Few phrases make executives and corporate directors more anxious than “proxy fight.”
Stripped to its essence, a proxy fight is a battle for control of a company, typically instigated by an unhappy shareholder who believes they have a better path to generating value than the management team and the board of directors.
The dissident shareholder may be seeking a couple seats on the company’s board. They may wish to see a piece of the company spun off or sold. Or they could be seeking the removal of the board chair and the CEO so the company’s strategy can be drastically changed.
To succeed in defending their position, both the company’s board and management, as well as the dissident shareholder, need to convince other investors – as well as regulators, the media and sometimes the courts – that their direction for the business is the right one. And if it sounds like proxy contests can get acrimonious, that’s because they often do, especially when they can’t be settled privately and end up becoming public.
In addition to being obviously distracting to the target company, such fights can also quickly become expensive. For example, consider the array of advisors that both sides require to mount their case: lawyers, bankers and proxy advisory and solicitation shops all play a crucial role.
And because at their core, proxy fights are about telling a better, more credible and more confident story than the opponent, strategic communications firms are also often brought in to help craft the narrative.
So, with the stakes this incredibly high, what considerations should the two sides keep top of mind when it comes to crafting that story?
It seldom happens that a shareholder launches a proxy contest without any sort of heads-up to the target company. Usually, there is an initial approach to management or the board, and discussions begin. However, for a management team to bet that those discussions will lead to a happy outcome is a dangerous strategy.
Instead, the moment an approach is made, executives should start gathering proof points and developing messaging in case the fight goes public. Chances are, the dissident shareholder has already done the same – gathering data to paint a damning picture of management underperformance or weak board oversight, for instance – before they even make their initial outreach. Instead of assuming the fight will stay private, expect that it won’t and prepare accordingly.
Words matter very much in a proxy fight, and leaders should be prepared for strong language from the dissident shareholder – and vice versa. Just take a look at what activist shareholder Jana Partners had to say about Agrium when it targeted the company in 2012:
"We have watched in disbelief over the last few days as the management of Agrium Inc. has taken a scorched earth approach to avoid any reasonable discussion of our proposals to unlock the true shareholder value potential of the company.”
It added: “We also remind you that this is the beginning of the debate regarding shareholder value creation at Agrium … not the end of it, and ultimately shareholders, not management, will have the final say.”
Put in a private email, that sort of strong tone would be enough to make many CEOs uneasy. But this passage comes from a letter that was printed in full in The Globe and Mail and marked one of the opening salvos in a lengthy, public and acrimonious battle that Agrium would ultimately win.
The takeaway here is that the typically stodgy, carefully measured and conservative messaging that companies typically deploy when speaking with investors has to be left behind in a proxy battle. Instead, both sides should focus on assembling as strong and unequivocal of a storyline as possible, buttressed by the most credible proof points available.
Understand the audience and the channels
In a public proxy fight, where both sides are trying to convince shareholders of the merits of their case, direct engagement is but one tactic. Dissidents and management teams alike must also have a keen understanding of the media landscape. Knowing how to effectively tell your story to journalists who cover your company is critical. You must also know where your audience spends their time – what outlets they read, which newsletters they follow, and how else they acquire information about the company.
That knowledge must inform where you expend your media relations efforts, or whether other channels, such as microsites, blog posts or Twitter, fit into your communications plan. Simply putting out reactive news releases or taking out full-page ads in newspapers that your shareholder audience might not even read is a surefire way to fail.
In addition to the above, dissidents and management have to be flexible and ready to adapt to change. A proxy fight is, well, a fight – punches are thrown, and the circumstances and the dynamics change as the battle plays out. That means messaging may have to be tightened, or new facts may have to be introduced to bolster your case. Being timid, reactive and rigid can harm your chances of success as badly as having a weak narrative or failing to prepare.
If you’ve been contacted by a dissident who wants change, or if you are a shareholder who is planning a proxy challenge, don’t hesitate to reach out to us at email@example.com.