Case Studies – Alliance Advisors

Case Study: Insurance Company Under Attack by a Serial Activist.

Nick Thomas — Mon, 08 Jul 2024 14:30:04 +0000

Assignment and Challenges

A $70 million market capitalization insurance company was surprised to find a serial activist investor, disclosed ownership of 9.5% of the Company’s outstanding common stock. The activist announced that it believed the Company’s management had done an ineffective job of maximizing shareholder value.

Four months later the activist’s stake increased to approximately 10% of the shares outstanding and they confirmed their desire to effectuate change at the Company. To this end, the activist filed a proxy statement nominating its managing member for election as a director at the Company’s Annual Meeting. Moreover, the activist urged the Company’s shareholders to vote against the Company’s advisory vote to approve the compensation of the Company’s named executive officers (Say-on-Pay).

The Company opposed the activist’s nomination and the Board unanimously recommended that shareholders vote “FOR” the election of the company’s director nominees because the Board did not believe the activist possessed experience and expertise that would be additive as a director. As such, the Board maintained that the election of the activist would not be in the best interests of all shareholders.

Alliance Advisors was called in to help turn back the activist and approve the Shareholder Meeting agenda.

Solution

Alliance Advisors utilized its broad suite of services to create a streamlined process for ensuring a successful outcome. Alliance’s activism advisory team provides companies with the guidance and support required to confidently navigate any activist scenario. The team consists of professionals with expertise in the following key areas which were all critical to this situation:

Ownership Intelligence: Our OI specialists provided accurate and actionable analysis of the Company’s institutional & retail shareholder base. Using our proprietary database, we can identify institutions behind the custodians with 96% + accuracy.

Shareholder Meeting Advisory: Our Activism Advisory team provided commentary on solicitation materials, investor messaging, to ensure that stakeholders would easily digest the Company’s communications and support the Board’s recommendations.

We prepared and guided the Company in the lead up to, and throughout, the solicitation period ensuring that executives and the Board were aware of key milestones, action items, and shareholder votes.

Proxy Logistics: Once the communications and shareholder meeting materials were finalized our team coordinated the composition, typesetting, printing mailing and filing of documents. By keeping these functions in house, we can complete them faster than traditional suppliers such as Broadridge.

Shareholder Engagement/Corporate Governance: Using data from OI we worked to identify how many shares the activist could anticipate support from, before contacting institutional investors to secure their support for management. The Alliance Advisors team then leveraged its extensive relationship with stewardship teams and PMs at institutional investors and the proxy advisory firms to secure support from influential asset managers.

Retail Outreach: We contact registered and NOBO shareholders to secure votes for management. These shareholders overwhelmingly support management and frequently these votes can tip the vote for management in a close contest.

Results

Despite the activist’s efforts, the Company received strong shareholder support at its Annual Meeting and can now focus on key business objectives.

The voting results speak for themselves and demonstrate strong shareholder support for the Company’s agenda. Each Company nominated director received support from at least 96% of shares cast and over 96% of shares cast voted FOR Say-on-Pay. The sheer volume of supportive voting further illustrates the Company’s 2024 Annual Meeting voting success – over 56% of shares outstanding voted FOR each of the Company’s proposals which meant that despite the prolonged contested solicitation, the Company achieved quorum on its own card without adjourning the meeting or having to rely on any voting from the dissident.

Case Study: Compensation 101 – Pay for Performance applies to service providers as well.

Nick Thomas — Wed, 19 Jun 2024 18:56:59 +0000

Introduction

When it is time for a corporate issuer to ask shareholders for a new equity plan or to increase the available shares under an existing plan one of the first things they think about is “how many shares will ISS support.” The next step for many companies is to pay ISS Corporate (formerly ICS), the corporate consulting arm of ISS, to determine how many shares the proxy advisory firm will support.

This is not always the best approach since ISS Corporate will only give you a view of the shares that follow ISS recommendations and not a 360-degree view of all your shareholders. The Case Study that follows serves as a cautionary tale to consider before signing up with ISS Corporate.

Assignment and Challenges

Our client is a 7 billion market capitalization financial services firm with over 90 percent of its outstanding shares held by institutional investors. Well before the proxy was filed our client paid and worked with ISS Corporate to arrive at a share number that ISS would support. The proxy was filed in the early spring of this year and our client felt confident that with the ISS Corporate consulting work performed when structuring the plan proposal, the ISS research side would recommend for the equity plan proposal.

