F&P Quarterly: Preparing for shareholder activism

While levels of shareholder activism have been relatively stable in the Nordic region during the last years, there are tendencies of increased activity in the market – and as a company executive it is vital to be prepared when the situation arises. Activist shareholders usually have a clear agenda – which if carried through could have substantial impact on the target company’s reputation and valuation.

Different types of activists require different defence strategies
There are basically three types of activists that all company executives should be aware of.

Change agents will acquire a minority stake in the company with the intention of carrying through changes in management, business strategy, operations or organisational set-up. They will find allies in other shareholders as well as in the media to further elevate their view. Making the situation even trickier, the change agent will often take the role as a force for increased shareholder value, hence making it crucial for management to clearly explain its current strategy and why it is the best way forward – while trying to avoid a vocal public discussion.

Short sellers will short the stock and make an official statement about the reasons, with the aim to affect the market into uncertainty about the company’s current state and growth potential. In general, short sellers aren’t that popular among other owners and stakeholders, given their strategy to bet on failures. This works in favour of the company who can find many allies among existing shareholders, who can give their support in giving an opposite, positive view of the company.

In addition, a third group of activists sometimes appear. Opportunists will engage in ongoing M&A situations by acquiring a stake that is big enough to force the bidder to increase its offer, hence gaining an arbitrage. However, this constitutes an issue for the bidder rather than the company itself.

How to prepare
The typical activist route is first to accumulate a shareholding “below-the-radar” and then announce its ownership and intentions publicly, usually very vocally. If there are signs that an activist is on the move, there are several preparations one should do from a communication perspective, to some extent similar to the situation with a takeover offer:

Revisit core messages – Shareholders want the company to perform well. Identify clear proof points on strategy, operational and financial success and communicate them relentlessly.

Know your shareholders – Maintain periodic contact, determine leverage points and processes within institutional investors, including their governance teams; identify any shareholders that could side for either you or the activist.

Know your non-financial stakeholders – Keep a close dialogue with employees, unions, journalists and politicians. They can be helpful allies in communicating your company’s story.

Prepare a defence organisation – Ensure a well-defined organisation with appointed spokespersons and prepare guidelines for communication that enables you to keep a clear and coherent message, both externally and internally.

Be prepared for rapid response – Prepare relevant documents and messages to rapidly repel potential attacks.

Act with professional attitude and don’t let emotions take over when dealing with activists.

No one-size fits all solution
Needless to say, each activist situation is unique, and it can happen at any time – meaning there is no given solution that fits them all. Each situation requires its own analysis and activities, as it is one of the most demanding situations from a communications perspective and requires a lot of time and experience to properly respond to. It is also important to keep in mind that change isn’t necessarily a bad thing – to respond to activist criticism by implementing changes can at times (i.e. when the criticism is accurate) actually strengthen the overall reputation of a company as responsive and shareholder-friendly.