2/2/23 – Issue 8.03 – Your weekly news on all things board. 

If you want to see how activist investors can impact companies and boards, look no further than the news right now. Hindenburg Research, an activist short seller that targets companies to expose fraud and irregularities, set its sights on Adani Group, costing the Indian conglomerate tens of billions of dollars in a matter of days. Back in the U.S., Salesforce added three new board members amid continued pressure from activist investors calling for better cost control and leadership. As we gear up for proxy season, we’re sure to hear more from activists this quarter. 

The best defense against activist agitation? Good governance. How do you achieve that? Two words: Be Intentional. With your governance planning, with your short- and long-term strategies, and in determining what will truly create value in your organization. Model good culture and good relationships. Revisit our 2023 outlook for some advice on making intentional plans this year.

In other news, practical advice on Proxy Season, and how to approach board/shareholder relations.

In the Spotlight

Hindenburg Research Accuses Adani Group of the “largest corporate con in corporate history”

A blistering 106-page report from Hindenburg accuses Adani Group of market manipulation and accounting fraud, among other things.

“The conglomerate…said it was considering legal action against the short seller, calling the report ‘maliciously mischievous, and unresearched’...Hindenburg in turn said it welcomed the threat of legal action, inviting the conglomerate to file suit in the U.S.…Adani Group’s shares had plummeted on Wednesday after the release of the report, with the firm’s U.S.-listed bonds also declining. Hindenburg said it had no direct exposure to Adani shares, and had taken a short position in the firm through its U.S. bonds and other derivatives.” YAHOO

Adani Calls Off $2.5B Share Sale After Big Loss in Market Capitalization 

As a result of the Hindenburg report and an $86B loss in market cap, Adani called off its planned share sale. REUTERS 

Salesforce Names Three New Board Members, Including One from ValueAct Capital

Salesforce continues to wrestle with activist pressure, with ValueAct Capital getting a seat on the board and Elliott Management readying a board challenge.  

“Salesforce Inc on Friday named three new board directors, including the chief of hedge fund ValueAct Capital, amid pressure from activist investors for better cost control and a management shakeup at the cloud-based software firm…However, the appointments also come as the company has been facing pressure publicly and privately from four prominent activist investment firms. Elliott Management, the biggest among them, is set to launch a board challenge next month.” REUTERS

Activists Swarm U.S Companies After Shares Decline

Pressure from activists at Salesforce and Disney in the past two weeks is not a fluke. At many companies, activists are seeing an opening as shares drop in value.  

“Shareholder activists, newly emboldened by beaten-down share prices, are increasingly crowding into the same big names…In all, there were 17 instances in which a U.S. company drew more than one activist in 2022, situations that bankers refer to as swarming, according to data compiled by Lazard Capital Markets Advisory Group. That was up from nine in 2021 and seven in 2020. While there were 20 instances in both 2019 and 2017, industry experts anticipate the number to continue to climb this year as overall levels of activism increase.” WALL STREET JOURNAL

From Boardspan this Week:

Board Members: Are You Thinking Like an Activist Investor?

You can’t manage activists unless you can understand their goals and their mindset, says Deloitte in this Boardspan Library article.

“The growing drumbeat of investor activism isn’t just a trend; it’s a fundamental change in relationship between shareholders and companies. The past decade has seen activist investors pursuing more than 2,000 campaigns to redirect business strategies, activities, and resources, about 40 percent of which involved some form of merger or acquisition. In many cases, the activists actually forced assets into play…Nevertheless, board members shouldn’t wait for activists to make moves. They should be prepared by clearly understanding the value drivers of the business and considering ways to improve them.” DELOITTE via BOARDSPAN

Across the Board

Preparing for Proxy Season

It’s almost that time of year again. In this article, Harvard Law School Forum on Corporate Governance gives a rundown of recent changes to keep in mind that might influence voting: Pay Versus Performance, Clawback Policies, Universal Proxy, and more.  HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

How Do Proxy Advisors Affect Shareholder Voting?

Another issue to keep an eye on this proxy season: Many funds enlist the services of proxy advisors such as Glass-Lewis and ISS to guide their voting decisions. The Financial Economists Roundtable recently met to examine the impact of asset managers and proxy advisors.

“Proxy advisory firms develop recommendations on how to vote at shareholder meetings on a myriad of topics such as mergers and acquisitions, board governance (director election; duality of board chair and CEO; auditor independence), say-on-pay and, more recently, Environmental, Social, and Governance (ESG)-related issues…The reliance of mutual funds on proxy advisory firms potentially gives significant market power to them to influence proxy voting outcomes…During the FER annual meeting in Annapolis, Maryland, on July 17-19, 2022, the members discussed the economic issues surrounding proxy voting with a particular emphasis on the role of asset managers and proxy advisors. The discussion was robust, inclusive, and productive, and this statement is intended to capture the essential points raised during the meeting discourse.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Rules of Engagement with Shareholders

Four pieces of advice on engaging with shareholders from Mayer Brown

“While there can be advantages to director-shareholder engagement, the new practice poses challenges boards should consider before proceeding…First, a policy would address who would participate in engagements…Next, a board-shareholder engagement policy would outline what subjects are fair game and which are off-limits…Timing is an important consideration…Lastly, an engagement policy should address how shareholder engagement should occur.” MAYER BROWN

How to Be a Future-Focused Board

Many times boards take action while looking through a reactive crisis lens (as with COVID-19). But how do you take a longer view?

“Every association wants a dynamic, agile, future-focused board. The trick is figuring out how to develop one…acting fast isn’t necessarily an asset…The board spends time not just on foresight discussions, but on how to follow through on its conclusions…foresight discussions set the table for daylong design discussions.” ASSOCIATIONS NOW

Seat at the Table 

• Personal care company Colgate-Palmolive announced to its board Steve Cahillane, Chairman, President and CEO of Kellogg Company

• Under Armour welcomes to its board Carolyn Everson, former President of Instacart; and Patrick Whitesell, Executive Chairman of entertainment company Endeavor Group Holdings

• Salesforce adds to its board Mason Morfit, CEO of hedge fund ValueAct Capital; Sachin Mehra, Chief Financial Officer of Mastercard; and Arnold Donald, former Chief Executive Officer of Carnival Corporation

• Make-A-Wish America elects to its board Michelle Wilson, Founder and Co-CEO of Isos Capital Management; and Stan Moss, CEO of global investment manager Polen Capital

• Space industry supplier Astra Space adds to its board Julie Cullivan, former Chief Technology and People Officer at computer security company Forescout Technologies and former executive at Autodesk, McAfee, and Oracle

• Six Flags Entertainment Corporation welcomes to its board Marilyn Spiegel, former President of Wynn Las Vegas

• Internal mobility platform Gloat elects to its board Arianna Huffington, Co-Founder of Thrive Global and The Huffington Post Media Group

• Tech solutions company Vontier appoints to its board David Foulkes, CEO of marine manufacturing company Brunswick Corporation
• Financial digital and automation company Diebold Nixdorf welcomes to its board Marjorie Bowen, former Managing Director at investment banking firm Houlihan Lokey; and Emanuel Pearlman, CEO of investment management firm Liberation Investment Group

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.