Mar 21, 2024 - Business

Why communication is key to winning proxy fights

Illustration of a toy army figurine holding an envelope like a bazooka.

Illustration: Lindsey Bailey/Axios

Companies are under heightened scrutiny from a growing band of activist investors who attack a range of issues, including leadership, mergers and acquisition plans, strategy, and ESG policies.

Why it matters: When an activist investor enters a company's stock, clear communication is key.

  • And if an activist takes a campaign all the way to a shareholder vote, a company's communication plan is the most critical component of winning the fight.

Context: Think of proxy fights as political campaigns. The company has a platform, the activists have an opposing platform and each side is campaigning to win shareholder votes.

  • Just like in political campaigns, targeting key voters with a clear message and helping them understand how to vote is critical to winning.

State of play: "The issues activists are raising are more complex, nuanced and multi-faceted than they used to be, granted you are also seeing a rise in single-issue campaigns," says Brian Schaffer, partner at Prosek Partners.

  • Because of this, more companies are acknowledging their vulnerabilities and prioritizing activist preparation.
  • "If you assume that any company is conceivably vulnerable to an activist attack, then doing due diligence in advance of an activist showing up with your legal advisors, financial advisors, and communications advisors can help to avoid some of those fights," added Schaffer.

Yes, but: Once a line is drawn in the sand, and peace efforts fail behind closed doors, a full-fledged external fight is typically what comes next.

Between the lines: Investors are skewing younger and they consume information differently, which means the proxy comms playbook needs to change with the times, says Collected Strategies founding partner Dan Moore.

  • When it comes to owned content, long letters, decks and white papers are now accompanied by easily digestible bullet points, graphics and videos.

And the strategies for deploying these assets have also evolved.

  • While traditional media remains an important channel for reaching institutional investors (like BlackRock, Vanguard or State Street), retail investors (like you and me) are increasingly getting proxy fight information from digital and social platforms.
  • Internal communication during a fight is also important, given that employee bases typically own a substantial amount of shares. And keeping up morale during a mud-sling fest, and maintaining a consistent message throughout, is key for the workforce.

What they're saying: "For too long, companies have been advised not to say anything until a proxy is filed or until some broader communication goes out," Nick Lamplough, founding partner of Collected Strategies, told Axios.

  • "But there are other things that we communicate in the background to put forth a position [because] public opinion can be formed quickly and starting on your back foot can set the tone for the entire fight," he added.
Share of board directors who say they've seen a change in board-investor communications over past two years
Data: NACD Board Trends and Priorities survey; Note: Respondents could choose multiple options; Chart: Axios Visuals

The intrigue: To quell concerns of potential activists, corporate boards are ramping up their communication efforts by sharing more about their operational decisions and personal credentials with investors.

  • "We're encouraging our public company friends to consider proactive reputation building strategies during the off-season that can help mitigate against activist activity," says Townsend Belisle, founder and CEO of strategic design and production company Haystack Needle.

However, because companies might be limited on what they can say, enlisting third-party endorsements from business leaders, investors and academics is key to driving influence.

  • Like in a political campaign, these outside spokespeople can micro-target audiences with specific context or messaging that will move the needle.

And there's another key constituent group: the proxy advisers.

  • A company's messaging and presentation is key to winning support from Institutional Shareholder Services (ISS), the largest and most influential proxy adviser, whose recommendations for its client base in a contested situation can swing an election. Glass Lewis, a smaller rival, holds sway as well.

What to watch: Activists are only getting more aggressive and sophisticated in the way they communicate. If companies want to effectively push back, their communications must sometimes come out of their comfort zone, says Collected Strategies' Moore.

Go deeper: Shareholder activism sets global record

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