ABA Banking Journal - November/December 2016 - 42


FEATURE

> INVESTOR RELATIONS

Often, the goal of an activist campaign is to pressure the
company to sell-but it's far from the only possible objective
or outcome. Shareholder campaigns can also focus on
executive compensation, proxy access, the role of the board
chairman, and environmental and social issues, among
other topics. Activists have a wide variety of tools at their
disposal, including proxy fights, shareholder resolutions and
direct negotiations with management.

Thirty-five percent of micro-cap companies-those with
a market capitalization of less than $300 million-were
approached by activists between the spring of 2014 and
the spring of 2015, according to the National Association of
Corporate Directors, citing its most recent data at press time.
Among small cap companies-with market capitalization of
$300 million to $2 billion-13 percent had been approached
by activists.

For example, one of the most potent strategies now being
used by activists is the proxy access proposal. Nearly 200
were submitted for all public companies during the 2016
proxy season, according to Skadden LLP. These proposals
upend the traditional approach to board nominations
by enabling shareholders to nominate their own director
candidates on the company's proxy statement alongside
management's choices. The most common approach allows
investors who have held at least 3 percent of the company's
shares for at least three years to nominate up to one-quarter
of the directors. As of mid-June, according to Skadden,
65 percent of all public companies that received a proxy
access shareholder proposal had adopted or proposed a
3 percent bylaw or announced plans to do so.

Michael D. Schiffer, a partner in Venable's Baltimore office,
sees clear reasons why activism has increased for companies
generally since the beginning of 2015. "Practically speaking,
there is a lot more money in activist hedge funds than a few
years ago, and the simple targets have all been used up."
Additionally, he points out, "We are now far enough away from
recession that shareholders ... are no longer satisfied banks
are just surviving-they want to see performance."

Not engaging with activists,
regardless of their goals, is one
of the biggest mistakes a bank
can make, because they are first
and foremost shareholders.
High hurdle
Banking has never been the easiest industry for activist
investors to enter. The banking regulatory framework places
a premium on safety and soundness and strong capital
requirements. To avoid triggering regulatory restrictions,
investors often keep their stakes in banks and bank holding
companies to no more than 4.9 percent, though a position
up to 9.9 percent is also common. By and large, however,
"shareholders are going to try to stay away from going over
a 5 percent position unless they are willing to sign on for
regulatory issues," says Tuck Washburne, a partner in the
Washington, D.C., office of Venable LLP.
There is no question that activist shareholders are
making an impact in corporate America broadly. During
2015, activist investors gained 127 board seats at U.S.
companies-and 117 of these were granted, with only 10
won in a vote, according to SharkRepellent.net, a corporate
governance site.
42

ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2016

Well-known activists
Community banks have been the focus of a small but active
cadre of investors for years, though the financial crisis
dampened interest for a time.
One of the best known hedge funds focused on banking is
Stillwell Value LLC, which held $161 million in investments
in 43 financial services companies as of June 30, 2016.
Founder Joe Stillwell, a soft-spoken man whose name often
provokes anxiety across the banking industry, is known
for pushing banks to sell. He says overcapacity can be
resolved reasonably if bank boards are willing to engage in
constructive conversations with investors. But, he adds in an
interview, "When the managers of a bank or any company
confuse themselves with the owners or the institution itself,
bad things happen and they get worse as time goes on."
Another renowned bank hedge fund is Seidman & Co.,
which held $146 million in shares of 28 banks as of June
30, 2016. Manager Lawrence B. Seidman continues to
make steady inroads into banks; on July 1, he was granted
a board seat at MSB Financial, parent of $380 million-asset
Millington Bank in Millington, N.J.

