Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young


Spotlight on Boards

Editor’s Note: This article was authored by Martin Lipton of Wachtell, Lipton, Rosen & Katz.

Spotlight on Boards

The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a major public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior. Today, boards are expected to:

  • Recognize the heightened focus of investors on “purpose” and “culture” and an expanded notion of stakeholder interests that includes employees, customers, communities, the economy and society as a whole and work with management to develop metrics to enable the corporation to demonstrate their value;
  • Be aware that ESG and sustainability have become major, mainstream governance topics that encompass a wide range of issues, such as climate change and other environmental risks, systemic financial stability, human capital management, worker retirement, supply chain labor standards and consumer and product safety;
  • Oversee corporate strategy (including purpose and culture) and the communication of that strategy to investors, keeping in mind that investors want to be assured not just about current risks and problems, but threats to long-term strategy from global, political, social, and technological developments;
  • Work with management to review the corporation’s strategy, and related disclosures, in light of the annual letters to CEOs and directors, or other communications, from BlackRock, State Street, Vanguard, and other investors, describing the investors’ expectations with respect to corporate strategy and how it is communicated;
  • Set the “tone at the top” to create a corporate culture that gives priority to ethical standards, professionalism, integrity and compliance in setting and implementing both operating and strategic goals;
  • Choose the CEO, monitor the CEO’s and management’s performance and develop and keep current a succession plan;
  • Have a lead independent director or a non-executive chair of the board who can facilitate the functioning of the board and assist management in engaging with investors;
  • Together with the lead independent director or the non-executive chair, determine the agendas for board and committee meetings and work with management to ensure that appropriate information and sufficient time are available for full consideration of all matters;
  • Determine the appropriate level of executive compensation and incentive structures, with awareness of the potential impact of compensation structures on business priorities and risk-taking, as well as investor and proxy advisor views on compensation;
  • Develop a working partnership with the CEO and management and serve as a resource for management in charting the appropriate course for the corporation;
  • Oversee and understand the corporation’s risk management and compliance efforts and how risk is taken into account in the corporation’s business decision-making; respond to red flags if and when they arise;
  • Monitor and participate, as appropriate, in shareholder engagement efforts, evaluate corporate governance proposals, and work with management to anticipate possible takeover attempts and activist attacks in order to be able to address them more effectively, if they should occur;
  • Meet at least annually with the team of company executives and outside advisors that will advise the corporation in the event of a takeover proposal or an activist attack;
  • Be open to management inviting an activist to meet with the board to present the activist’s opinion of the strategy and management of the corporation;
  • Evaluate the individual director’s, board’s and committees’ performance on a regular basis and consider the optimal board and committee composition and structure, including board refreshment, expertise and skill sets, independence and diversity, as well as the best way to communicate with investors regarding these issues;
  • Review corporate governance guidelines and committee workloads and charters and tailor them to promote effective board and committee functioning;
  • Be prepared to deal with crises; and
  • Be prepared to take an active role in matters where the CEO may have a real or perceived conflict, including takeovers and attacks by activist hedge funds focused on the CEO.

To meet these expectations, major public companies should seek to:

  • Have a sufficient number of directors to staff the requisite standing and special committees and to meet investor expectations for experience, expertise, diversity, and periodic refreshment;
  • Compensate directors commensurate with the time and effort that they are required to devote and the responsibility that they assume;
  • Have directors who have knowledge of, and experience with, the corporation’s businesses and with the geopolitics developments that affect it, even if this results in the board having more than one director who is not “independent”;
  • Have directors who are able to devote sufficient time to preparing for and attending board and committee meetings and engaging with investors;
  • Provide the directors with the data that is critical to making sound decisions on strategy, compensation and capital allocation;
  • Provide the directors with regular tutorials by internal and external experts as part of expanded director education and to assure that in complicated, multi-industry and new-technology corporations, the directors have the information and expertise they need to respond to disruption, evaluate current strategy and strategize beyond the horizon; and
  • Maintain a truly collegial relationship among and between the company’s senior executives and the members of the board that facilitates frank and vigorous discussion and enhances the board’s role as strategic partner, evaluator, and monitor.

