September 2, 2014

Winning a Proxy Contest

Since 2000, the number of activist campaigns launched has increased by more than 500%, according to S&P Capital IQ and Ipreo Research.


In nearly two decades, I’ve seen my share of contentious proxy contests … from both sides of the table.  Here are some of the lessons I’ve learned for developing a winning strategy if you are on the side of facing an activist campaign:


  • No matter what, avoid getting emotional or taking it personally.

For boards and managements faced with a disgruntled shareholder’s demands (whether in the form of a letter to the company or an alternate proposed proxy), it’s understandable to feel like the attack is personal and unwarranted. Maybe your board or CEO has made an attempt to reach out – only to have the shareholder dig in his or her heels or make additional demands (like more board seats, changes in dividend policy, etc.).


It’s easy in those circumstances for frustration and emotions to start to escalate, but a cool head is critical as a board or management team considers the various options available in responding to a shareholder activist’s tactics.


Vote 12345

Vote 12345 (Photo credit: Wikipedia)

  • Firing the first shot may not give you an advantage.

Unless you’re the activist, firing the first shot in a proxy contest will often do more harm than good. It is the equivalent to picking a fight – one that will likely result in the following:


o   The disgruntled shareholder will most likely become more entrenched and more likely to escalate the fight…and now, you’ve provided the ammunition to attack your position and put you on the defensive.

o   Other shareholders may begin to question whether the company’s management and board are open to shareholders’ concerns and feedback.

o   Employees may begin to question whether the company is stable and can become distracted by any resulting negative media attention.

o   Lastly, firing the first shot often places your board and management into a zero-sum battle with the shareholder and eliminates the likelihood of reaching an agreement or compromise. The only parties who benefit when a proxy fight moves into a zero-sum scenario are the multitude of consultants both sides will have to engage to try and win the war.


In most cases, the best strategy is to prepare for the first shot. By taking a wait and see approach, your team puts itself in a better position to have more options available in choosing a response that will reinforce your team’s credibility and perspective with all stakeholder groups….and force the activist into playing defense.


  • Don’t forget the other stakeholders who will be affected by your actions.

Often, the discussion around a proxy contest focuses on the board and management (“us”) versus the shareholder activist group (“them”).  Other shareholders are often viewed as battlefield prizes to be “won over” and other stakeholders who can influence the vote (such as employees and former employees who hold shares, as well as news media who write on the story) often are forgotten all together.


When developing your battle plan, it’s important to remember that your actions and statements will also be judged by several stakeholders and not just in the context of the vote or the logic of the arguments presented. Important thoughts to consider include:


o   Will our actions and statements be viewed as prolonging or escalating the fight or trying to facilitate a positive and quick resolution?

o   Does this action or statement put us in the role of “emotional instigator” or “cool-headed problem solver?”

o   Will our statements and actions be perceived as being responsive and considerate of shareholders’ interests or for the sake of self-preservation?


  • Keep the big picture in mind.

While it can be easy to forget the “big picture” in the heat of a proxy battle, it’s important that the board remember to always keep in mind its ultimate desired outcomes.  In most cases, the board and management’s ultimate goals are:


a) to preserve shareholder value to the greatest extent possible; and

b) retain majority control over the Company’s strategy.


Each action and reaction should be considered in the context of how it will facilitate bringing the company closer to its desired outcomes in the fastest and most painless way possible.  In a proxy contest, you don’t win points for how many punches or knock outs you can land – but for how you are able to move effectively in bringing the contest to a conclusion with minimal damage to your company.


–E.E. Wang,


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Take $tock in Mama Mancini’s Meatballs

You may have heard the radio commercials with Dan Mancini touting his homemade meatballs.  But did you hear the one about Mama Mancini’s being a publicly traded company?


Thirty-second spots recently aired on satellite radio during CNBC’s weekly broadcast not only pitching Mama Mancini’s great-tasting meatballs, but alerting potential investors that the company is traded on the OTC (over-the-counter) bulletin board under the ticker symbol MMMB.


A steady stream of “investment” commercials has been hitting the airwaves since the SEC last year loosened its advertising rules for equities and alternative investment vehicles.


Much of this mixing of consumer and investment messaging is a relatively new concept, built on the premise that consumers are investors, too, and vice-versa.  It’s not just advertising, either.  Some publicly traded restaurant and sporting goods chains have hocked their ticker symbols at checkout.


The challenge is determining whether touting your stock to consumers is worth it, especially if the stock is trading for pennies on the dollar. This could potentially dilute the brand, both from the consumer and investor perspective, and create the perception of a company that is awkwardly trying to find new capital.


Creativity is the key for consumer-facing stocks marketing directly to customers.  Executives need to be aware of the impact these ads can have on a company’s brand perception.  What happens when the consumer has a bad experience?  Is he or she going to hit the investor chat rooms and bash the company?


Allowing consumers to “discover” that a company is publicly traded may have a greater impact and create a more interested investor.  If not, consumers may question whether the company is truly interested in them or promoting its stock.


– George Medici,

English: Spaghetti and Meatballs


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Business Folk

Warren Buffett speaking to a group of students...

Warren Buffett speaking to a group of students from the Kansas University School of Business (Photo credit: Wikipedia)

Most, if not all, annual reports for 2013 have been published by now, and as investors attempt to glean what went right and what went wrong by wading through pages upon pages of corporate detritus, often the most readable section is that containing the shareholder letter.
Warren Buffet is arguably the most famous writer of shareholder letters because of his folksy, straight-to-the point style.  Buffet is so darn good at writing shareholder letters that myriad chairmen and chief executive officers attempt to emulate his knack for prose. The problem is, Buffet writes in his own voice, and trying to inject his vernacular into your shareholder letter could smack of inauthenticity, or even worse, someone might call you a poser.
Instead of invoking Buffet when trying to conjure up some down-home writing, l’d rather refer to his style as “business folk.”  Yes, it sounds like a music genre for MBAs.  But writing in the style of “business folk” seems a lot less intimidating than trying to emulate a genius.
Following are additional word-buffing tips:

  • Avoid clichés and creative analogies.  Yes, it is tempting to use catch phrases and descriptors to tell the company’s story, but words can easily become distracting, and soon enough the reader loses focus.

  • Write as quickly as possible.  This ensures you are writing what you know and staying on point.  It also helps lay a foundation that you can wordsmith later.

  • Use metrics that help demonstrate themes.  Numbers are great because they are hard facts, but they also pose challenges because they don’t always tell the full story.  Try to use numbers that help shareholders understand the overall direction of the company.

  • Describe the company’s strategic direction.  Many executives underestimate the power of writing and misuse the activity, particularly in shareholder letters, to recapitulate old news.  Effective writing presents a roadmap that can help manage expectations, as well as demonstrate leadership.

  • Read what you write out loud to determine if it actually sounds like something you would say.  If you employ a lot of three-syllable words in your daily conversations, then maybe your writing should contain three-syllable words.  (Note: If expletives factor into your daily conversations, then you should edit those out.)

  • Use subheads to break up thoughts.  It is easy for readers to get lost in corporate minutiae, which is why it is helpful to have guideposts.  Subheads help hammer home themes we want investor audiences to remember.

  • Make sure whatever you write is in reader-friendly formats both online and in print.

  • Words are more important than flashy design.  Sure, an interactive quarterly report is nice, but it’s the words that will help investors determine if you have “a wonderful company at a fair price (rather) than a fair company at a wonderful price,” according to a quote from Warren Buffet’s shareholder letter in 1989.

– Evan Pondel,

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