December 16, 2016 Despite Warning, Expect Boards to Add Activist-Backed Directors in 2017

By Ron Orol,

In October, the large and influential money manager State Street Global Advisors issued a warning to companies and activists for 2017: Consider very carefully the interests of long-term investors when entering settlements with insurgent funds. Specifically, State Street said it was concerned that “a recent rise in settlements … entered into rapidly between boards and activists and without the voice of long-term shareholders…” is evidence of “short-term priorities compromising long-term interests.”Many observers believe that State Street’s commentary could embolden some companies in their engagement with certain activist investors. However, don’t expect State Street’s comments to make much of a dent in the number of settlements between activists and companies next year – if anything deals struck to add dissident directors will continue to rise in 2017 as activist funds and their corporate targets find reasons to meet half way to avoid nasty public disputes.

“We will continue to see lots of settlements because in many cases we will have investors bringing ideas that are agreeable to both management and the board,” said Bruce Goldfarb, founder of proxy solicitor Okapi Partners in New York. “So in those cases why undergo the time and energy of an election campaign?”

Andrew Freedman, partner at Olshan Frome Wolosky in New York, contends that overall he did not expect the number of settlements reached between activists and companies to decrease significantly in 2017. Like in previous years, Freedman noted, companies will continue to agree to add one or more dissident directors to corporate boards under the radar and even prior to public escalation. “We are going to continue to see the vast majority of these activist situations reach a settlement,” Freedman said. “Where you have a stale, underperforming board in obvious need of a refresh to drive shareholder value, there’s no point in months of public fighting.”

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