WSJ Observes that Companies and Activists Frequently Declare Truces in the Boardroom

By Cydney Posner

This article from the WSJ, "Companies, Activists Declare Truce in Boardroom Battles Corporate Executives, Directors Find It Cheaper to Negotiate Than Fight," reports on the recent "shareholder engagement" trend: "Instead of pulling up the drawbridge as activists approach, corporate executives and directors more often are engaging, concluding that it is easier and cheaper to negotiate rather than resist and risk a public fight…." According to the article, even the "most relentless of activists" find "the path to the boardroom easier to tread." Activists – once considered to be "sharks"-- are finding their way on to corporate boards "quietly," without the need to resort to proxy contests, a result that, according to one prominent activist, "would have been unthinkable only a year ago."

While the activists may attribute the change to companies' seeing the price-performance benefits of activists' recommendations, others "point out that companies are generally becoming more receptive because activists increasingly enjoy the support of long-term institutional shareholders that traditionally allied with management. That relationship means companies who resist activists could risk alienating their broader shareholder base. Activists have won or settled for a board seat in 66% of all proxy contests this year, up from 43% last year, according to proxy-advisory firm Institutional Shareholder Services Inc." Board seats are not the only stakes involved; some companies act on activists' strategic recommendations, even without their securing board seats. (See my articles of 8/21/13 and 10/3/13.)

Commentators quoted in the article also contend that "corporate boards are finding it better to settle because fights can be debilitating for both sides. Also, companies typically extract something in return for concessions to activists, for example, an agreement by an activist to limit the size of a position they will build or refrain from waging a proxy fight." For example, Carl Icahn's firm has reached agreements, without proxy fights, for board seats this year with seven companies, although it "has never before secured seats on more than six boards in one year, either peacefully or through a proxy fight, according to FactSet SharkWatch." Icahn's new mantra, while not consistently adhered to, is apparently "[t]he best way to win the war is not to fight."

However, the article observes that many companies continue to fight back and have been successful in rejecting activist recommendations and defeating activist slates. The article observes that "companies increasingly are pitched by bankers on steps to take to avoid an activist overture in the first place. There has been an uptick in U.S. proxy campaigns this year, with 35 fights through November, up from 27 at that time last year, according to data from ISS. Both of those figures are down from 43 at this point in 2009, according to ISS. The amount of activist campaigns in general for both years is up from 2009, according to FactSet, suggesting proxy fights are declining as a percentage of overall activity."

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