However, when ISS released its report, our client was shocked to find out that they were recommending against the share increase for the equity plan. Obviously, this caused a high level of frustration for our client and more importantly concern as to whether the plan proposal would pass a shareholder vote.

Solution

The ISS Corporate team was in black-out during this time would not assist. Springing into action Alliance Advisors analyzed our client’s shareholder base to determine how much impact the ISS recommendation would have. Next, we compared the equity plan’s quantitative and qualitative features to the policy guidelines of their shareholders. At this point it became clear to Alliance Advisors that there was a high probability that the plan proposal, with active solicitation, would overcome the negative ISS recommendation. We then determined exactly what institutions we needed to target to overcome negative votes from the ISS influenced shares.

Not leaving anything to chance, our client and our shareholder engagement team embarked on a shareholder outreach program to talk them through the plan. Our outreach program confirmed our research that most institutions did not have any concerns about the equity plan. We also targeted several shareholders that we knew were directly influenced by ISS and several of them disregarded ISS recommendations and voted with management.

Results

The equity plan proposal was approved by shareholders at the annual meeting with over 80 percent support.

Here are lessons learned from the above situation:

Analyze your shareholder base: This analysis will help you determine which or your shareholders are influenced by ISS, and how many have their own internal guidelines. This is the FIRST step a company should do before spending the money with ISS Corporate. You may find the ISS Corporate cost is counterproductive.
Take stock of your relationships with your shareholders: In the event ISS does recommend against your equity plan it will be important to know which of your ISS-influenced shareholders you might be able to engage with to override ISS.
ISS support is rarely critical to getting shareholder support for your equity plan, providing that you have done a proper analysis of your shareholder base and are conducting an active solicitation: While almost all plans that ISS recommends against pass a shareholder vote, companies should not leave anything to chance. Know where you are going to get the votes to overcome ISS-influenced shares that vote against and have your proxy solicitor go get them.
Hiring ISS Corporate guarantees you nothing but a large invoice. Too often we see issuers retaining ISS Corporate to assist with their compensation or governance needs which only takes the narrow ISS view. At Alliance Advisors our process is more comprehensive with data-driven intelligence that leads to consistently successful outcomes for all our clients.

At Alliance Advisors we take a 360-degree view and will account for all your investors voting policies. Although ISS can be an important part of the proxy we do not focus solely on them. Our process is comprehensive and backed with data driven intelligence that leads to consistently successful outcomes for all our clients.

Compensation 101 Pay for Performance

Case Study: Hong Kong Listed Company Experiencing Extraordinary Share Volatility

Nick Thomas — Thu, 29 Feb 2024 07:58:25 +0000

Assignment and Challenges

Our client, a Beijing headquartered financial service holding company retained Alliance Advisors to conduct an ownership intelligence analysis to determine the cause of extreme Hong Kong Share Volatility in their stock.

The company had a new IR team on board, and they wanted to get information on which institutions were the source of the unusual buying and selling activity. They asked Alliance Advisors to focus on two specific dates of extraordinary activity.

Results

Using our proprietary data base of institutional investors, Alliance Advisors were able to identify both the buyers and sellers in less than two weeks and were able to provide rolling updates based on custodial disclosure.

We were able to identify several institutional and broker accounts responsible for selling, and specific retail accounts connected to retail stockbrokers responsible for buying.

Armed with this Investor Intelligence, the companies’ IR team began engagement and outreach to specific shareholders. This information was critical to managing communications into the market.

Case Study: Amendment for Officer Exculpation. Shareholder Meeting Advisory, Institutional Investor Intelligence, Retail Outreach

Nick Thomas — Wed, 13 Sep 2023 08:17:59 +0000

Assignment and Challenges

A small cap biotechnology company was facing a shareholder vote to amend its certificate of incorporation to allow for officer exculpation provisions. There were two significant obstacles to passing this vote:

The vote requirement to pass the proposal was 2/3’s of the outstanding shares voting in favor. While this vote requirement is mathematically possible, from a practical standpoint this threshold is rarely achieved.
Complicating matters, Glass Lewis recommended voting against these proposals, so negative votes were present at the start of the solicitation from institutions that follow Glass Lewis recommendations.

