As shareholder activism intensifies and proxy advisor influence evolves, directors must be prepared to lead under pressure. We recently hosted a conversation on this topic in partnership with Board Prospects where Josh Hochberg, COO and head of special situations and investor relations at Edelman Smithfield, spoke with Caitlin McSherry, managing director and global head of stewardship at Neuberger Berman, and Jason McCandless, head of the M&A and contested proxy team at Glass Lewis.
Below are key takeaways every director needs to know:
Board-level shareholder engagement is no longer optional.
Relying only on management to handle investor engagement creates perceived weaknesses within the board and reduces readiness if an activist does emerge. Establishing a consistent cadence of director engagement outside of proxy season can help build credibility before pressure escalates.
Directors must be fluent in the company’s strategy.
Investors expect directors to speak beyond committee meetings and typical governance practices. They must be prepared to articulate the company’s strategic initiatives and capital allocation priorities in addition to discussing the board’s oversight and engagement, especially amid today’s dynamic environment. Demonstrating leadership alignment and communicating a clear strategy for sustainable, long-term value creation decreases vulnerability. Equally important is an understanding of the investor base, including priorities, expectations, and time horizons.
Board composition and expertise must be substantive and demonstrated.
Activists often target perceived gaps in relevant expertise, capital allocation, and operational depth. To showcase comprehensive and effective board composition, director biographies should go beyond generic credentials and the board’s skills matrix. They should clearly link each director’s experience to shareholder value creation. This detail is particularly important when the board comes under scrutiny during a proxy fight. In contested situations, adding directors mid-contest may appear defensive. However, intentional, strategically aligned refreshment that adds high caliber and well-vetted candidates is typically viewed more favorably by investors than inaction or entrenchment. Companies that make clear their boards are acting from strength rather than pressure, while simultaneously signally an openness to thoughtful evolution and responsiveness, help bolster credibility with investors.
The landscape is evolving, but the fundamentals remain a priority.
The proxy voting ecosystem is undergoing significant change with the introduction of new technologies influencing how investors and proxy advisors extract and consume information to sharpen processes. Despite this evolution, voting decisions remain grounded in an investment thesis based on ongoing research, direct engagement and a deep understanding of the industry, company and especially performance. For directors, this reinforces the importance of substantive messaging and proactive engagement with both active and passive shareholders.
Sustainable, long-term value creation remains the most effective defense against shareholder activism, but it must be reinforced by ongoing engagement with shareholders on the company’s strategy, execution and setbacks. Prior to engagement, messaging to both shareholders and stakeholders, a clear strategic narrative, and scenario plans should be developed and pressure tested to protect credibility.
By Jordan Fisher, Executive Vice President, Edelman Smithfield