Blogs

In this new article: "Clear Eyes Provide Boards with Better Vision - Insights into Activist Investors’ Approaches to Targeting Boards," Russell Reynolds shares its seasoned insights and an analytical framework to help companies determine whether a board composition-focused activist will seek to influence board decision-making by either: (i) expanding the current board, or (ii) targeting specific directors for replacement - and, if the latter, which incumbent directors are most likely to be targeted.  

The firm identifies series of indicators most commonly associated with a board expansion vs. director replacement activist agenda - some of which are more easily, immediately controllable by the board /management (e.g., substance and timing of responsiveness to the activist's approach), as well as additional factors directors should consider in a potential board expansion scenario. 

Identifying which directors will most likely be targeted for replacement entails a director-by-director review of perceived value creation-related factors specific to the target company and other boards on which the target company directors serve, along with each director's governance profile and - for better or worse - information about each director that may be floating about in the press. 

The firm's director replacement "self-analysis" framework is depicted here:

On an overall basis, while the guidance doesn't pretend to resolve each company's issues that are triggering unwanted activist attention, it facilitates a better understanding of - and state of preparedness for - board composition-focused activism, and identifies particular factors that boards can influence or control to potentially steer or re-direct an activist's approach.