Martin Lipton


The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

U.S. UPDATE – 2019 Checklist for Successful Acquisitions in the United States

Editors’ Note: This submission updates a checklist co-authored by Messrs. Emmerich and Panovka, members of XBMA’s Legal Roundtable, with their colleagues at Wachtell Lipton, Jodi J. Schwartz, Scott K. Charles, David A. Katz, Andrew J. Nussbaum, Ilene Knable Gotts, Mark Gordon, Joshua R. Cammaker, William Savitt, Andrea K. Wahlquist, Karessa L. Cain, T. Eiko Stange, Joshua M. Holmes, Eric M. Rosof, Gordon S. Moodie, Emil A. Kleinhaus, Edward J. Lee, Raaj S. Narayan and Matthew T. Carpenter.

Cross-Border M&A –
2019 Checklist for Successful Acquisitions in the United States

M&A in 2018 began with a bang, with more than $350 billion of deals in January 2018 – a January level not seen since 2000 – and much chatter that M&A volume for the year could hit an all-time record. As it turned out, 2018 was a tale of two cities, with M&A continuing at a torrid pace during the first half of the year, and falling off markedly during a second half of geopolitical tension and market volatility. Overall, M&A volume for 2018 reached a very robust $4 trillion, but fell short of overtaking deal volume in 2007 and 2015. M&A being lumpy and unpredictable as ever, 2019 has opened with a number of notable deals, not least the sale of Celgene to Bristol-Myers Squibb for $95 billion, somewhat defying gloomy predictions for the year.

As for cross-border deals, interestingly, a record $1.6 trillion (39%) of last year’s deals (including six of the 10 largest deals) was cross-border M&A, despite growing trade tensions and anti-globalist rhetoric.

Acquisitions of U.S. companies continued to dominate the global M&A market in 2018, representing 43% of global M&A volume ($1.7 trillion), higher than the average over the last decade. Approximately 16% of U.S. deals involved non-U.S. acquirors. German, French, Canadian, Japanese and U.K. acquirors accounted for approximately 60% of the volume of cross-border deals involving U.S. targets, and acquirors from China, India and other emerging economies accounted for approximately 10%.

Whatever 2019 does bring – in addition to trade tensions and protectionist rhetoric, cyber insecurity, slowdowns in China and a number of other emerging economies, gloom about the interest rate and debt financing pictures in the U.S., geopolitical risks all around the world, and inevitable but as-yet-unknown curve balls from politicians – we expect the pace of cross-border deals into the U.S. to remain strong. And, as always, transacting parties who are smart and well prepared – particularly when engaging in cross-border deals with all of their cultural, political and technical complexity – will do better. Advance preparation, strategic implementation and deal structures calibrated to anticipate likely concerns will continue to be critical to successful acquisitions in the U.S. In light of the recent changes to the CFIUS regime (discussed below), careful attention to CFIUS, well in advance of any potential acquisition, is obviously essential.

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The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Dealing with Activist Hedge Funds and Other Activist Investors

Editors’ Note: This article was co-authored by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain and Sabastian V. Niles of Wachtell, Lipton, Rosen & Katz.

Dealing with Activist Hedge Funds and Other Activist Investors


Regardless of industry, size or performance, no company should consider itself immune from hedge fund activism. No company is too large, too popular, too new or too successful. Even companies that are respected industry leaders and have outperformed the market and their peers have come under fire. Activists set new records in 2018, targeting the largest number of companies (nearly 300), deploying more capital and winning a greater number of board seats (161) than ever before.

Campaigns by the most well-known activist hedge funds are surging, and there are more than 100 hedge funds currently engaged in activism. Activist hedge funds have significantly more than $100 billion of assets under management, and remain an “asset class” that attracts investment from major traditional institutional investors.

