CIRI: Shareholder Engagement – Who’s in Charge?

Sharon Mathers
Vice President, Corporate Affairs and Investor Relations, Canadian Tire Corporation, Ltd.

Eric Rosenfeld
President & CEO, Crescendo Partners, L.P.

60% of proxy battles end up in favor of the activist shareholders. Activist shareholders will look at the entire sector. Three areas that activists focus on:
1. Financial structure — Activists may suggest how the company could improve their focus (ex: leverage to the balance sheet)
2. Alternative strategies — Activists may alter the key strategy or suggest that some of the business divest
3. Governance — Activists may look at the board compensation and structure

Activist shareholders are not just hedge funds. They will be engaging in your company’s large shareholders. Don’t think you are not immune.

Clues that an activist shareholder is on the phone/in your stock:

• Very smart
• Asking detailed questions regarding taxes, earnings growth, synergies, etc.

How to deal with them:
Activists can be aggressive. IROs need to keep in mind that all shareholders need to be treated equally. An IRO needs to ensure that an activist does not put words in their mouth or pin them down in terms of timing. An IRO must remember to take them back to the company’s disclosures for facts.

An analyst wants to know the business well. An IRO may want to think of them as media.

How to anticipate activist activities:

• Monitor activities of activists in the company’s sector
• Shareholder identification/surveillance

What can companies do to defend themselves?
Planning:

• Build an advisory team (ex: bankers, PR firm, IR firm, proxy firm)
• Monitor trading activity and filings
• Establish support from shareholders
• Prepare for the worst (ex: build communications plans)
• Engage the analyst in a dialogue (ex: make sure they understand your strategy)

Strategic:

• As an IRO, put yourself in the shoes of the activist shareholders (ex: review your strategic plan, bridge the gaps in your strategic plan)
• Review your board
• Continually update your investors

Financial:

• Understand how you can maximize your revenue in the short- and long-term

The differences between being an activist in Canada vs. the United States are:

• Ability to reposition a shareholder meeting, 21 days later call a special meeting for shareholders, and a few days later hold a vote to replace directors of the board. In the United States you can’t do this. Sometimes you need 50% to vote to replace directors.
• In Canada you don’t need to surface unless you have 10%, in the US it is 5%.
• The poison pill was adopted as a way to give the board time to look at other options when dealing with a battle. In the US the “just say no” defense is used, the board can say no.
• There are more concentrated holdings in Canada.
• There is the impression remedy in Canada. No similar remedy in the US.
• Compared to the US, companies have less liquidity in Canada.