prepare for possible risks
For the vast majority of public companies, the annual general meeting is over long before anyone has had a chance to doze off at the meeting venue. Auditors are rehired, directors reappointed, and stock option plans authorized, all in a span of minutes.
‘My experience is that sometimes the meetings are nothing; they’re inconsequential. The board meets somewhere and two shareholders turn up. That’s it,’ says Steffan Williams, managing director of London IR agency Capital MS&L. ‘But that’s not the case for some unlucky companies.’
Proxy challenges, unexpected interruptions, protests and unruly behavior from dissident shareholders or social activists can cause a corporate IRO to quickly adopt a new definition of ‘hell’.
‘If you are a Fortune 100 company today, someone will be irritated about something, no matter what you do,’ says Ray O’Hara, a long-time security executive who works with corporations around the world to protect their high-profile events.
Activist shareholders, for example, may decide they can no longer tolerate corporate performance that consistently lags behind industry peers, or that they don’t like management’s unwillingness to consider strategic alternatives. Social protest groups like People for the Ethical Treatment of Animals (PETA) and Greenpeace may condemn corporate operating practices that violate their ethical charters. In both cases, the annual meeting becomes the focal point for outrage.
‘If activists show up at a board meeting and no one predicted it, someone at the company should be in trouble,’ O’Hara contends.
Thwarting the plan
Activist groups picketed Wal-Mart Stores’ 2007 annual meeting in Arkansas, staging a circus parody (‘The greediest show on earth’) leading up to the meeting. Protesters in Seattle handed out flyers, waved picket signs and exhibited inflatable characters to rail against Starbucks. People like O’Hara worry, particularly for biotech and pharmaceutical firms, about protesters crossing the line.
‘The PETA activists have taken a more aggressive stance over the last couple of years,’ says Brian Armstrong, vice president of corporate consultancy FD Ashton Partners. ‘Those people are the outliers of the group, causing physical harm to property and people. Those are things you just can’t mess around with.’
Long before the annual meeting, and as standard practice, corporations should know what activists are saying about them to news reporters, in blogs and on websites. Good intelligence gathering helps companies assess and prepare for possible risks.
Advance teams can check out meeting venues, examining the facility’s security strengths and weaknesses, and identifying police, fire and medical resources. They can also work with local authorities to determine where and how best to allow activists to congregate.
Shareholders can be mailed private invitations to the event so there’s no public press release of the AGM’s place, date and time. Shareholders with no prior RSVP and no identification would not be admitted.
Minimizing activist outbreaks
For some shareholders, the annual meeting can be a place to berate board members for poor decision making or performance. ‘It’s one point in the firm’s annual calendar where senior management and the board physically have to place themselves in front of investors, whether they want to or not,’ says Williams.
Many larger companies restrict the amount of time shareholders can speak. ‘Those on the podium are instructed not to create a debate,’ O’Hara says. ‘Plus, venues are not necessarily public property, so if a meeting is disrupted it’s possible to enforce a trespassing law, or some other municipal law.’
The real battle is fought weeks prior to the meeting, in the proxy. ‘Between 90 percent and 95 percent of the vote has already been cast prior to the AGM,’ says Armstrong, ‘so the proxy still serves as the conduit for activists in their pursuit of change.’
Companies likely to be activist targets, explains Armstrong, are those that are chronic underperformers or have missed perceived opportunities, and those that have an indistinct message, an entrenched board or management, or poor fundamentals. ‘Preparation is key, and understanding when you have an issue before it becomes a full-blown hostile situation is critical,’ he says.
Words to the wise
Tips on avoiding an AGM sideshow from FD Ashton Partners’ Brian Armstrong
- Don’t avoid talking to hedge funds. If this is a poker game, you’re allowed a free look at their cards, so you can see exactly what issues they will be putting forth.
- Educate activists and top holders about the company’s business, strategy and long-term valuation.
- As with all crisis situations, develop a strategy – well in advance – to react to various activist scenarios.