Although a number of institutional investors are beginning to question whether hedge fund activism should be supported or resisted, and will act independently of activists, the relationships between activists and more traditional investors in recent years have encouraged increasingly frequent and aggressive activist attacks. Several mutual funds and other institutional investors have on occasion also deployed the same kinds of tactics and campaigns as the dedicated activist funds. A number of hedge funds have also sought to export American-style activism abroad, with companies throughout the world now facing classic activist attacks. Many activist attacks continue to be designed to force a takeover, sale or breakup of the target, or a change in management, either immediately or over time.

Elliott Management was the most active and, in many cases, aggressive activist of 2018. The Wall Street Journal noted that Elliott publicly targeted 24 companies in 2018, with Carl Icahn and Starboard runners-up with nine public targets each. These numbers do not include the increasing number of non-disclosed activist situations against major companies. The New Yorker published a lengthy profile of Paul Singer and Elliott in August, “Paul Singer, Doomsday Investor,” noting “Singer has excelled in this field in part because of a canny ability to discern his opponents’ weaknesses and a seeming imperviousness to public disapproval.”

It has become increasingly evident that the activism-driven corporate world is relatively fragile and is proving to be unsustainable, particularly when viewed in the broader context of rapidly changing political and social norms and increasing divisiveness across many planes of the social contract. A number of initiatives have been underway to establish a modern corporate governance framework that is calibrated to the current environment. For our part, at the request of the World Economic Forum, we prepared a paper titled, The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, which was issued in September 2016. We updated The New Paradigm and discussed it in our memo, Some Thoughts for Boards of Directors in 2019.

In essence, The New Paradigm conceives of corporate governance as a collaboration among corporations, shareholders and other stakeholders working together to achieve long-term value and resist short-termism. While we have seen considerable interest in The New Paradigm and similar initiatives from major institutional investors and other key stakeholders (for example, the Investor Stewardship Group), until such a framework is widely adopted and in the absence of legislation, it is unlikely that there will be any significant decrease in activism. Accordingly, companies should regularly review and adjust their plans to avoid an activist attack and to successfully deal with an activist attack if one should occur. Effective engagement with major shareholders is the essential element of activist defense, and the support of major investors, including the largest index funds, cannot be taken for granted.

The Attack Devices Used by Activists

  • Aggressively criticizing a company’s governance, management, business and strategy and presenting the activist’s own recommendations and business plan.
  • Proposing a precatory proxy resolution for specific actions prescribed by the activist or the creation of a special committee of independent directors to undertake a strategic review for the purpose of “maximizing shareholder value.”
  • Recruiting candidates with industry experience (including retired CEOs of major companies or even former executives of the target) to serve on dissident slates, and conducting (or threatening to conduct) a proxy fight to get board representation at an annual or special meeting or through action by written consent (solicitation for a short slate is very often supported by ISS and, if supported, is often, though not always, successful, in whole or in part).
  • Orchestrating a “withhold the vote” campaign.
  • Seeking to force a sale by leaking or initiating rumors of an unsolicited approach, publicly calling for a sale, acting as an (unauthorized) intermediary with strategic acquirers and private equity funds, taking positions in both the target and the acquirer, making their own “stalking-horse” bid or partnering with a hostile acquirer to build substantial stock positions in the target to facilitate a takeover.
  • Rallying institutional investors and sell-side research analysts to support the activist’s arguments.
  • Using stock loans, options, derivatives and other devices to accumulate positions secretly or increase voting power beyond the activist’s economic equity investment.
  • Using sophisticated public relations, social media and traditional media campaigns to advance the activist’s arguments.
  • Investing in significant diligence and third-party consulting services to analyze the target’s business.
  • Seeking to create divisions within the boardroom or between the board and management.
  • Reaching a company’s retail shareholders with weekly mailings, telephonic outreach, local newspaper advertisements and user-friendly infographics.
  • Hiring private investigators to create dossiers on directors, management and key employees and otherwise conducting aggressive “diligence.”
  • Litigation.

