BEFORE A PUBLIC ACTIVIST CAMPAIGN IS LAUNCHED

1.           Maintain open lines of communication

ListCos should communicate transparently and regularly with shareholders and be receptive to shareholder feedback, where reasonable. Such communication will occur primarily via the JSE’s Stock Exchange News Service (SENS) and formal events, such as annual general meetings (AGMs), but should preferably also include wide audience investor presentations, as well as one-on-one engagement with key investors (always bearing in mind that price sensitive information should only be disclosed via SENS). By fostering an “open door” culture and building a relationship with key long-term shareholders, a ListCo is able to receive valuable feedback and build trust with its stakeholders. Such engagements allow ListCos to articulate their current and long-term value proposition to shareholders, while countering any short-term issues.

 

2.           Know your shareholders and understand their priorities

By regularly engaging with key shareholders, analysing AGM voting trends and shareholder “track records”, ListCos can better understand the priorities of their shareholders, thereby gaining valuable insight into how they may vote if approached for support by either an activist or ListCo.

 

ListCos should closely monitor trading activity in their stock, considering both the company’s share price and its shareholder make-up, thereby gaining advance notice of key shareholding blocks being acquired and positions being built (e.g., in anticipation of a potential takeover), as well as known activist shareholders joining the register.

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3.           Activism trends and “pain point” check-ins

ListCos should regularly consider factors that are likely to draw activist scrutiny and keep abreast of current activist campaigns in the SA market (especially involving companies in the same sector). Where a ListCo performs well and delivers strong returns, this should negate most shareholder concerns – therefore, a focus on performance remains key. The rolling list of potential “pain points” include –

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• Declining financial metrics

• Poor share price performance (especially where it underperforms ListCo peers or the applicable index)

• Low or no dividend payout

• Conservative or an over-geared balance sheet

• Unjustifiable executive remuneration practices

• Board composition deficiencies, independence concerns and lack of diversity

• ESG shortcomings, including insufficient reporting

• Operational challenges relative to peers

• Poor strategic decision-making

• Unsuccessful mergers and/or acquisitions

 

Where such an issue applies to a ListCo and the company is able to resolve it, this reduces the risk of activist attacks. In other instances, the risk of such attacks (or their impact) may be minimised by explaining the approach being followed to address the concern (e.g., improving operational performance) or by setting out the company’s view on the matter (e.g., instead of distributing it now, the company is retaining cash to position itself for future accretive acquisition opportunities). 

 

4.           Assign a team (and be perpetually prepared)

Activist campaigns are often launched swiftly and unexpectedly, creating disruption and uncertainty for a ListCo. It is, therefore, critical that a ListCo has a designated response team on standby with a strategy in place for how it will respond when facing an activist attack (including clear communication lines with the media). Without preparation (which could include mock activist campaigns to stress test the ListCo’s response framework), ListCos risk disorganised responses, potential missteps (such as premature responses on social media without having all the facts available), and reputational harm. Such designated teams usually comprise executive directors and members of the ListCo’s investor relations, legal and financial teams, as well as outside advisors (when required).

 

5.           Keep pace with emerging trends

Shareholder activists have become adept at using a range of tools, including social media, to maximise their impact on target companies. With the rapid advancement of artificial intelligence (AI), it is only a matter of time before activists widely leverage AI to analyse publicly available company data in order to identify vulnerabilities sooner. However, AI need not remain solely a tool for activists. It would be prudent for ListCos to explore how AI can be strategically utilised to their advantage.

 

AFTER A PUBLIC ACTIVIST CAMPAIGN IS LAUNCHED

6.           Play the ball, not the man

Activist campaigns often involve personal attacks on management or board members, but it is crucial to resist retaliation. Instead, ListCos should address the principal concerns raised, substantiated by facts and data. In doing so, directors and management will continue to safeguard their credibility while maintaining shareholder trust and public confidence in the ListCo’s governance practices.

 

7.           Communication is the name of the game

When responding to a public activist campaign, a ListCo must act swiftly to establish and control the narrative. Delays can allow others to shape public perception, potentially undermining the ListCo’s reputation and management’s credibility. The response should be tailored to the actual issue raised, the activist who launched the campaign, and the audience (including key shareholders and stakeholders). If the ListCo does not believe that the activists’ proposed changes are in its best long-term interests, it needs to explain to investors why this is the case, and how the company reached this conclusion. On the other hand, if the company has decided to make some changes, it should be open about what those are, as this will show that it is receptive to shareholder suggestions and takes them seriously.

 

When activists are considering “Vote ‘No’” campaigns or proxy fights (for example, on director remuneration resolutions or board elections), they will need the support of other shareholders to be effective. While they will try to influence other shareholders via public platforms, they will, in many instances, already have approached large shareholders before the campaign. It is, therefore, essential for a ListCo to engage with key shareholders early, to explain its position and to secure their support.

 

Proactive and transparent engagement might not necessarily end each and every activist campaign, but it will serve the ListCo in building trust amongst stakeholders and counteracting misinformation. Such engagement will be easier and more effective where the company already has a good relationship with its major shareholders, pointing again to the importance of ongoing regular interaction with shareholders.

 

CONCLUSION

In future, public shareholder activism in SA will likely continue to increase. One immediate cause may be the incoming remuneration-related amendments to the Companies Act, together with the increased focus on reporting and disclosures by JSE-listed companies.

 

It is important that ListCos position themselves proactively to respond to public campaigns. In this case, as with many things in life, failing to prepare is preparing to fail. 

 

De Kock is CEO and Piek a Director | PSG Capital.