Activist-Proofing Your Company

Tips for Being Prepared and Minimizing Disruption

Directors & Boards asked Ken Squire, founder and president of 13D Monitor, how to be prepared for shareholder activism. He admits that - while it's impossible to completely guard against activist investors - there are definitely things companies can do to make it less likely and better prepared. Here are some key takeaways from the conversation.

• For starters, it's important for boards to familiarize themselves with the different activists out there. Some are more reasonable and have a track record of working well with companies, while others are troublemakers looking for a fight. Knowing who you're dealing with can help determine the best course of action.
  

• It's also crucial to have the right advisors in your corner. Your regular corporate law firm, PR team, and banker might not have the specific expertise needed to handle activist situations. Look for advisors with a strong background in activist defense strategies and dealing with proxy advisory services like ISS.
  

• Maintaining good communication with shareholders is key, too. Regularly engage with them, listen to their concerns and show that you're genuinely interested in their perspectives. While it won't guarantee an activist won't come knocking, it can build a positive relationship and possibly deter trouble.
  

• When it comes to your board, pay attention to its composition. Make sure you have a diverse group of directors with relevant industry experience. Activists often scrutinize board composition and may target companies with weak spots in this area.
  

• Analyzing your company's financials and operations is also crucial. Take a hard look at your balance sheet, income statement and overall strategy. How do you compare to your peers? Address any areas of weakness and be prepared to explain decisions like holding excess cash or investing in non-core businesses.
  

• Stay on top of industry trends as well. If your industry is going through big changes like consolidation, be aware that activists may be more interested in targeting companies in those situations.
  

• Lastly, designate someone in management who's responsible for activist preparedness. They should be staying informed about the latest in shareholder activism and working on ways to protect the company. Activist-proofing won't guarantee you'll never face an activist, but it'll definitely put you in a better position to handle it if and when it does happen.
  

Remember, there's no silver bullet to prevent activism completely, but by being proactive and well-prepared, companies can minimize the impact and increase the chances of achieving a favorable outcome for their shareholders.

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