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?

In all cases, including in the context of an activist’s proposal, the directors, including CEO, owe duties to act reasonably and in good faith in the best interests of the company. Whatever the activist shareholder proposes to the management bodies, the directors shall always review the proposal from the point of possible damages and negative effects to be caused to the company as a result of implementation of such proposal.

Resolution No. 62 stipulates standards for evaluation of directors’ actions by a court and establishes certain rebuttable presumptions with respect to actions that are a priori considered to be unreasonable or taken in bad faith, which are not applicable while considering activist’s proposals on their compliance with shareholders’ obligations to a company.

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

The most appropriate strategy for the company is to monitor any tension in relations between the shareholders as well as between shareholders and management, analyse the most conflict areas and potential reasons behind contradictions in order to be able to ex ante react on activist shareholders’ actions.

A number of Russian JSCs have already established special committees on interaction with minority shareholders and on corporate governance that act under control of a board of directors. It is likely that these will be adopted by other Russian companies as best practice.


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

Russian companies, being mainly controlled by one or several affiliated persons with strong corporate powers, already have a certain level of protection due to their concentrated capital structure.

However, additional measures can be taken to strengthen the company’s position and preclude situations of being involved in activism strategies of its shareholders, inter alia: (i) management bodies of the company or specifically established committees may perform constant monitoring of the most sensitive for shareholders areas of company’s activities and (ii) justified reports of the company’s management on reasons behind certain decisions of the management bodies may help decrease the number of cases of challenging the company’s transactions or resolutions of its bodies.

Where a shareholder activism has already taken place, the recommended strategy is to attempt to de-escalate the conflict by settlement through informal communications, meetings, sessions between activist shareholders and management bodies.

Reports on proxy votes

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

Where a shareholder is not able to attend a meeting personally, it is entitled to grant a power of attorney to its representative or participate through electronic means of communications as described in question 25. Voting by way of ballots is permitted only for meetings held in the form of absentee voting, when no shareholders are present at the meeting.

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?

As described above, the conflicts between shareholders and between shareholders and management bodies are primarily resolved by negotiations and private settlement, if such means allow escalating the conflict. According to the Code of Corporate Governance enforced by the Central Bank of Russia as a source of soft law applicable to PJSCs, the company is obliged to take all necessary and possible measures to prevent and resolve the conflict (as well as minimise its consequences), including using extrajudicial procedures of dispute resolution, including mediation.