Current SEC rules do not prevent an activist from secretly accumulating a more than 5% position before being required to make public disclosure and do not prevent activists and institutional investors from privately communicating and cooperating.

Prevention of, or response to, an activist attack is an art, not a science. There is no substitute for preparation. The issues, tactics, team and approaches to an activist challenge will vary depending on the company, the industry, the activist and the substantive business and governance issues in play. To forestall an attack, a company should regularly review its business portfolio and strategy and its governance and executive compensation issues. In addition to a program of advance engagement with investors, it is essential to be able to mount a defense quickly and to be agile in responding to changing tactics. A well-managed corporation executing clearly articulated strategies can still prevail against an activist, even when the major proxy advisory firms support the activist.

Given the risks and potential harm of a full-blown battle, in certain situations the best response to an activist approach may be to seek to negotiate with the activist and reach a settlement on acceptable terms, if such a settlement is feasible, even if the company believes it could win a proxy fight. However, when a negotiated resolution is not achievable on acceptable terms, whether because the activist’s proposals are inimical to the company’s business goals and strategy or because the activist is unwilling to be reasonable in its negotiation, the ability to wage an effective campaign will depend on advance preparation, proactive action, good judgment and effective relationships and engagement with shareholders. This outline provides a checklist of matters to be considered in putting a company in the best possible position to prevent, respond to or resolve a hedge fund activist attack.

Advance Preparation

Create Team to Deal with Hedge Fund Activism:

  • A small group of key officers plus legal counsel, investment banker, proxy soliciting firm, and public relations firm.
  • Continuing contact and periodic meetings of the team are important.
  • A periodic fire drill with the team is the best way to maintain a state of preparedness; the team should be familiar with the hedge funds and other investors that have made activist approaches generally and be particularly focused on those that have approached other companies in the same industry and the tactics each fund has used; the team should also use that familiarity to be alert to any contacts or interest shown by known activists.
  • Periodic updates to the company’s board of directors.

Shareholder Relations:

  • The investor relations officer is critical in assessing exposure to an activist attack and in a proxy solicitation. The credibility the investor relations officer has with the institutional shareholders has been determinative in a number of proxy solicitations. Candid assessment of shareholder sentiment should be appropriately communicated to senior management, with periodic briefings provided to the board.
  • Review capital return policy (dividends and buybacks), broader capital allocation framework, analyst and investor presentations and other financial public relations matters (including disclosed metrics and guidance).
  • Monitor peer group, sell-side analysts, proxy advisors, active asset managers, and internet commentary and media reports for opinions or facts that will attract the attention of activists.
  • Be consistent with the company’s basic strategic message while updating the strategy as circumstances warrant.
  • Objectively assess input from shareholders and whether the company is receiving candid feedback. The company should make sure that major investors feel comfortable expressing their views to the company and believe that the company honestly wants to hear any concerns or thoughts they have.
  • Proactively address reasons for any shortfall versus peer benchmarks. Anticipate key questions and challenges from analysts and activists, and be prepared with answers. Monitor peer activity and the changes peers are making to their businesses, as well as key industry trends.
  • Build credibility with shareholders and analysts before activists surface.
  • Monitor changes in hedge fund and institutional shareholder holdings on a regular basis; understand the shareholder base, including, to the extent practical, relationships among holders. Pay close attention to activist funds that commonly act together or with an institutional investor.
  • Maintain regular contact with major institutional investors, including both portfolio managers and proxy voting/governance departments; CEO, CFO and independent director participation is very important. Consider engagement with proxy advisory firms.
  • Major institutional investors, including BlackRock, Capital, Fidelity, State Street, TIAA, T. Rowe Price, Vanguard and Wellington, have established significant proxy departments that make decisions independent of ISS. It is important for a company to know the voting policies and guidelines of its major investors, who the key decision-makers and point-persons are and how best to reach them. It may be possible to defeat an activist attack supported by ISS by gaining the support of major institutional shareholders.
  • Consider whether enhancements to company disclosures or changes to governance practices are appropriate in light of evolving shareholder expectations.
  • Monitor third-party governance ratings and reports and seek to correct inaccuracies.
  • Maintain up-to-date plans for contacts with media, regulatory agencies, political bodies and industry leaders and refresh relationships.
  • Monitor investor conference call participants, one-on-one requests and transcript downloads.

