Activist investors are increasingly going after large corporations. Over the past few months, we have seen many activist investors attacking the corporate governance or M&A. A few examples include Daniel Loeb’s call to split Sony Corporation (NYSE:SNE)’s entertainment business, and Carl Icahn’s resistance to Michael Dell taking Dell Inc. (NASDAQ:DELL) private. That has kept the company boards busy too. Recently, we featured the Harvard Law School Forum’s views on how a company can guard against shareholder activism.

To discuss the issue, David Benoit of The Wall Street Journal MoneyBeat sat down with Richard Grossman, a partner at New York-based law firm Skadden, Arps, Slate, Meagher & Flom LLP. Grossman has experience working with corporate clients, especially when there is an activist attack. He recently worked with Compuware Corp. (NASDAQ:CPWR) when it became the target of Elliott Management, and when Bill Ackman started pursuing JCPenney & Company Inc. (NYSE:JCP) Grossman said that almost any company can be the target of activist shareholders.

Grossman said the first reason activists have started targeting large corporations is that they have a lot of money in hand. The stake may seem small but it’s an awful lot of money. Moreover, now institutional shareholders have become more sympathetic to activist investors. Institutional investors no longer see an activist as a quick-buck investor. They see activists as smart investors, who have done plenty of research before putting significant capital to work.

Activist Investors Are Using Sophisticated Tactics

Activist investors have started doing it on a large scale. Now they are hiring sophisticated counsel, PR firms, financial advisers, and they put out white papers. Grossman says that even if an activist shareholder comes off a big loss, that doesn’t change how other shareholders think about them. What matters today is what has happened to the stock since an activist investor identified a company.

So, What Should Companies Do?

Grossman says that we can see a lot of interaction between a company’s IR folks and large shareholders. Grossman advised firms to interact with their large shareholders on a regular basis. During a proxy fight or activist situation, the worst thing to do is to introduce yourself to a large shareholder for the first time. He says a company should have good relations with its shareholders because such fights are no longer won or lost on legal defenses. Now shareholder communication and media play a crucial role.

When a company gets hit with an activist investor, it’s important to understand what they are dealing with. You have to find out the activist investor’s background, the current situation and what they are looking for. You won’t immediately get a call when an activist notices an underperforming business unit or excess cash. Activists give it a lot of thought. So, you should objectively and carefully analyze what they want. Sometimes that requires financial analysis and you have to hire an investment banker.

Grossman says activism can be dealt with successfully if the company communicates well and maintains a good relationship with its large shareholders.