As public companies continue to navigate the ongoing economic upheaval caused by the COVID-19 pandemic, opportunistic activist investors may find the resulting economic conditions conducive to accumulating significant ownership positions, agitating for changes in corporate strategy and management, and pursuing public activist campaigns. Although the number of overt activist campaigns were down during the primary 2020 proxy season, as the annual meeting season for most public companies took place during the initial months of the pandemic lockdown, the third and fourth quarters generally tend to see an increase in activist activity as hedge funds make initial preparations for the following year’s proxy season. Given these circumstances, this is an opportune time for public companies to make preparations by reviewing and evaluating their defensive profiles.
The following summarizes most of the common defensive mechanisms that companies utilize when faced with activist campaigns, hostile takeover attempts, and other attempts to influence corporate policy in ways that may not be in the best interest of all shareholders. While there is no one-size-fits-all approach to defensive measures, an evaluation of the existing defensive profile of the company is a critical first step. In our experience advising on behalf of companies and their boards of directors, an analysis of the corporation’s defenses under its organizational documents and applicable law is usually undertaken and summarized for the board in connection with a defensive profile review.
Defensive Measures Related to Stockholder Meetings
Are stockholders able to take action by written consent?
Section 228(a) of the Delaware General Corporation Law (DGCL) generally provides that, unless restricted by the certificate of incorporation, the requisite stockholders needed to approve an action may do so by written consent instead of a meeting—including actions to elect new directors or to approve a takeover proposal. Limiting stockholder action by written consent is particularly important for companies with large blocks of its common stock concentrated among one or several large stockholders, including holdings by large institutional holders, which could otherwise take swift action by written consent and without holding a stockholder meeting.