Company response strategies


What are the fiduciary duties of directors in the context of an activist proposal? Is there a different standard for considering an activist proposal compared to other board decisions?

Luxembourg corporate law requires all directors to be guided by the corporate interests of the company and its business in performing their duties. If the company has a business, the interests of the company generally are particularly defined by the interest of promoting the sustainable success of the company’s business (ie, a focus on long-term value creation). Boards must weigh all relevant aspects and circumstances and shall consider with due care the interests of all stakeholders, including shareholders, employees, creditors and business partners. Boards have a lot of discretion on how to weigh the various stakeholders’ interests against each other, although the duty of care may require boards to prevent unnecessary or disproportionate harm to the interests of specific stakeholders. The board is responsible for determining and implementing the strategy of the company.

Responding to an unsolicited approach or activist proposal seeking to change the company’s strategy (including by means of efforts to change the board composition) forms part of the company’s strategy and, as such, falls within the domain of the board. There is no shift of fiduciary duties: the directors must continue to act in the best interests of the company and its business with a view to long-term value creation, taking into account the interests of all stakeholders. Boards should ensure that they have all relevant information to make an informed decision and the proposal should be carefully reviewed, without bias, and assessed against all available alternatives. Shareholders do not have to be consulted prior to the company’s response; the board is (retrospectively) accountable to the shareholders.

What advice do you give companies to prepare for shareholder activism? Is shareholder activism and engagement a matter of heightened concern in the boardroom?

Although the absolute number of activist campaigns in Luxembourg is limited, no company is immune to activism and preparedness is key. While recommended advance preparations depend on the specifics of the company, a few useful preparations are:

  • continuously monitoring market activity, financial performance (particularly relative to peers) and the company’s industry and competitors;
  • setting up a small defence team of key directors/officers plus legal counsel, investment banker and public relations firm that meets periodically;
  • ‘thinking like an activist’, routinely assessing the company’s strengths and weaknesses and its takeover defences and exploring available strategic alternatives (consider red teaming);
  • building relationships and credibility with shareholders and other stakeholders before activists emerge and maintaining regular contact with major shareholders, the marketplace generally and key stakeholders; and
  • communicating clearly and consistently on ESG/corporate social responsibility matters, the company’s long-term strategy, its implementation and the progress in achieving it.

What defences are available to companies to avoid being the target of shareholder activism or respond to shareholder activism?

Some listed Luxembourg companies have adopted one or more structural takeover defences, often in their articles of association. Examples include:

  • priority shares with certain control rights; or
  • listing of depositary receipts for shares rather than the shares itself.

In addition, Luxembourg companies may use a variety of other tactics such as:

  • engaging with shareholders and other stakeholders (eg, convince major shareholders with compelling long-term plans, mobilise employees and customers);
  • exploring strategic transactions that make the company a less desirable target;
  • issuing new shares (under existing authorisations) or selling treasury shares to a friendly third party (white knight); or
  • issuing bonds with a mandatory redemption at a higher value in case of a change of control.
Reports on proxy votes

Do companies receive daily or periodic reports of proxy votes during the voting period?

It depends on the listing venue. Luxembourg companies with a US listing often (choose to) receive regular updates on the vote tally, especially in contested situations, consistent with market practice in the United States. Historically, this has been less so at Luxembourg companies with an EU listing.

Private settlements

Is it common for companies in your jurisdiction to enter into a private settlement with activists? If so, what types of arrangements are typically agreed?

Private settlements with activists are not common in Luxembourg but do occur from time to time.