Solution

Knowing that this vote would be a challenge, Alliance Advisors brought three internal teams to the solicitation: Shareholder Meeting Advisory, Institutional Investor Intelligence and Retail Outreach.

At the onset, our Institutional Investor team began identifying all of the financial institutions, custodial relationships, and beneficial shareholders present on the Non-Objecting Beneficial Owners (NOBO) list. Using our proprietary data, Alliance Advisors was able to precisely identify the underlying investors behind each custodian.

Once the institutional investors were identified, our shareholder engagement team began the outreach process to obtain voting instructions. Simultaneously, our Retail Outreach team began soliciting retail shareholders to facilitate telephone, text and email voting.

Both groups use a combination of our proprietary text-to-vote, email-to-vote and live telephone voting platforms. These technologies are designed to allow us to gather votes from both the institutional and retail shares, down to the smallest shareholder.

Results

Despite 7% of the outstanding shares voting against the proposal, Alliance Advisors was able to successfully deliver the required vote. A quorum of 84% of the outstanding shares was achieved with 67% of the outstanding shares voting in favor of the Officer Exculpation Amendment. By designing a campaign that focused on maximizing participation from both institutional and retail shareholders, Alliance Advisors was able to deliver an exceptionally high quorum to overcome the negative votes.

Case study: Say on Pay – Stock Option Plan

Nick Thomas — Tue, 29 Aug 2023 09:21:56 +0000

Assignment and Challenges

In 2022, in its first year as a public company SPCE struggled to get enough votes for its shareholder meeting and the vote came in only two days before the meeting date.

SPCE in 2023 was facing a difficult vote on proposals for Say on Pay and a vote to approve the company’s stock option plan. To add another layer of difficulty the shareholder base is skewed towards retail holders who are notoriously apathetic voters.

Solution

Alliance Advisors designed a 4-phase, year-round Shareholder Engagement program designed to take the guess work out of the shareholder meeting process.

Phase 1: Post-Shareholder Meeting Engagement. This phase starts as a postmortem on the 2022 meeting. We analyze who the largest institution and retail shareholders are and compile stats on how they voted. This is followed by an outreach campaign to position the company in front of and communicating with its largest shareholders. The data collected from Phase 1 allows Alliance Advisors to project how compensation proposals will be received for the next shareholder meeting, before they are put before shareholders.

Phase 2: Proxy Logistics. This is a single source solution that allowed the company to rid themselves of details such as regulatory filings, printing meeting documents, arranging for distribution of materials and set up for a Virtual Meeting.

Phase 3: Shareholder Meeting Advisory. In this phase we coordinate outreach to institutions including setting up calls, preparing management to dialogue with institutions. We provide investor dossiers, identify proxy advisory firms (ISS/Glass Lewis) influence on voting decisions, and coordinate investor follow up.

Phase 4: Retail Outreach. Since SPCE has a significant percentage of its shares held in retail hands we use proprietary technology to reach registered and NOBO investors. We gather votes on digital voting platforms via phone campaigns, emails and text messages.

Results

Despite some institutions choosing to not support the Say on Pay proposal, Alliance Advisors strategy of coordinated solicitation across the entire shareholder base worked. All proposals passed by a majority vote.

Case Study: Previously, Failed Say on Pay Proposal Compensation Advisory, Shareholder Meeting Advisory

Nick Thomas — Thu, 29 Jun 2023 09:39:37 +0000

Assignment and Challenges

Compensation advisory case study
Our client is a NYSE $2 billion market cap company that provides engineered products, industrial technologies, and solutions in the United States and internationally. Institutions owned over 90% of the outstanding shares. Prior to becoming an Alliance Advisors client, this issuer failed Say on Pay in 2022. Alliance Advisors was retained to advise the client on matters related to the failed vote and how to respond successfully for their 2023 annual meeting.

Solution

Alliance Advisors provided commentary and guidance on the proxy statement, with a particular focus on disclosure regarding the response to the failed Say on Pay vote in 2022.
We prepared vote projections under various scenarios including voting on directors on the Compensation & Management Development Committee and on the Say on Pay proposal.
Our Corporate Governance team provided background information and outreach efforts on the top 50 institutions. This included setting up calls with the appropriate contacts at each institution.
We provided advice and guidance after ISS recommended voting against Compensation & Management Development Committee members and voting against the Say on Pay proposal. We worked with our client to draft a response to the ISS recommendations and submitted the response to ISS on our client’s behalf.

