As a new year begins, it is always a good time to take stock of the successes of the past year and look forward to doing even better in 2015. Shareholder activism will continue to be a “hot topic” for publicly listed issuers in 2015, but what lessons from the activism arena translate to companies that are not publicly listed? Here is a checklist of our top 5 tips to help ensure a smooth year to come:
- Effective communication of corporate strategy to employees, customers and the public – Having a great strategy that no one knows about will not help your business. Whatever the industry, it is important that key internal and external stakeholders are regularly kept informed of key decisions and strategic next steps. A lack of effective internal or external communication can lead to misunderstandings in the future about corporate direction or opportunities (or the lack thereof). It can also suggest, often unfairly, a lack of strategic focus by the board and management team.
- Knowledge about shareholder base and other key stakeholders – It is important for boards and management teams to ensure that they are educated about their major shareholders and investors and their respective motivators. Similarly, if thinking about partners for M&A activity, new financing commitments, lenders or any other counterparties, think about their interests: Are they supportive of long-term strategies, or more likely to want to realize quicker results? Are they cautious or aggressive? Not being aware of the motivations and goals of its key stakeholders leaves a company in a reactive rather than proactive mode.
- Effective executive compensation – Regardless of the industry, the compensation of a company’s top talent is always a key issue for boards, management and investors alike. Ensuring that executive compensation, including salaries, bonuses and change of control payments, is in line with performance and peer groups, and is driving appropriate behaviours and strategies, is of critical importance. This directly affects company performance and ensures that top talent is attracted and retained by the company.
- Board oversight of risks – There is an ever-increasing environment of risk mitigation and management, including continued emphasis on “risk oversight” by boards. It is helpful to have a robust risk identification, assessment and mitigation process in place (the details of which will, of course, be industry-specific). Setting a “tone at the top” of canvassing potential risks and having open discussions about risk mitigation strategies at the board and management level will help improve governance, and hopefully leave the company less vulnerable to issues in the future.
- Crisis response action plan – In the unfortunate event that a corporate crisis presents itself, it is helpful to ensure that a well-thought out plan of immediate steps, together with a list of key contacts and advisors, is prepared. It is also a good idea to routinely consult and review the company’s constating documents, including articles of incorporation and by-laws, and other key corporate policies and procedures to ensure that they are being followed and are not in need of updates or revision.