We help public companies to preemptively avoid the attention of shareholder activists, and, when necessary, to defend aggressively against unwarranted threats to corporate control.
Shareholder activism in public companies has increased dramatically in recent years. In the past, shareholder activism was dominated by a rarified circle of investors with the financial capacity to acquire large stakes in public companies, enabling them to control or substantially influence the outcome of a proxy contest. Today, you no longer have to be Gordon Gecko of “Wall Street” notoriety in order to mount an effective activist shareholder campaign. Shareholder activism has become a mainstream activity that can be initiated with a modest investment stake and the available tools of social media, including Securities and Exchange Commission regulations that allow shareholders to generate support for a cause through electronic forums without violating proxy rules.
A number of hedge funds now use shareholder activism as a key strategy to seek to generate returns for their investors, further putting pressure on public company boards of directors to take actions designed for the short term at the expense of long-term strategies. The increasing influence of proxy advisory firms further exacerbates the issue, providing the grist that activist shareholders may use in their demands for action by the board.
In this environment, activist shareholders have achieved notable successes in obtaining board seats, pressuring boards to authorize special dividends or stock buybacks, or forcing the exploration of a sale of the company. Pepper Hamilton LLP’s Shareholder Activism Task Force has the experience and knowledge to effectively assist corporate boards of directors and management in preparing for, managing and opposing activism campaigns that threaten to harm the best interests of the company and its shareholders. We help public companies to preemptively avoid the attention of activists, and, when necessary, to defend aggressively against unwarranted threats to corporate control.
Optimizing Corporate Governance
The best defense against disruptive activity by dissident shareholders begins with effective corporate governance. Proper governance and regulatory compliance are critical to maintaining investor confidence and the integrity of business operations, areas on which shareholder activists frequently focus in selecting their targets. Pepper is experienced in advising corporations and their officers and directors on best practices in governance, regulatory compliance and similar matters. We represent full boards of directors, board committees (including audit committees, compensation committees and special committees), individual directors, CEOs and other executives, and investors. Our experience includes:
design and implementation of shareholder rights (poison pill) plans, standstill agreements, defensive charter and bylaw provisions, specific strategic and tactical advice, and interpretation and creative use of state statutory anti-takeover provisions
analysis of and response to conflict-of-interest and change-of-control matters, including mergers, proxy contests and takeover bids
advice on handling shareholder proposals under the Securities Exchange Act of 1934 and state corporate law, including, where warranted, exclusion from proxy materials or oppositional proxy disclosure
evaluation of proxy advisory firm governance reports and advice to overcome any red flags or other issues requiring attention
issues involving board composition and structure, including membership qualifications, nominating procedures, committee structures and duties, periodic evaluation of board member performance, and similar matters
advice to boards, individual directors and corporate executives about fiduciary duties, disclosure and reporting requirements
educating directors about the tactics of activist shareholders, as well as the obligations of management and boards of directors to individual shareholders
advice on shareholder communications, including monitoring shareholder chat rooms and communicating to shareholders the key priorities of management
advice regarding management succession, and compensation and benefits for executives and directors
compliance with the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and related SEC regulations, and with stock exchange and FINRA corporate governance requirements
conducting internal investigations
responding to SEC investigations
defending against shareholder derivative litigation.
Effective corporate governance can prevent shareholder activism from reaching a crisis point. When a shareholder lawsuit, proxy contest or activist shareholder challenge arises, we arm boards of directors and management with the information and strategic advice necessary to respond deliberately and effectively.
Pepper represents corporations, their directors and officers, investment bankers and accountants in civil, criminal and administrative proceedings regarding corporate governance and the issuance and trading of securities. Our litigation practice takes us before federal and state courts and administrative agencies in jurisdictions throughout the United States.
We defend against shareholder derivative lawsuits and actions claiming breach of fiduciary duty against corporate directors and officers. We advise directors about their duties in response to a shareholder demand to bring corporate litigation, and assist boards in conducting investigations and making sound business judgments in response to such demands. We are experienced in coordinating the defense of derivative claims in conjunction with securities fraud allegations.
Many lawsuits brought under the federal securities laws are filed as class actions. Pepper lawyers have defended against more than 150 shareholder class actions and other securities cases since enactment of the Private Securities Litigation Reform Act of 1995. We have obtained dismissals, defeated class certification, prevailed in summary judgment and other dispositive motions, and won defense verdicts at trial. Our experience includes successfully opposing many of the best-known plaintiffs’ class action firms in the country.
Clients choose Pepper as defense counsel in securities cases because of the depth and breadth of our team, and the level of our experience. Our securities litigation team includes more than 35 lawyers, including a former branch chief of the Securities and Exchange Commission’s Enforcement Division, and three Fellows of the American College of Trial Lawyers. The team is led by senior partners with decades of experience in securities litigation, supported by capable and experienced partners and associates.
In recognition of its active and diverse securities litigation practice, Pepper has been selected to act as panel counsel by major insurance companies that issue directors and officers liability insurance, including AIG, Progressive Insurance Co., Zurich North America and Marsh, and often works with non-panel companies as well.