As a new year begins, it is always a good time to take stock of the successes of the past year and look forward to doing even better in 2015. Shareholder activism will continue to be a “hot topic” for publicly listed issuers in 2015. Here is a checklist of our top five tips to help ensure a smooth year to come:
1. Have an Effective Communication Strategy – Having a great corporate strategy that no one knows about will not help your business. Whatever the industry, it is important that internal and external stakeholders are regularly kept informed of key decisions and strategic next steps. A lack of effective internal or external communication can lead to misunderstandings in the future about corporate direction or opportunities (or the lack thereof). It can also suggest, often unfairly, a lack of strategic focus by the board and management team. Focus on external communications for shareholders and analysts, but don’t forget about messages being delivered to employees, customers and other key stakeholders.
2. Know your Shareholders and other Key Stakeholders – It is important for boards and management teams to ensure that they are educated about the profile of their shareholders and investors and their respective motivators. It is not the time to start gaining intelligence on your shareholder base when a crisis hits. Similarly, if thinking about partners for M&A activity, new financing commitments, lenders or any other counterparties, think about their interests: Are they supportive of long-term strategies, or more likely to want to realize quicker results? Cautious or Aggressive? Not being aware of the motivations and goals of key stakeholders leaves a company in a reactive rather than proactive mode.
3. Implement Effective Executive Compensation – Regardless of the industry, the compensation of a company’s top talent is always a key issue for boards, management and investors alike and is always highly scrutinized by shareholders, analysts and proxy advisory firms. Ensuring that executive compensation, including salaries, bonuses and change of control payments, is in line with performance and peer groups, and is driving appropriate behaviours and strategies, is of critical importance.
4. Manage Risk Oversight – There is an ever-increasing environment of risk mitigation and management, including continued emphasis on “risk oversight” by boards. It is helpful to have a robust risk identification, assessment and mitigation process in place (the details of which will, of course, be industry-specific). Setting a “tone at the top” of canvassing potential risks and having open discussions about risk mitigation strategies at the board and management level will help improve governance, and hopefully leave the company less vulnerable to issues in the future.
5. Have a Crisis Response Action Plan – In the unfortunate event that a corporate crisis presents itself, or if an unexpected shareholder event occurs, it is helpful to ensure that a well-thought out plan of immediate steps, together with a list of key contacts and advisors, is prepared. It is also a good idea to routinely consult and review the company’s constating documents, including articles of incorporation and by-laws, and other key corporate policies and procedures to ensure that they are being followed and are not in need of updates or revision. Going through the process of having a detailed plan ready will inevitably force a review of existing processes, hopefully with the effect of mitigating potential issues down the road.