Company response strategies

Preparation

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?

Directors are subject to a general duty to act in good faith and in the best interests of the company. This applies in the same way in relation to responding to an activist proposal. Generally, this leads to constructive engagement with the activist and consideration of the full or partial adoption of any accretive strategies. The board will also need to consider the provision of information carefully, given continuous disclosure obligations.

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

There are no structural defences to shareholder activism that we would typically recommend. Defensive tactics, such as poison pills or rights plans, would generally run afoul of the prohibition on defensive tactics in the Takeovers Code and would likely be inconsistent with the duties of directors to exercise their powers for a proper purpose and in the best interests of the company. Generally, New Zealand’s corporate law regime is seen as shareholder friendly and gives a number of rights to shareholders summarised elsewhere in this questionnaire to support the engagement.

Companies should generally have a policy in place that outlines procedures to be followed in relation to an activist approach or a takeover proposal, including consideration of continuous disclosure obligations, contact details for trusted advisers and protocols for engagement - including requirements for a script, and record keeping and confidentiality expectations.

We do not see shareholder activism causing any greater concern in the boardrooms of New Zealand companies than it does in any other jurisdictions.

Defences

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

In addition to good management practices, in order to avoid being the target of shareholder activism, companies should look to maintain a strong investor relations programme. This includes providing regular market updates and clear communication of the company’s business strategy. Investors appreciate opportunities to ask questions on conference calls at the time results are announced. Companies also generally benefit from a good understanding of the interests of significant shareholders on the register and their perspectives (if they are willing to share them).

Monitoring movement in the share register is also important. Particular issues can arise where a particular shareholder is overweight in the company’s shares and needs to generate exit options.

Reports on proxy votes

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

The company’s share registrar normally provides proxy updates daily or upon request to a company in advance of a shareholder meeting. They are typically not disclosed other than the chairman stating at the meeting the number of proxies held and how they are directed to be cast on the resolution. Care needs to be taken with this information in advance of the meeting as it could be considered inside information in relevant circumstances - although institutional investors tend to deliver proxies very shortly before the deadline by which proxies must be received (usually 48 hours before the meeting) so the information may only become meaningful and reliable at that point in time.

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 or accommodations of activist agendas are, we understand, much more common than fully-fledged public campaigns resulting in shareholder meetings and votes. It is reasonably common to see outcomes with changes in one or more board seats, directors not standing for re-election, and companies agreeing a compromise position to adopt one or more of the strategies or outcomes advocated for by the activist.

Other than for changes in the directors and management, such outcomes may or may not be publicly announced - and the target company will need to have careful consideration of its continuous disclosure obligations in this regard.