Prepare the Board of Directors to Deal with the Activist Situation:

  • Maintaining a unified board consensus on key strategic issues is essential to success in the face of an activist attack; in large measure, an attack by an activist hedge fund is an attempt to drive a wedge between the board and management by raising doubts about strategy and management performance and to create divisions on the board, which may include advocating that a special committee be formed.
  • Keep the board informed of options and alternatives analyzed by management, and review with the board basic strategy, capital allocation and the portfolio of businesses in light of possible arguments for spinoffs, share buybacks, increased leverage, special dividends, sale of the company or other structural or business changes.
  • Schedule periodic presentations by the legal counsel and the investment banker to familiarize directors with the current activist environment and the company’s preparation.
  • Directors should guard against subversion of the responsibilities of the full board by the activists or related parties, and should refer all approaches to the CEO.
  • Boardroom debates over business strategy, direction and other matters should be open and vigorous but stay confidential and be kept within the boardroom.
  • Recognize that psychological and perception factors may be more important than legal and financial factors in avoiding being singled out as a target.
  • Scrutiny of board composition is increasing, and boards should self-assess regularly. In a contested proxy solicitation, institutional investors may particularly question the “independence” of directors who are older than 75 or who have lengthy tenures, especially where the board has not recently appointed new directors, in addition to more broadly assessing director expertise and attributes. Directors may also be criticized for “overboarding” or attendance issues. Meaningful director evaluation is now a key objective of institutional investors, and a corporation is well advised to undertake it and talk to investors about it. Regular board renewal and refreshment, and having longer-term board development and succession plans, can be important evidence of meaningful evaluation.
  • A company should not wait until it is involved in a contested proxy solicitation to offer its key institutional shareholders the opportunity to meet with its independent directors. Many major institutional investors have recommended that companies offer scheduled meetings with some (or in unusual circumstances even all) of a company’s independent directors. A disciplined, thoughtful program for periodic meetings and other engagement initiatives is advisable. See Shareholder Engagement: Succeeding in the New Paradigm for Corporate Governance.

Monitor Trading, Volume and Other Indicia of Activity:

  • Employ stock watch service and monitor Schedule 13F filings.
  • Monitor Schedule 13D and Schedule 13G and Hart-Scott-Rodino Act filings.
  • Monitor parallel trading and group activity (the activist “wolf pack”).
  • Monitor activity in options, derivatives, corporate debt and other non-equity securities.
  • Monitor attendance at analyst conferences, requests for one-on-one sessions and other contacts from known activists.

The Activist White Paper:

The activist may approach a company with an extensive, and in many cases high-quality, analysis of the company’s business and strategy that supports the activist’s recommendations (demands) for:

  • Return of capital to shareholders through share repurchase or special dividend.
  • Change in capital structure (leverage).
  • Sale or spin-off of a division.
  • Change in business strategy, including ESG.
  • Change in cost structures.
  • Improvement of management performance or replacement of management (e.g., replace CEO).
  • Change in executive compensation.
  • Merger or sale of the company.
  • Change in governance: add new directors designated by the activist, separate the positions of CEO and Chair, declassify the board, remove poison pill and other takeover defenses, permit shareholders to call a special meeting (or lower thresholds for same) and act by written consent.

