The Activist Investor Blog
The Activist Investor Blog
Consent Solicitations - Director Elections Without an Annual Meeting
Consent solicitations are one of those things portfolio managers see frequently in corp gov stuff, but don’t always understand. They come up in governance scoring systems, and sometimes in annual meeting resolutions. To many people, they sort of fall within the morass of other arcane governance terms and concepts, like lead independent director, majority voting and exempt solicitations.
That’s too bad, because in many instances a consent solicitation can allow an investor to do all sorts of things at an underperforming company that they otherwise would need to wait months or even years to accomplish.
About 30% of US corporations allow some form of an consent solicitation. And, oddly enough Delaware has some of the most permissive rules around consent solicitations, unusual for a state that has favored corporations over shareholders in many other ways.
Act Without an Annual Meeting
Of course, companies typically conduct shareholder business at annual meetings. There, shareholders elect directors, ratify auditors, amend bylaws, approve compensation plans, and vote on various resolutions.
Suppose you want to take one or another of those actions, like elect some directors, but don’t want to wait for the next annual meeting? You could request a special meeting of shareholders, which for an activist investor can be difficult.
At that 30% of companies that allow it, investors can elect those directors without waiting for an annual meeting. Instead, they agree on the new directors, and then notify the company of their decision. It’s rather like a virtual shareholder meeting, except it happens in writing instead of in person. Investors consent to the stated action - you solicit the consent of other shareholders for that action - hence, consent solicitation. Since shareholders grant that consent in writing, we activism junkies frequently refer to the process as action by written consent.
Similar to our resources for exempt solicitation, we now have two resources on consent solicitation:
1.We’ve put together a guide to the mechanics of consent solicitations. It discusses the applicable regulations and explains the structure and timing of the process. We also include a checklist for using the exemption.
2.We illustrate how consent solicitation works in a case study. Last year, a notable activist hedge fund restructured the BoD at The Wet Seal just two months after an annual meeting.
Of course, consent solicitations won’t work everywhere. But, where they do work, they can work very, very well.
Tuesday, September 24, 2013