Monthly Archives: April 2016

The surge in shareholder activist campaigns directed at corporate America in recent years makes clear that few public companies are immune from shareholder activism. However, companies are not powerless in preparing for potential activist campaigns. Strengthening structural defenses in corporate bylaws before an activist appears is the best way to prepare for activism while minimizing the risk of shareholder litigation. [1] Courts are typically reluctant to second guess bylaw amendments adopted by a board on a “clear day,” where no activist is present, and review these actions under the deferential business judgment rule. By contrast, defensive bylaw amendments implemented in the middle of an activist engagement, or a “rainy day,” will likely be subject to greater judicial scrutiny out of a concern that a board may be changing the rules of the game after the game has begun. But in corporate law, as in the weather, grey area exists, commonly referred to as “cloudy days.” Open questions about the legal viability of implementing defensive measures will arise whenever engagement by an activist is looming or possible, but has not yet commenced or resumed in earnest. A recent Delaware decision now indicates that even a firm settlement agreement with an activist will not necessarily end the activist threat from the Court’s perspective.

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