Responding to an Activist Approach

Response to Non-Public Communication:

  • Assemble team quickly and determine initial strategy. Response is an art, not a science.
  • No duty to respond, but failure to respond may have negative consequences, and in most cases response is desirable.
  • No duty to discuss or negotiate, but usually advisable to meet with the activist and discuss the activist’s criticisms and proposals (company participants in any such meeting should prepare carefully with the company’s activist response team); no outright rejection absent study, try to learn as much as possible by listening and keep in mind that it may be desirable to at some point negotiate with the activist and that developing a framework for private communication may avoid escalation.
  • Generally no immediate duty to disclose; determine when disclosure may be required, or desirable.
  • Response to any particular approach must be specially structured; team should confer to decide proper response. Consider whether the activist’s claims or demands have merit and/or are consistent with the company’s own pending or proposed initiatives.
  • Keep board advised; in some cases it may be advisable to arrange for the activist to present its white paper to the board or a committee or subset of the directors.
  • Be prepared for public disclosure by activist and have public response contingencies ready in the event of any disclosure.
  • Be prepared for the activist to try to contact directors, shareholders, sell-side analysts, business partners, employees and key corporate constituencies. Make sure directors understand that any contacts should be referred to CEO or other designated officer.
  • Assess whether there are sensible business actions that can be taken or accelerated to preempt or undercut the activist attack and the extent to which the activist may attempt to publicly claim credit for such actions.
  • Consider whether negotiations with the activist and settlement should be pursued and at what point in time.

Response to Public Communication:

  • Initially, no response other than “the board will consider and welcomes input from its shareholders.”
  • Assemble team; inform directors.
  • Call special board meeting to meet with team and consider the communication.
  • Determine board’s response and whether to meet with activist. Even in public situations, consider pursuing disciplined engagement with the activist. Failure to meet may also be viewed negatively by institutional investors. Recognize that the activist may mischaracterize what occurs in meetings.
  • If the activist includes a demand – e.g., replace the Chair or CEO – that the board finds unacceptable or non-negotiable, it may be advisable to make the board’s position on that item clear earlier rather than later, even if there is willingness to consider and negotiate other aspects of the activist’s platform.
  • Avoid mixed messages and preserve the credibility of the board and management.
  • Continuously gauge whether the best outcome is to agree upon board change and/or strategic, business or other action in order to avoid (or resolve) a proxy fight.
  • Be prepared and willing to defend vigorously.
  • Recognize that a proxy fight will entail a meaningful time commitment from both management and directors, and work in advance to coordinate availability for key meetings with shareholders and proxy advisory firms.
  • Engage with other shareholders, not only the activist, to take investor temperature, solicit feedback and assess whether actions may (should) be taken by the company to secure support (if an activist identifies a legitimate issue, the company may propose its own plan for resolving any shortcomings that is distinct from the activist’s solutions).
  • Appreciate that the public dialogue is often asymmetrical; activists may make personal attacks and use aggressive language, but the company should not respond in kind.
  • Remain focused on the business; activist approaches can be very distracting, but strong business performance, though not an absolute defense, is one of the best defenses. When business challenges inevitably arise, act in a manner that preserves and builds credibility with shareholders. Maintain the confidence and morale of employees, partners and constituencies.
  • A significant number of major institutional investors are increasingly skeptical of activists and activist platforms even as they closely scrutinize targeted companies as well. Investors can be persuaded not to blindly follow the recommendations of ISS in support of a dissident’s proxy solicitation. When presented with a well-articulated and compelling plan for the long-term success of a company, investors are able to cut through the cacophony of short-sighted gains promised by activists touting short-term strategies. As a result, when a company’s management and directors work together to clearly present a compelling long-term strategy for value creation, investors will listen.

Martin Lipton
Steven A. Rosenblum
Karessa L. Cain
Sabastian V. Niles


The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

U.S. UPDATE – SEC to Study Quarterly Reporting & Earnings Guidance and their Contribution to Short-Termism

Contributed by: Sabastian V. Niles, Partner, Wachtell, Lipton, Rosen & Katz (New York)

Editors’ Note: This article was authored by Sabastian V. Niles of Wachtell, Lipton, Rosen & Katz.

