A typical “status quo” is designed to prevent the activist from pursuing a public campaign against the company; The activist cannot hold a proxy contest. B, convene a special shareholder meeting, submit proposals directly for a shareholder vote or conduct a public “fight” campaign against the company or its board of directors. These provisions are reasonable – the parties strive to resolve competition by proxy and avoid an ongoing public struggle. Other provisions to get the activist to work through the board of directors make sense and also reflect good corporate governance – if an activist has representation on the board, the activist should generally try to make changes and advance the proposals through the board. 1. The representation of the Board Representation Board is the dominant issue that must be addressed in most proxy competition comparisons. As a general rule, the activist shareholder will aspire to either direct representation on the board of directors, the appointment of a colleague to the board of directors, or indirect representation through the appointment of one or more nominees not related to the activist shareholder or the company who would be considered independent members of the board of directors. In the latter case, the company can avoid being capitulated to the activist shareholder, since it is not directly represented. From the activist shareholder`s point of view, it can be assumed that the new directors are more independent than the current directors of the company, as they were not “hand-chosen” by the company`s management. In addition, these directors may bring new perspectives to the meeting room and be more receptive to initiatives proposed by the activist shareholder to increase shareholder value.
The message to non-U.S. administrators is clear: if you don`t think about activism, you should be. This does not mean that foreign issuers must adopt U.S. practices by reflex; They shouldn`t. But this means that non-U.S. boards should ensure that they are ready to attend an activist event and consider a strategy that not only takes local conditions into account, but also is informed of the relevant lessons of U.S. experience in shareholder activism. Are the activist actuator candidates, independent and other, qualified to be directors? Before agreeing to appoint or support the appointment at the end of the activist shareholder`s nominees to the company`s board of directors, the entity should stipulate that the proposed candidates are qualified and meet the necessary “independent” standard, dictated by the stock exchange where the company`s shares are traded. To address this issue, the company`s nominating committee would generally verify and approve the qualifications of the activist shareholder nominees and find that each of them is independent and qualified to serve on the company`s board of directors. If such a review takes place prior to the implementation of the transaction agreement, the activist shareholder will likely want the entity to recognize in the transaction agreement that it has established that each of the candidates proposed by the activist shareholder is qualified and independent.
If the audit occurs after the execution of the transaction contract, the agreement should include a mechanic so that the activist shareholder can nominate additional candidates if his initial candidates are rejected in good faith by the nominating committee. In addition, the activist may want to make some exceptions to the ceiling. For example, if the activist shareholder nominees are entitled to reimbursement of their out-of-court and other expenses as members of the company`s board of directors, or if legal fees are charged to enforce the terms of the settlement agreement, these fees and expenses may be negotiated outside the reimbursement limit.