In unprecedented circumstances, both issuers and activists have the unenviable task of guessing how the investment world will view their actions during the coronavirus pandemic. Fortunately, clarity is arriving.
ISS's Policies To COVID-19
Yesterday, Institutional Shareholder Services (ISS) released guidance on how it intends to adapt its policies to COVID-19. The proxy voting adviser’s hints ought to give directors pause as they plan for annual meeting season; even as exceptions are made for this year, ISS reminds boards that it will be vigilant for issues that may affect its recommendations next year. In particular, it hit on the following key topics:
Virtual meetings – "boards are encouraged to commit to return to in-person or 'hybrid' meetings (or to put that matter to shareholders to decide) as soon as practicable."
Poison pills – "A severe stock price decline as a result of the COVID-19 pandemic is likely to be considered valid justification in most cases for adopting a pill of less than one year in duration… The triggers for such plans will continue to be closely assessed within the context of the rationale provided and the length of the plan adopted, among other factors."
Share repurchases – "Whilst ISS will… generally continue to recommend in favor of repurchase authorities within customary limits for each market, the board's actions related to repurchases over the course of 2020 will be reviewed in the run up to the time of the next AGM (generally 2021) to consider if the directors managed risks in a responsible fashion for any repurchases undertaken under the authority."
As Williams Cos. has already found out, issuers do not get a free pass on poison pills.
Ali Saribas's Survey Of Global Institutional Investors
On the investor side, I spoke to Ali Saribas this week about a survey of global institutional investors his firm, SquareWell Partners, conducted in mid-March. He told me institutional investors are ready to subordinate their usual engagement topics to the most pressing issues facing companies.
"ESG is not falling off the agenda this year but investors have focused their attention on governance," he said. Complicated new executive compensation policies are lower priorities than in previous years, to allow directors to focus on supporting management and the business.
But even with the onus on management teams to execute whatever business continuity plans were in place before the crisis settled in, such understandings could soon give way to sterner expectations.
How companies communicated or treated their employees, and whether they reversed such changes as virtual-only meetings could be part of next year’s process of evaluation. Otherwise, companies might find themselves vulnerable to activists harping on governance issues.
"The most critical job of a board is to appoint a management and to oversee its work," Saribas concluded. "If they come out extremely wounded, there will be quite a focus on how well-prepared they were."
Quote Of The Week
Quote of the week comes from our in-depth story on why this year will likely see fewer proxy fights. Despite the theme, Abernathy MacGregor’s head of activism and M&A, Pat Tucker, told Activist Insight Online that funds will not be dissuaded from launching a campaign in fear of resurrecting a reputation as a "raider."
"Activists have proven to be very savvy in managing their public profile," Tucker noted, adding that "companies cannot simply assume image concerns will slow an attack."