SEC to Study Quarterly Reporting & Earnings Guidance and
their Contribution to Short-Termism

In a potentially significant step for public companies and the U.S. economy, the SEC today launched a formal comment process aimed at optimizing the periodic reporting system for U.S. companies.  The SEC’s review is wide-ranging, reaching whether reforms could and should be made to discourage quarterly forward-looking earnings guidance, the reasons for quarterly earnings releases and their content, whether Form 10-Qs are useful or overly burdensome or duplicative, the possibility of moving to mandatory or optional semi-annual reporting for all or some reporting companies, the degree to which the frequency of reporting and guidance may lead managers to focus on short-term results to the detriment of long-term performance, the identification of other factors that may promote short-termism and whether there are relevant learnings from other markets where companies can report on a six-month or other schedule.

For most companies, quarterly reporting consumes substantial time and expense and imposes opportunity costs, as management teams focus on quarterly results.  These quarterly cadences are often deeply disconnected from long-term business cycles, key business drivers, customer dynamics, innovation opportunities and market realities.  Three-month cycles are also disconnected from the time frames over which retail investors who are saving for retirement, looking to buy a home and pay college tuition are seeking a return.  A thorough examination of the topic – with a view towards striking the right balance among reasonable transparency, reducing regulatory burdens and encouraging companies to focus not on the quarter but on the long-term – is a very worthy project for the SEC.

Unlike other markets, U.S. companies do not currently have the option of discontinuing quarterly reporting, and it remains to be seen whether the outcome of the SEC’s review will result in substantial changes to the quarterly reporting and disclosure system.  U.S. companies can, however, decline to give quarterly earnings guidance and take other actions to promote a long-term orientation for their investors, employees and internal strategic and business decision-making.

Whatever the SEC’s ultimate decisions may be, we do expect companies to become increasingly proactive in putting near-term results in the context of long-term strategy and objectives; using quarterly calls and releases to discuss progress towards important operational and financial goals that take time to achieve; and replacing quarterly rhythms with broader, multi-year frameworks for value creation with time frames that align with business, end market and operational realities.  We also encourage responsible long-term investors to support these initiatives, as many do.

Sabastian V. Niles

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

DUTCH UPDATE – Dutch cooling-off period in face of shareholder activism or hostile take-over

Editor’s Note: Leo Groothuis advises clients on public M&A and on a wide variety of other domestic and cross-border transactions, as well as take-over defenses and shareholder activism. Paul van der Bijl focuses on IPOs, follow-on offerings, public M&A, anti-takeover defenses, corporate governance and complex cross-border transactions

Dutch cooling-off period in face of shareholder activism or hostile take-over

On December 7, 2018, the Dutch government published draft legislation aimed at promoting a careful decision-making process in case of shareholder activism or a hostile takeover. If enacted in its current form, the proposal would introduce a statutory cooling-off period of up to 250 days during which the shareholders meeting would not be able to dismiss, suspend or appoint board members of a listed Dutch company under attack.


The legislation would apply to companies organized under Dutch law whose shares (or depository receipts for shares) are listed on a regulated market or multilateral trading facility operating in the European Economic Area, or on any similar stock exchange operating outside the European Economic Area, including Nasdaq and NYSE.

Conditions to invoke the cooling-off period

The board of a listed Dutch company under attack may invoke a cooling-off period of up to 250 days in case:

  1. shareholders, using either their shareholder proposal right or their right to request an extraordinary shareholders meeting[1], propose an agenda item for the shareholders meeting relating to the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters); or
  2. a public offer for the company is made or announced without the company’s support, provided, in each case, that such proposal or offer materially conflicts with the interests of the company and its business, as determined by the board.

