Ele Klein and Aneliya S. Crawford are partners at Schulte Roth & Zabel LLP. This post is based on their Schulte Roth memorandum. Related research from the Program on Corporate Governance includes Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here).
No area is immune from the effects of the current COVID-19 crisis, including shareholder activism. For shareholders contemplating or already conducting an activist type campaign at a company, COVID-19 leads to logistical impediments and shifts in timing and strategy, but, importantly, also creates opportunities for savvy investors.
Practical Impediments in Director Nominations
At this time of the proxy season, many investors are submitting director nominations for election to the boards of directors of target companies. Currently, shareholders are experiencing practical impediments, mostly stemming from brokers and banks operating at reduced capacity. For example, some of the nation’s largest brokers are warning that transferring shares from a brokerage account into record name to be eligible to nominate a director may take a number of weeks. Alternative processes that we have used in the past to avoid these problems are also expected to take at least as long. (For context, these logistical steps ordinarily take 2 to 3 business days in regular markets.)
In addition to share ownership issues, director nominees themselves are often working remotely and requiring more time to complete relevant documentation. These delays can be further compounded, where nominees must secure approvals from other companies or their employers in order to be a nominee.