Charles M. Elson is the Edgar S. Woolard, Jr., Chair in Corporate Governance and the Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. His fields of expertise include corporations, securities regulation and corporate governance. Elson has written extensively on the subject of boards of directors. He is a frequent contributor on corporate governance issues to various scholarly and popular publications. He is also Vice Chairman of the ABA Business Law Section’s Committee on Corporate Governance. He is presently a member of the Board of Directors of HealthSouth Corporation, a healthcare services provider and Bob Evans Farms Inc., a restaurant and food products company.
Christopher Skroupa: What will 2018 look like for shareholders, and how will they look to engage board members?
Charles M. Elson: Well, I think you’re going to see a lot more direct involvement between shareholders and directors than before – whether it’s with a non-executive chair of the board, or head of the governance committee, I think there is a real desire on the shareholder side to directly engage with the party who directly represents them, the director, rather than simply engaging with management.
I believe you’re going to see more calls for discussions, obviously subject to the requirements of Regulation Fair Disclosure, but, ultimately, much more engagement. My suspicion is that, from the board’s perspective, it will be more of a listening and awareness exercise, as opposed to discussions, because the law is very strict on what kind of conversations can take place.
For a director, listening carefully to the concerns of investors saves the directors a lot of trouble down the road. Even more importantly, it helps them better analyze management’s actions at the companies which they oversee.
Christopher Skroupa: What have shareholders and activists learned this year that’s maybe going to make it a bit tougher for boards next year?
Charles M. Elson: They learned that they were successful! They were very successful this year.
Look, when you have a combination of poor results and questionable governance, you’re going to receive a lot of support from fellow shareholders who want to see some changes. Ultimately, that’s what came out this year – not in every contest, but in a lot of them.
I think there were certainly enough successes to convince a good board that it needs to engage. No one wins in a proxy fight. Everyone spends a lot of money and the activist is probably going to be successful. Frankly, during that period activists end up spending a lot of money, the company ends up spending a lot of money, and it’s the company that suffers because their focus is not on running the business but rather responding to the activist.
Christopher Skroupa: Then what do you think boards are going to do; how are they going to respond or potentially deter activist engagement?
Charles M. Elson: Well, they’re going to have to listen to the concerns that the activists express. It’s not the messenger, it’s the message that’s important here. Companies need to become responsive to the message that the activist is carrying. If everything was going beautifully, the activist would never show up.
Elson will be interviewing multiple panelists in the discussion called Attack on Shareholder Rights: Recent Actions by the Courts, Congress and the White House at the Shareholder Activism conference in NY, New York on Jan. 25, 2018.