The cooling-off period ends at occurrence of the earliest of the following events:

  1. the expiration of 250 days following the date of the relevant shareholder proposal or hostile offer;
  2. the hostile offer being declared unconditional (after the expiration of the initial acceptance period); or
  3. the board (voluntarily) terminating the cooling-off period.

Effects of the cooling-off period

During the cooling-off period, the shareholders meeting cannot validly resolve on the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters), unless proposed by the board itself.

Judiciary review

Shareholders representing 3% or more of the issued share capital may request the Enterprise Chamber of the Amsterdam Court of Appeal for early termination of the cooling-off period. The Enterprise Chamber must deny the request if the board, in view of the circumstances at the time the cooling-off period was invoked, could reasonably have come to the conclusion that the relevant shareholder proposal or hostile offer constituted a material conflict with the interests of the company and its business.

Consultation and transparency

During the cooling-off period, the board must gather all relevant information necessary for a careful decision-making process. In this context, the board must also consult with relevant stakeholders, including shareholders representing 3% or more of the issued share capital. Formal statements expressed by these stakeholders during such consultations must be shared with other stakeholders who are consulted by the board. Ultimately at the end of the cooling-off period, the board must publish a report in respect of its policy and conduct of affairs during the cooling-off period. This report should be tabled for discussion at the next shareholders meeting.

Combination with protective measures and/or existing response period

In an explanatory note, the Government indicates that it is opposed to accumulation of the cooling-off period with protective measures and/or the existing response period under the Dutch Corporate Governance Code. However, the draft legislation does not provide any specific restrictions in this respect. The rules in respect of potential combination or successive application of the various measures available to companies organized under Dutch law should be developed in market practice and case law.

There are a number of interesting differences between the existing response period under the Dutch Corporate Governance Code and the new proposed statutory cooling-off period, which are summarized in the table below.

Existing response period

Proposed cooling-off period

Follows from the Dutch Corporate Governance Code and is considered part of the general principles of reasonableness and fairness which should be observed by all stakeholders (including shareholders).

Mandatory Dutch law (once enacted), binding upon all shareholders.
Up to 180 days. Up to 250 days.
Can be invoked if shareholders propose an agenda item which could result in a change to the company’s strategy, including (but not necessarily limited to) the dismissal of board members. Can be invoked if shareholders propose the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters), or in case of a hostile offer
Allows the board to postpone a shareholder proposal during the response period (both as a discussion and as a voting item)

Allows the discussion of a shareholder proposal during the cooling-off period, but prevents a valid resolution in respect of the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters).


A common feature of the existing response period and the proposed cooling-off period is the postponement of a shareholder vote during a standstill period invoked by the board. This distinguishes them from more traditional protective measures under Dutch law, such as the issuance of preference shares or priority shares, which (i) are typically activated by an independent foundation and (ii) are focussed on the outcome of the vote, rather than the timing thereof.

Compliance with European rules

Based on advice from the Dutch Council of State (which has also been published), the Government is of the opinion that the proposed legislation does not violate European rules. Relevant rules include in this respect:

  1. the European Takeover Directive: the proposed legislation does not interfere with the course of any public take-over itself; merely with the adoption of certain shareholders resolutions during the offer period;
  2. the European Shareholders Rights Directive: the Government makes a distinction between the convocation of shareholders meetings and the inclusion of items on the agenda of the meeting, and the valid adoption of shareholders resolutions in respect of such items (only the former, and not the latter being subject to the European Directive);
  3. the European freedoms: the Government acknowledges that the proposed legislation could have a restrictive effect on European freedoms, but is of the opinion that such restrictive effect is justified by the public interest of a careful decision making process and proportionality.

Next steps

The general public is invited to submit comments on the draft legislative proposal before February 7, 2019. Following review of the comments and potential revision of the proposal, the legislative proposal may be submitted to Dutch parliament.

[1] The statutory thresholds for shareholders to make use of those rights are 3% and 10%, respectively, unless the company’s articles provide for a lower threshold.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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