Activists are still underdogs
Activist hedge funds have never had more influence and success. While it may be the golden age of activism, these funds are still underdogs, in the grand scheme of things. Staggered boards, poison pills, the resources available to large corporations and many more factors make it difficult, even risky for activists to go after big companies.
Here’s another: it is hard for activists to recruit qualified board candidates for proxy contests. Institutional Investor’s Alpha interviews Steven Seiden of executive search firm Seiden Krieger Associates about the challenge of finding dissident director candidates.
“I have to call at least four times as many people when it’s a proxy battle as I do for a non-contested election,” says Seiden, who has been recruiting directors since 1984. “ISS and Glass Lewis prefer directors with industry knowledge, impeccable reputations, committee eligibility and total independence.”
A director with the best chance of getting elected must “have the courage of their convictions and aren’t going to act like sheep when they’re on the board. The activist can’t bind them to vote his way once they’re elected,” says Seiden.
Clearly, having a strong slate of directors is an enormous advantage for the activist, but how does the fund position itself to recruit the best candidates? Negative perception can be a factor that complicates the process. “People often bridled when they were asked to be on a contested slate. They knew their names would be in the news. They thought it might sully their reputation and figured they’d never be invited to serve on another board,” explains Seiden.
The answer is to invest in reputation. The funds known for the best strategy and most effective techniques for engaging with corporations, not the ones that generate the most headlines, will be the most palatable to would-be directors. The funds that have that important back story about what makes them tick instead of just a scorecard of wins and losses will be the ones most likely to rally coalitions of qualified board candidates, institutional investors, proxy advisory firms and media around their causes.