This article was first published on Activist Insight Online on June 20, 2019. For more information about the product, click here.
Insults and jibes are nothing new to proxy fights, whether it is a company hitting out after being criticized or an activist trying to provoke a reaction. Either way, when two parties begin to trade barbs, it raises the heat of a campaign to a whole new level.
With just a few weeks to go until EQT’s annual meeting, the dissident Rice brothers have accused management of using “deceptive, low-road tactics.” Such claims have more frequently been leveled at activists; a robust defense is usually more common from a confident management team, as in 2017, when Automatic Data Processing CEO Carlos Rodriguez called Bill Ackman “a spoiled brat.”
At the start of the month, Bloomberg rounded up a group of experts to discuss the effect of activism on corporate America. The panel drew attention to the softer approach taken by activists in recent years, with Morgan Stanley’s activism defense chief, David Rosewater, suggesting “activists have come to realize that sometimes you catch more flies with honey.”
Attacking a board can be counter-productive when it comes to creating a constructive dialogue. Yet when an initial attempt to have a constructive conversation with a board does not go to plan, that’s when activists turn aggressive. “If you’re an activist and going to commit to a campaign you do what it takes to win,” Rosewater said.
Respect is everything
The softer approach certainly seems to have taken hold this year, with only six U.S. campaigns for board seats reaching a vote, as of June 19, compared with 13 in the same period last year. 92.5% of campaigns for board seats ended in a settlement as of June 19 this year, while 88% were settled in the same period in 2018.
Schulte Roth & Zabel Partner Aneliya Crawford – who represents activists – does not see public insults as a tool to help win contests. Crawford told Activist Insight Online a campaign is more successful when sticking to the facts, instead of turning it into an “ego fight.”
While some boards deserve publicity, Crawford suggests hurling insults at one another communicates to shareholders that the campaign is a personal vendetta, not focused on underlying facts and issues. “Reputation is important in these contests more today than in the ten years I have done this,” she concluded.
The trouble often comes in identifying the difference between accusations that may seem harsh but are legitimate concerns, and personal insults, Crawford maintains. “People are trying to differentiate between good guys trying to fix companies and those who are not as well-intentioned or effective.”
AST company D. F. King Senior Vice President Geoffrey Weinberg told Activist Insight Online, that with a small world of repeat activists, most would prefer to settle without spilling too much bad blood. However, he believes with the right combination of wit, charisma, and creativity, personal attacks can still be successful. “If you miss on either of those, insults usually do more harm than good,” he says.
One of the most contentious contests of the year took place in Europe, where French issuer Vivendi led a campaign against Elliott Management’s slate of nominees by accusing the hedge fund of targeting the children and families of executives, using “hardball tactics,” damaging citizens, and funding a climate change denier, among other allegations. Elliott described Vivendi’s nominees as “unsupportable” and claimed that its founder, Vincent Bolloré, was more interested in his own legacy than the interests of shareholders. Elliott effectively won the contest but signaled this week that it is prepared to compromise with Vivendi on board representation to end the battle for control.
Guilty or defensive
Above all, attacks can distract from a campaign. Weinberg recalled an early campaign he worked on, “where the attacks coming from management were so disproportionate to the campaign waged by the dissidents that long-time shareholders were left wondering what the company was trying so hard to hide.” Weinberg labeled campaigns that turn to such attacks “petty and out of touch.”
Crawford meanwhile says there is a role for lawyers to play if the company begins to make defamatory accusations but her advice to clients is to “stay focused on the objectives and what you’re trying to achieve with the campaign, take the high road and it will pay off.”
Kevin McManus, director of proxy services at proxy voting adviser Egan-Jones, told Activist Insight Online that silence can imply guilt and the accused should try to respond with a few important numbers and facts “that ideally make the other side look foolish at best.” While the ability to “successfully and professionally communicate ideas” is a key skill in nominees, he argues that acting unprofessionally raises questions about a nominee’s ability to serve on a board.
For what it’s worth, boards seem to be doing better at convincing shareholders they consist of the right management, however, as only 43% of campaigns to remove board members and CEOs before May 31 were successful this year, compared to a whopping 73% in the same period last year.