Our mergers & acquisitions group hosted the inaugural event of its Director Summit roundtable series, welcoming industry experts (see Panelist Profiles) to address timely issues for directors of public companies. The program featured panel discussions — “Accounting Red Flags” and “Shareholder Activism” — moderated by Jane Goldstein and Paul Scrivano, partners in our mergers & acquisitions practice (see Attorney Profiles).
As a director of a public company, when all you have to go on is what management tells you, what are the clues that the finances of the company may not be what they seem?
In your seat, you have likely been faced with difficult decisions and considerations in the boardroom, with an eye to the ramifications of the public scrutiny that may affect the company. A proactive board can help guard its company against loss of revenue and even reputation. However, being proactive is challenging when, as a director, you are not involved in the day-to-day operations. Often, you need to rely on management to provide you with accurate information to guide your decisions, and it may be challenging to assess and evaluate the information and the associated risks.
Our panel covered a range of hot topics linked to spotting and raising accounting red flags, and offered key insights into how directors can gauge when to accept information from management at face value and when to dig deeper for answers. The panel spoke to the appropriate level of board interaction with management and with the company’s external auditors, bearing in mind the interests and duties of the various stakeholders. We also touched on the identification of audit risk, along with the current SEC “hot buttons,” in terms of recent investigations and enforcements. The panel concluded with an overview of best practices for directors to follow in order to be effective board members.
Public company directors need to be attuned to shareholder activism now, more than ever.
In today’s environment of shareholder activism, preparation is essential. Companies would be well-advised to mobilize a swat team ahead of time, and the team should meet periodically to assess the current landscape and any company-specific vulnerabilities. Core members of the team could include: key officers; outside counsel; financial advisors; proxy solicitor; and a PR firm. In addition, companies may want to stand ready to call a board meeting within 24 to 48 hours if developments warrant and may also want to consider using an ongoing stock monitoring service to keep an eye on significant changes in the shareholder base.
The panel examined current trends in shareholder activism, including: passive investors becoming more resistant to settlements; non-traditional activists beginning to push for change; and latest “asks” by activist investors (for example, spinoffs with no takeover defenses). We highlighted the various strategies and defenses used to handle activist situations, along with the considerations to be made by boards in selecting the most appropriate course or courses of action under the circumstances. Our panelists shared insights into the recent activist movement to target CEOs, the increase in non-U.S. activism and the expansion of the scope of activist “asks.” The panel ended with a review of activist activity in 2017 and expected activity in the next 12 months.