Lessons from the ISS Report on the Trian/P&G Proxy Contest

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy; Sabastian V. Niles is a partner at Wachtell, Lipton, Rosen & Katz, focusing on rapid response shareholder activism and preparedness, takeover defense and corporate governance. This post is based on a Wachtell Lipton publication by Mr. Lipton and Mr. Niles. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here).

  • TSR comparison to peer group and S&P 500 continues to be a key factor in ISS evaluation.
  • CAGR comparison to peer group continues as a key factor.
  • Disparaging a well-known, successful activist with a history of long-term investment is a negative factor.
  • Limited director experience in the company’s industry is a negative factor.
  • Generally, and especially when faced with a possible proxy contest, it is advisable to have more than one director with industry experience.
  • Board history in dealing with business downturns and management failures is a factor.
  • Board failure to have considered external CEO candidates after a management failure is a factor.
  • That a successful new CEO is not criticized by the activist, does not overcome past board failures to deal with operational and strategic deficiencies.
  • Board should be open to considering changes in strategy even if it has recently approved changes.
  • An activist seeking one seat on the board and taking the position that it will seek to restore to the board the displaced director is a factor.
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