ABA Banking Journal - November/December 2016 - 43
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.
Middleburg Bank in May re-elected its director slate over the
objections of Teton Capital, which owns about 30 percent
of the $1.3 billion-asset bank's stock and was pressing for a
sale. In July, the bank announced that John V. Lee IV would
succeed Joseph Boling as chairman, with "driving profitability,
improving efficiency and managing risk" as his goals.
What makes a bank vulnerable to activist shareholders?
"Activists will focus on companies they think they can
overcome," Gorman says. "Maybe your vote has drifted lower
on say on pay-that could be an indication of some brooding
discontent. Maybe you are viewed as underperforming-
management needs to know where they stand relative to
peers in terms of performance. And by regularly meeting
with shareholders, you're more likely to know about possible
issues, rather than being surprised."
In addition, Gorman explains, banks' shareholder bases
evolve over time, especially if they are pursuing a growth
strategy. "The stockholder base is not necessarily a local
community base," Gorman says. "As you move up the
market cap scale, more shares are being held by funds
and institutions." Participating in investment banking
conferences, where executives can meet one-on-one with
known stockholders, is valuable, he said. "Engagement and
familiarity build trust. If you do get into an activist situation
and you haven't built up a relationship, you may face
complaints that 'You haven't reached out to me.'"
Banks can reduce their vulnerability through some basic
blocking and tackling measures-ongoing shareholder
communications that are purposeful in telling the bank's
story, for example. There are also steps banks can take
when they find themselves in an activist's crosshairs.
Don't be hostile or defensive. "Every
offer should not only be considered, but in a friendly,
business-like way," says Wiley. "Attitude is everything.
Saying no through a formal process and a respectful smile
Don't ignore any shareholder. "You've
got to interact to give them the right level of attention and
show you understand what they are pushing for," Schiffer
says. "Interacting doesn't mean capitulating. If they want a
sale for a quick buck, you can say no."
Consider ways to accommodate
shareholders. "Activists often have a long litany of
things they want done. Sometimes they are pushing for
something that is already part of the strategic plan and will
be pacified if just one thing is done," says Washburne.
Focus on the message. "You may not like
the delivery, but sometimes what they have to say is not
that onerous," explains Becky Pendleton Reid, president
of the Cereghino Group, a Seattle-based investor relations
firm. "Maybe it's a matter of publishing a dividend policy
or going over it with them." She added, "It's very easy to
take what they say personally. When they come out with
guns blazing it's hard to open a dialogue."
Know your shareholders. "Monitor
your stockholder base every single day and throughout
the year," says Schiffer. "You don't want the first notice
that you have an activist to occur when you receive a
letter." Reid recommends obtaining the bank's NOBO
list-short for non-objecting beneficial owners, meaning
those that do not object to the issuer knowing their name,
mailing address and share amount-from a broker or
Benchmark your bank against
competitors. "It all starts with performance,"
Gorman adds. "You must understand how you stack up
relative to your peers. What are your plans to maintain or
improve your results?"
And what if an unwelcome letter arrives in the mailbox
despite everything? "Take the letter seriously," advises
Schiffer. "Learn what you can about the investor and
their typical approach to activism and investment. Then
get your team together-[internal] investor relations,
the board, and your external advisers, who will probably
include your lawyers, your regular investment banker, and
certainly a proxy solicitor."
"You need a kitchen cabinet you can call together," adds
Reid. "The last thing you want is to be scrambling around
saying, 'Whom do I call?'"
DEBRA COPE is editor-in-chief of the ABA Banking Journal
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