1. Shareholder activism preparedness requires companies to take a new perspective
When companies think about preparing to meet the challenges of an activist investor, they often take a ‘let’s make sure this doesn’t happen to us’ mindset.
But this can be counterproductive; the true key to activism preparedness is to challenge the board to be its own activist and identify its company’s weaknesses. Boards should ask themselves: ‘How can we push ourselves to evolve and position the company for long-term growth? What are the elements of best-in-class corporate governance we need to implement?’
According to Edelman’s 2018 Institutional Investor Survey, 83 percent of US-based investors believe most companies are not prepared to handle activist campaigns. That means IROs who have strong relationships with investors must begin to play a more strategic role at the board level and ultimately have a positive influence on the credibility of the company.
2. Investors’ ESG focus now pervasive
The foundation for shareholder activism is not new. What is new, however, is that ESG-specific activism is becoming mainstream and rapidly gaining support.
This is not only evident in the sheer volume of proposals targeting areas such as the environment, workforce diversity, human rights and shareholder rights, but also – importantly – in the growing support for and increasing success of those proposals.
In fact, Edelman’s investor survey uncovered that in the last year alone, 66 percent of surveyed US investors said their firm altered its voting or engagement policy to be more attentive to ESG risks.
3. Proxy statements should be viewed as a communications opportunity
The proxy statement is a routine, required document for companies, but it is now being viewed as an effective opportunity to communicate to a broad set of stakeholders.
Issuers need to evolve to meet the challenges of increased investor engagement and should tell a cohesive corporate story with input from investor relations, human resources, CSR and compensation advisers, as well as audit.
Involving each of those teams can result in a wealth of content but, first and foremost, the proxy statement should concisely articulate the company’s strategy and the board’s role in assisting management to execute it.
Hitesh Balwada is executive vice president and Jeremy Cohen is vice president of Edelman Financial Communications