Issuers see former directors take on activist role

Outside of campaigns where former executives are brought forward as nominees, such as Trian Partners’ slate for Walt Disney featuring the media giant’s former chief financial officer Jay Rasulo, U.S.-headquartered companies have seen a considerable increase in campaigns directly led by former affiliates, with seven such advances recorded in 2023, compared to four in 2022.

Europe-based insider campaigns doubled from three to six in the same period, with most demands by former executives and directors focused on refreshing the board.

A heightened level of emotion

The preexisting relationship between the company and the activist in such campaigns can present a unique challenge, with the potential for heightened levels of emotion serving as a distraction from the core business critique that should take center stage, as Lauren Gojkovich, founder and managing member of LDG Advisory, told Diligent Market Intelligence (DMI).

“In a contested situation when both sides are trying to make their case for change resonate across the rest of the shareholder base, introducing that extra dynamic of preexisting history and attendant emotion can make the already-challenging decision-making process for the rest of the shareholder base more complicated,” she noted.

“I have decided, not without some emotion, to resign from my role as director,” announced François Fornieri, the founder and major shareholder of Belgian women’s health company Mithra Pharmaceuticals, in June 2022, as he stepped away from the company, citing personal reasons.

In the only successful move led by such non-traditional activists in Europe last year, Fornieri returned in October 2023 as part of a group of concerned shareholders. At a special meeting, he successfully removed four of Mithra’s directors while also appointing another former director, Jacques Platieau, to the company’s board.

The insider success rate

In contrast to their track record in Europe, former company affiliates targeting U.S.-based companies achieved their objectives in almost half of the campaigns brought forward in 2023.

One such campaign was advanced last March by Mark Tkach, a former chief operating officer and director at RumbleOn and former Executive Vice Chair William Coulter, with the pair controlling one-third of the U.S. pre-owned vehicle marketplace’s stock after selling their business, RideNow Powersports, to RumbleOn in 2021.

“We are entrepreneurs, not activist investors,” the duo stressed in their first March letter, while explaining their reasons to seek meaningful changes on the board in a bid to address an 80% decline in the share price. After a three-month campaign, which delivered various concessions along the way, Tkach was named interim CEO and Coulter was named as a board observer in a settlement inked just four weeks before company’s annual meeting.

In late October last year, U.S. medical imaging company Spectral AI’s top shareholder Erich Spangenberg, who had sat on the board for more than a decade until 2022, launched a campaign to bring back former CEO and co-founder Michael DiMaio, arguing he would bring a “much-needed dimension.”

Spangenberg, also a holder of 33% of shares at the time, was later appointed to the board himself to serve as chairman of two key board committees, with the company referencing his experience as a key resource. “We are pleased to welcome the return of Erich to the board of directors, where his experience, insights and network will be an invaluable resource for our company,” said Wensheng Fan, CEO of Spectral AI.

Reputations on the line

Companies tend to take a different approach to proxy defense when squaring off against a former affiliate. In one of the most divisive campaigns to emerge this season, Crown Castle has been facing off against its co-founder and former CEO Ted Miller, describing his board bid as self-serving.

Pointing to Miller’s departure from the board in August 2002, Crown Castle said its stock price had declined to approximately $1 per share. “The stock is now over 100 times above that price – an increase achieved while Mr. Miller had no role in the company’s operations or governance,” it asserted in a recently published preliminary proxy statement.

In the two-year period since 2022, issuers in Europe and the U.S. have managed to defend their boards against such activist advances on eight occasions, as well as successfully negotiating demand withdrawals in two cases, with many opting to focus on the dissident’s track record.

“Such fights often involve a higher degree of personal attacks. A company’s board and executives may typically point to the failures and problems that the business endured during the former affiliate’s tenure, questioning their track record,” asserted Rajeev Kumar, senior managing director of Georgeson.

As management teams prepare for proxy season, issuers are advised to focus investor messaging on their long-term vision and how they are going to drive shareholder returns.

“The investors don’t care about the personal conflict or the personal dynamics. They’re focused on the financials. They’re interested in what’s going to drive shareholder value over the long-term and why your side is the appropriate side to initiate the process to put that in place,” said Brian Valerio, senior vice president in the advisory group at Alliance Advisors.

In one of the 2024 proxy season’s most-watched campaigns, Disney employed such tactics in its dismissal of Trian Partners’ slate, which includes the media giant’s former Chief Financial Officer James Rasulo.

In its preliminary proxy statement, Disney asserted that Rasulo’s perspective on the company is “stale and not relevant to the challenges of today,” and that “an outdated perspective on the business would be damaging to the ongoing strategic transformation underway.”