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Dealing with Activist Investors and Disgruntled Shareholders

January 5, 2015
Neil E. Grayson

Reprinted with permission from Focus, a publication of the Association of Corporate Counsel S.C. Chapter 

Shareholder activism has increased significantly over the past several years, and many companies who once believed they were too small to attract the attention of activist shareholders more and more frequently find themselves in the middle of a proxy contest or responding to shareholder proposals, among other things.

Staying out in front of activist investors and disgruntled shareholders is most important. To this end, companies should be aware of the events that may trigger a reaction, such as lower than market returns on equity, a low stock trading price, and higher than average board or executive compensation. Understanding who your shareholders are is also imperative, for this will guide management in determining what triggering events could spark a shareholder dispute and with whom. For example, a hedge fund shareholder may be more sensitive to certain events than, say, a wealthy individual whose family has an emotional stake in the success of the company. Similarly, a shareholder more interested in short-term gains may react differently to certain events than a long-term investor in the company.

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