Member exclusive: Crafting a communications strategy around activist investors

By Justin Joffe, editor-in-chief, Ragan Communications

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Purpose communications, a catch-all term for corporate social responsibility messages that include DE&I, ESG and everything in between, are not going away. Nor are the activist investors — deep-pocketed individuals who use their dollars to drive change and increasingly pressure organizations to follow through on their purpose commitments. A trend that some consider to have officially kicked off in 2021 when an activist investor installed three directors on Exxon’s board to push the energy giant to reduce its carbon footprint has only grown more common in the years since.

Not all activist investors are successful. Just this week, activist investor Elliott Investment Management dissolved its stake in PayPal, soon after the personal finance company named Alex Chriss to take over as CEO beginning Sept. 27 (CNBC reports Elliott was not involved in selecting Chriss). Elliott’s failed attempt to influence PayPal’s business is a reminder that activists, who tend to diagnose what’s hurting a company and often have it out for the CEO, don’t always come out on top.

For communicators, it’s also a reminder that you are in a prime position to act as partners to the corporate finance team and can take control of the narrative when an activist investor attempts to shake things up. It starts with assembling the right team, addressing shareholders and your board proactively, then having a strategy in place for when the activists come knocking.

Assemble a team 

Whether or not you sit in the corporate communications function, this is the time to help them assemble a team of key stakeholders who can anticipate and address the activist’s behavior. Convene a small group of key C-suite officers and leads from across business functions along with your IRO, legal counsel, any external PR agencies of record, an investment banker and a proxy soliciting firm.  Establish a periodic meeting cadence and stick to it. This team should:

• Provide regular updates to your company’s board of directors.
• Facilitate and be included in a regular review of your company’s structural ‘defense’ profile. Don’t know if you have one? Check your governing documents and policies.
• Complete an analysis of hedge funds and other investors who have taken activist approaches in the same or adjacent industries, including the tactics they have used.
• Conduct and sit at the center of regular crisis scenario training to maintain a state of readiness.

Shareholder relations best practices

This is where your relationship with the IRO is crucial—they’ll be your first line of defense in assessing your vulnerability to an activist investor attack. Your CFO and general counsel will also be crucial here. Don’t discount or undervalue the credibility that they have with your largest shareholders. Remember that it’s crucial to:

• Continue communicating your company’s purpose statements alongside your strategy as it pertains to employee experience, social issues material to your business, DE&I, ESG and more.
• Assess, understand and be ready to speak about your current framework for broader capital allocation (reinvestments, growth strategies, capital return policies, analyst and investor assessments and presentations, disclosed KPIs and metrics, etc.)
• Monitor all adjacent players who can influence activist perceptions. These include peer groups, sell-side analysts, proxy advisors, active asset managers and media outlets covering your company/industry. Look for patterns and themes that may feed an activist narrative.
• Solicit and evaluate shareholder input, taking care to maintain channels for candid feedback. This can prevent someone from feeling unheard and going rogue.
• Monitor changes in hedge fund and institutional investor holdings consistently. Pay particular attention to your shareholder base and their relationships. Keep a close eye on activist funds that tend to organize together, along with the investors who may have a history of enlisting those funds.
• Get out in front of any perceived disconnects between your company’s performance and others in the industry, especially around matters of sustainability and ESG. Pay attention to third-party governance and ESG ratings and fix, then communicate, any inaccuracies.
• Learn the voting policies and guidelines of your major investors. Many portfolio managers covering the company will have an overriding authority on key votes, and you can defeat an activist attack if you secure institutional investor support.

Board of Directors best practices

Remember that activists seek to divide the board and management by sowing doubt about strategy and performance. To this end, you’ll always want to maintain a unified board consensus on a strategy to stand together when an activist hits Some other tips:

• Establish confidentiality in boardroom debates around strategy and direction.
• Always keep your board informed of all the options and alternative paths that management has considered before recommending a strategy or decision. You can show your work by reviewing capital allocation, the portfolio, margins and ESG strategies.
• Establish a regular cadence for presentations from your counsel, along with an investment banker, to let the board know what the activist landscape currently looks like.
• Self-assess the composition of your board regularly and consider the aims of those over 75 who have had lengthy tenures. Consider the diversity, experience and attributes of your board members holistically.

Responding to an activist investor

Your response to an activist investor should vary depending on whether their attempts have involved public or non-public communication. In either case, assembling your team quickly is a given. If the activist has only communicated non-publicly you have no duty to respond, but failure to do so can make matters worse. Remember that you’re also not obligated to negotiate or take the bait, although having a meeting to hear them out is usually a sound, strategic move. If such a meeting occurs, listen more than you talk with the intention of negotiating.

You have no duty to disclose this conversation immediately—when and how you do so should be part of the strategy you discuss with your team. That said, the board should be advised. In some instances, it may be smart to present an activist’s case or materials to the board. It may make sense to provide sensible disclosures or business commitments if they can mitigate the activist attack.

Be ready for public disclosure and have a holding statement, along with a public response plan vetted by counsel, ready to deploy at a moment’s notice.

Assume that the activist will attempt to contact your board and remind them to refer any attempts to the CEO or another designated officer.  

Of course, this all assumes things are still being kept under wraps. If they aren’t, you’ll have to communicate publicly. When this happens, be sure to:

• Deploy a holding statement that doesn’t say too much. All the first one needs to say is, “The board will consider and welcome input from its shareholders.”
• Convene a special board meeting to meet with the board and talk through the communication. Fold them into your strategy here.  
• Agree on how the board wants to respond and whether to meet with the activist, but remember that not meeting can look bad and leave room for mischaracterization. There should be at least two company representatives at any meeting or call with the activist.
• Communicate the board’s position early on activist demands that it deems non-negotiable, but emphasize a willingness to consider other demands.
• Talk to other shareholders beyond the activist to see how they’re feeling about the matter and solicit their feedback on strategy.
• Keep any responses fact-based and free of any personal attacks or aggressive language. This can be easier said than done if the activist investor gets ugly. Keeping things focused on the business, and keeping business performance high is one of your strongest defenses,
• Always keep the morale of employees, partners and other stakeholders front and center. Periodic check-ins are helpful here, too.