Appetite for instruction

South of the border, shareholder activism has become a major growth industry. Here in Canada, company battles with shareholders critical of performance and motivated to bring changes to the board and company strategy may soon follow suit, argued Fred Pletcher in his keynote address at the CIM Convention Closing Lunch.

"There is less low hanging fruit in the United States and so they will look to Europe and their friendly neighbour to the north," said Pletcher who is an advisor to Taseko Mines in its ongoing proxy battle with the U.S. firm Raging River Capital.

Pletcher noted that good corporate governance will be the best defence against such battles, but also suggested that an uptick in proxy battles that target board members may make board appointments less attractive to qualified candidates who just do not want the aggravation.

In the turmoil at Taseko, Raging River is pushing to replace directors at the company to begin to turn around the sagging share price. According to Pletcher, the stated aims of activist shareholders and their actual strategy can be vastly different, which he argued is the case with Raging River whose financial stake in Taseko's bonds is more significant than in the company's shares. Shareholders have until May 6th to vote on whose side they are ready to support.

Whatever the result, the fight, which began in January, has already exacted a major toll on the company in both time and finances.

So how do companies protect themselves from a similar fate?

Communication is key, according to Pletcher. "Spend as much time talking strategy as you do risk," he said. Management must make its long-term vision for the company clear and companies need to be upfront about where the money is being spent, how directors are compensated and how that compensation is connected to the broader strategy. He urged investor days be held regularly and include the attendance of independent board members. Institutional investors, he said, will appreciate their presence.

Prevention also requires policing, added Pletcher. "Check who is attending your quarterly conference calls." And, he noted, activist investors gather in conference rooms just like the one he was speaking in to share notes and to discuss strategies and potential targets.

Opinions diverge on whether shareholder activism adds value to a company, but Pletcher noted that the returns of S&P 500 companies which have weathered shareholder activism do, after ten years, outperform those which have not. "This makes sense," said Pletcher, "because the company survived a near-death experience they don't wish to repeat."