Laura (LGO): Activism by its very nature has negative connotations to it, but not all activism is equal. What do you think is meant by that? Is there really such a thing as healthy activism?
John (JGG): What drives an activist is the enhancement of value. That activist will create value for all shareholders. More and more activists are becoming long-term investors. Corporate raiders of the 1980s have evolved into advocates of change. Sure, some raiders exist, but there are now far more long-term value investors who are also labeled as activists, but often the definitions of these investors are blurred.
LGO: When considering proxies, what catalysts emerge that lead to “healthy” vs “unhealthy” activism?
JGG: Healthy activism is constructive and is driven by an investor who understands a company’s good governance and won’t interfere with the proxy process unless a change is warranted. Unhealthy activism certainly exists but is more driven by an opportunistic investor or a company who puts itself in a vulnerable position of not knowing its investors.
LGO: From a corporation’s standpoint, what are the landmines you want to avoid in order to mitigate the likelihood of flagging activist attention?
JGG: Stock performance relative to your peer group will always be the best defense. Following that is a diverse shareholder base who has a knowledge of the company and its management.
LGO: What are some of the key steps a company should take to prepare for the eventuality of being in the crosshairs of an activist investor? Are there any steps that CEOs should be looking at today, even if they are not currently an activist target?
JGG: A CEO and management team should always prepare to be the target of an activist, just as they would be prepared to deal with a competitor in their industries! Take every opportunity to learn about your investor base and carefully understand who is inquiring about investor meetings. Know that any investor who might sound like a “hedge fund” might very well be a great long-term investor, but CEOs need to know who they are talking to.
LGO: What are some of the different tactics that activist investors use to improve the performance and value of their target companies?
JGG: Activist investors have done a great job of recruiting effective, diverse, and experienced board members who have the potential to make contributions to target companies. While it might seem like to a threat to those companies that are not in need of change, it is a lifeline to the companies who are in dire need of change.
LGO: Are there sectors that are particularly prone to activism at present?
JGG: While activism is mostly tied to industries with lower total shareholder returns, we have seen upward trends in media, telecommunications, and publishing, with aerospace and consumer durables just behind that in 2019. While there have been far fewer activist transactions in 2020, partly as a result of COVID-19, there are many activists with dry powder slowly putting money back into the market.
LGO: How has COVID-19 impacted the activist landscape? There has been considerable press warning for IROs to carefully watch their 13Fs. Is it hype or is it real? Are 13Fs the best way to keep watch?
JGG: Activism has declined as a result of COVID-19, for now. This is allowing time for activists to find new opportunities based on how companies are performing in this unpredictable market. Yes, IROs should watch their 13Fs, but keep in mind that some smaller activists are not required to file 13Fs if they hold below 5%. This is why stock surveillance can be such an invaluable tool; it augments 13Fs by taking into account non-filers and enables IROs to truly gauge shareholder movement on a “real-time” basis. The point is, be careful and know your shareholders.
LGO: What are the key takeaways that have emerged from this most recent proxy season?
JGG: Activists are more aware of governance issues such as board diversity, ESG, and executive compensation. All of these issues are taken into account when determining if your company is going to be the target of an activist campaign. It helps the activist understand their chances of success. Retail shareholder engagement and participation is as important as ever, as these holders are becoming more informed because of the media. Knowing the composition of your institutional and retail mix is key to understand the outcome of proxy agenda.
LGO: Some companies believe they need stock surveillance only when there is a proxy issue or full out battle at hand. Why would an IR department want to consider stock surveillance as an integral component of their strategic program?
JGG: Stock surveillance is an ongoing quantitative measurement of the effectiveness of your IR efforts throughout the year. It is not simply a database. It tracks who is “dipping their toe” in and out of the stock and then buying larger share positions well before any public filings. Who is interested and who might be following them into the stock. By the time a company becomes aware of this buying, and an activist campaign has commenced, essentially the “damage is done” in terms of both engaging with the activist but of equal importance engaging with all other investors in a manner that one would be leading up to an activist event.
LGO: How can stock surveillance help a company keep activists at bay?
JGG: Stock surveillance is an important daily tool to use as part of your daily investor relations role. Through stock surveillance, you add an additional layer of intelligence to your investor targeting, you have the ability to see in “real-time” who is buying and selling your stock and why shareholders are buying and selling shares. Additionally, you are potentially identifying activist threats and turning them into potential opportunities in the event they are presented to the company.
LGO: Why aren’t 13Fs necessarily the best measurement of shareholder movement in your stock?
JGG: Form 13F is a quarterly report that is required to be filed by investment managers with at least $100 million in assets under management. These filings are released 45 days after the end of each quarter, so you are working with information that is outdated until the next quarter’s filings are out. Of more importance, these filings do not cover institutional holders who manage under $100 million in assets (but could still be a top shareholder in your company), including many activist funds.
LGO: Let’s say an activist investor appears on your 13F, but has not reached out or had any engagement with you. What are the best steps to take?
JGG: You should first do your homework on who the activist is. Reach out to your stock surveillance firm to get a history of this activist’s holdings and transactions and then engage with the activist accordingly. The activist could be your biggest problem or your best next long-term investor — depending on how they are managed!
LGO: Some micro-cap companies believe they are too small to be of interest to an activist. Is that true?
JGG: Not at all. These deals exist quite often but they are just not mentioned because of their size. In fact, micro-cap companies are just as vulnerable as any company because it takes a much smaller investment to accumulate a meaningful stake in the company.
About InvestorCom: InvestorCom is one of today’s leading independent full-service shareholder intelligence firms serving publicly traded companies worldwide. Underlying our formation is the notion that no two companies’ shareholder compositions are alike, and therefore each company requires the consulting services of a firm that can penetrate the veil of “street name” beneficial ownership and apply this intelligence through a variety of services to increase shareholder value. InvestorCom prides itself on the level of knowledge of its clients’ industries and the commitment to the ongoing education of its executives. InvestorCom represents a quality universe of clients from various industries, including Technology, Healthcare, Financial Services, Public Utilities, and Communications. Our clients benefit from the advantage of consistent high-level interpretative analysis, not just data distribution. This difference is what we call “Shareholder Intelligence.” Unlike most of our competitors, InvestorCom is an independent firm providing the balance of a broad range of services in a focused team-driven environment.
Services include Stock Surveillance, Proxy Solicitation, Corporate Governance Consulting, and Information Agent Services.
John Glenn Grau (203) 295-7841 firstname.lastname@example.org
About Laura Guerrant-Oiye: Laura Guerrant is a senior investor relations practitioner with over 25 years of experience in the design and implementation of successful IR programs. She has advised clients in a wide variety of industries including technology, healthcare, biotech, consumer products, REITS and financial services industries. She has deep experience in crisis communications and transactional communications, including IPOs, M&A, proxy fights, and secondary equity and debt offerings.
Laura is the owner and principal of Guerrant Associates, an investor relations and corporate communications firm providing financial communications, investor relations, financial media relations, and strategic counsel to publicly held and pre-public companies. The firm offers a range of services from financial communications & corporate counseling to full-service IR programs. She is a recognized leader in the IR community, having served on the NIRI Silicon Valley Chapter Board of Directors as well as being a founding member and President of the NIRI Virtual Chapter, NIRI’s second largest chapter. She is also co-chair of The CEO Summit, a bi-annual tech investor conference. Laura serves on Intro-act’s Board of Directors and is a Strategic Advisor to InvestorCom.
Laura Guerrant-Oiye Guerrant Associates (808) 960-2642 email@example.com