It can cause some sleepless nights for directors and supervisory directors: a letter from an activist shareholder with the urgent request to sell a business unit or search for a takeover candidate.
Research by the American investment bank Lazard shows that in the first three quarters of 2018 no fewer than 130 activists started a campaign against a company. That’s 20 percent more than in the whole year of 2017. And this scenario no longer only applies to large American companies; Lazard told Het Financieele Dagblad last year that in 2018 the level of shareholder activism in Europe was above the historical average.
There is increased attention on the activist shareholder and its grievances, but activist shareholding is not, in itself, new. In documents from the Koninklijke Bibliotheek in The Hague you can read that when the VOC was established, shareholders were already discussing the strategy of what is sometimes called the first multinational in the world. “They were talking about the same things. VOC shareholders were not happy with the management and the strategy followed and wanted more financial transparency”, says Hugo Reumkens, partner at Van Doorne and a specialist in corporate law.
So, activist shareholding has always been around and occurs in both common law and civil law systems. However, not all large Dutch companies are well-prepared for possible shareholder actions.
When AkzoNobel received a hostile takeover bid from American competitor PPG in the spring of 2017, activist shareholder Elliott eagerly forced AkzoNobel to enter into discussions with the takeover candidate. When AkzoNobel refused, Elliott turned to the Enterprise Chamber. Eventually, AkzoNobel won against PPG and the activist shareholder but it still ended up having to sell the chemical branch and the company lost the chairman of the board and its financial director.
“AkzoNobel was surprised by the takeover bid and Elliott’s quick response to it”, says Reumkens. “The summit avoided any dialogue, this immediately led to conflict which made the company very vulnerable. As time went by, the company’s risk of becoming a sitting target increased.”
‘It’s not personal.’ Or is it?
Activist shareholders are not afraid of making a conflict personal. The American hedge fund Elliott demanded the departure of Antony Burgmans, chairman of AkzoNobel’s supervisory board. The Mexican billionaire and major shareholder Carlos Slim wanted CEO Eelco Blok to leave KPN. And major shareholder Teslin wanted to get rid of Ap Pasman, chairman of the supervisory board of the bicycle manufacturer Accell Group. “Not many directors and supervisory directors have experience of this”, says partner Hugo Reumkens. “It makes them feel uncomfortable to be in the news personally. An activist shareholder stating publicly that they are not performing well can have a major impact. At AkzoNobel , two former directors ended up calling in sick. That is why directors and supervisory directors must be guided through such a conflict, both internally and with the help of a communication consultancy.”
‘Plan must already be written’
How do you deal with activist shareholders? In other words: what do you do if a shareholder has a different view on a possible merger or acquisition?
Reumkens: “It all starts with a good business strategy. A good share price is a good indication of a correct strategy being followed and this is the best protection against dissatisfied shareholders and hostile takeovers. But no matter how well things are going, you should always be prepared for shareholder actions. The plan must already be drawn up. How do you respond to different scenarios? How do you quickly reach all managers and supervisors, even if one of them happens to be on the ocean in a sailing boat? Then, who does what and how do you present yourself in the media?”
Dutch companies still have some improvements to make when it comes to these kind of preparations. The Van Doorne specialists can advise companies on this.
“It’s important for an action plan to be updated regularly and for the employees involved to practise applying it. The company must be able to act quickly and know which strategy to follow. Activist shareholders are often better prepared than the company they own a piece of. "