The price of winning
The cost to a financial institution that decides to challenge
an activist investor can be substantial. In June, Financial
Institutions Inc., the parent company of $3.5 billion-asset
Five Star Bank of Warsaw, N.Y., won a proxy fight when its
slate of board nominees was elected over those nominated
by activist Clover Partners. However, the company
accumulated $1.7 million in proxy-related expenses during
the second quarter, according to regulatory filings.
Even after a company wins a proxy fight, it may find
itself making compromises down the road. Virginia-based


http://www.SharkRepellent.net

Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2016

Chairman’s View
Upfront
Picture This
Banking’s ‘Amazon Moment’
Special Report on Innovation and Technology
Building an ‘Internet of Value’
Do You Do What the Data Tell You?
Innovation in the Bank
Core Exercises
Cover Story Pillar of Her Community
Maintaining a Commitment to Ag Customers
Who You Gonna Call?
Anti-Money Laundering
Power Up Profile
Compliance ‘When Can I Call My Customer?’
Risk Management
ABA Compliance Center Inbox
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2016 - bellyband1
ABA Banking Journal - November/December 2016 - bellyband2
ABA Banking Journal - November/December 2016 - cover1
ABA Banking Journal - November/December 2016 - cover2
ABA Banking Journal - November/December 2016 - 3
ABA Banking Journal - November/December 2016 - 4
ABA Banking Journal - November/December 2016 - 5
ABA Banking Journal - November/December 2016 - 6
ABA Banking Journal - November/December 2016 - 7
ABA Banking Journal - November/December 2016 - Chairman’s View
ABA Banking Journal - November/December 2016 - 9
ABA Banking Journal - November/December 2016 - 10
ABA Banking Journal - November/December 2016 - Upfront
ABA Banking Journal - November/December 2016 - 12
ABA Banking Journal - November/December 2016 - 13
ABA Banking Journal - November/December 2016 - 14
ABA Banking Journal - November/December 2016 - 15
ABA Banking Journal - November/December 2016 - Picture This
ABA Banking Journal - November/December 2016 - 17
ABA Banking Journal - November/December 2016 - 18
ABA Banking Journal - November/December 2016 - 19
ABA Banking Journal - November/December 2016 - Special Report on Innovation and Technology
ABA Banking Journal - November/December 2016 - 21
ABA Banking Journal - November/December 2016 - 22
ABA Banking Journal - November/December 2016 - Building an ‘Internet of Value’
ABA Banking Journal - November/December 2016 - 24
ABA Banking Journal - November/December 2016 - 25
ABA Banking Journal - November/December 2016 - Do You Do What the Data Tell You?
ABA Banking Journal - November/December 2016 - 27
ABA Banking Journal - November/December 2016 - insert1
ABA Banking Journal - November/December 2016 - insert2
ABA Banking Journal - November/December 2016 - Innovation in the Bank
ABA Banking Journal - November/December 2016 - 29
ABA Banking Journal - November/December 2016 - 30
ABA Banking Journal - November/December 2016 - Core Exercises
ABA Banking Journal - November/December 2016 - Cover Story Pillar of Her Community
ABA Banking Journal - November/December 2016 - 33
ABA Banking Journal - November/December 2016 - 34
ABA Banking Journal - November/December 2016 - 35
ABA Banking Journal - November/December 2016 - 36
ABA Banking Journal - November/December 2016 - 37
ABA Banking Journal - November/December 2016 - Maintaining a Commitment to Ag Customers
ABA Banking Journal - November/December 2016 - 39
ABA Banking Journal - November/December 2016 - 40
ABA Banking Journal - November/December 2016 - Who You Gonna Call?
ABA Banking Journal - November/December 2016 - 42
ABA Banking Journal - November/December 2016 - 43
ABA Banking Journal - November/December 2016 - Anti-Money Laundering
ABA Banking Journal - November/December 2016 - 45
ABA Banking Journal - November/December 2016 - 46
ABA Banking Journal - November/December 2016 - Power Up Profile
ABA Banking Journal - November/December 2016 - 48
ABA Banking Journal - November/December 2016 - Compliance ‘When Can I Call My Customer?’
ABA Banking Journal - November/December 2016 - 50
ABA Banking Journal - November/December 2016 - Risk Management
ABA Banking Journal - November/December 2016 - ABA Compliance Center Inbox
ABA Banking Journal - November/December 2016 - 53
ABA Banking Journal - November/December 2016 - 54
ABA Banking Journal - November/December 2016 - From the States
ABA Banking Journal - November/December 2016 - 56
ABA Banking Journal - November/December 2016 - Corporate Social Responsibility
ABA Banking Journal - November/December 2016 - Index of Advertisers
ABA Banking Journal - November/December 2016 - cover3
ABA Banking Journal - November/December 2016 - cover4
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