Results

After filing the company’s response. ISS reversed its against recommendations and recommended that shareholders support all directors and Say on Pay.

In addition, all directors were elected with over 95% of the shares voted, and over 75% of the shares voted in favor of the Say on Pay proposal.

Alliance Advisors is now working with the client in preparation for the 2024 annual meeting including arranging off-season institutional outreach and assisting in drafting of ESG disclosure.

Case Study: EGM – Shareholder Engagement

Nick Thomas — Fri, 16 Jun 2023 07:43:49 +0000

Assignment and Challenges

Our client is a $29 billion market cap APAC traded company that retained us to ensure passage of a proposal to approve the sale of a subsidiary. Alliance Advisors was hired after the circular/proxy statement was filed and after ISS had recommended a vote against the sale. The proposed sale of the subsidiary was to a controlling shareholder at a substantial discount to market. In addition, the sale was not shopped to any other buyers and needed 75 % of those voting to vote in favor.

Upon publication of the ISS Research proxy report with an AGAINST Recommendation, millions of votes against the merger are immediately/automatically cast.

Solution

The company hired Alliance Advisors two weeks prior to Proxy Report Release to devise a Shareholder Engagement solicitation. Alliance Advisors started with Register analysis to determine our strongest points of influence. We then created a narrative supporting the merger with strategic rationale and valuation being the cornerstones of our case.

Our shareholder engagement strategy included proxy report rebuttal and live meetings with key stakeholders. Virtually all these firms and institutional shareholders responded positively to our requests for engagement.

Results

Our Engagement results were successful. Alliance Advisors flipped dissenting votes to the extent that the final FOR percentage was 94.77%

Case Study: Remuneration Proposal. Shareholder Meeting Advisory – Shareholder Engagement

Nick Thomas — Fri, 16 Jun 2023 07:17:47 +0000

Assignment and Challenges

Shareholder meeting advisory
Our client is a Fintech, $1.6 billion market cap company listed on the London Stock Exchange (LSE), headquartered in Israel. Alliance Advisors was hired to ensure the passage of a management remuneration proposal. The company had faced corporate governance issues in the past on matters that were acceptable in its home market but in conflict with market practices for LSE-listed companies.

The company was expecting negative recommendations from proxy advisors and retained Alliance Advisors to guide them through the process.

Solution

Alliance Advisors designed a shareholder engagement program focused on key institutional investors and proxy advisors. Our program focused on the positive steps the company had taken to bring the company’s policies in line with LSE guidelines. Alliance Advisors was able to position the company in front of proxy advisors and institutional investors before they issued their vote recommendations thus heading off negative vote recommendations.

Results

All matters put before shareholders passed even though not all investors supported management. As part of the strategy, Alliance Advisors conducted a broad solicitation to overcome the negative voting which resulted in higher voter participation than in previous years.

Case Study: Activism

Sam Chandoha — Fri, 16 Jun 2023 07:07:23 +0000

Assignment and Challenges

South Korean consumer products company
This $7 billion market cap South Korean traded consumer products company was under attack from an activist. The activist had acquired a substantial stake in the company and was demanding the company triple the dividend payout and elect 2 new directors. To complicate matters, more than 45 % of the company’s outstanding shares was in the hands of foreign shareholders. It was projected that the activist could win because these shares were likely to vote against management and with the activist.

Solution

Alliance Advisors mobilized a shareholder engagement strategy that was designed to maximize the “friendly” votes or South Korean based shareholders to side with management. In addition, proxy advisors and foreign based shareholders were part of the shareholder engagement process.

Results

All of managements proposals were approved by shareholders and all the activist proposals were defeated.

Case Study: Reverse Split, Retail Outreach

Nick Thomas — Thu, 04 May 2023 07:47:22 +0000

Assignment and Challenges

The company was facing a vote to approve a reverse split which required an affirmative vote of majority of the outstanding shares. The company was facing a possible delisting because the stock price was in danger of falling below $1.00. With the meeting date passed and at the end of the first adjournment, the company had only 39% of the voting in favor.

The company was facing a difficult challenge with the responsiveness from shareholders. The declining stock price created an apathetic sentiment with a shareholder base largely held by retail shareholders, who are notoriously apathetic voters.

Solution

The company hired Alliance Advisors to take over the proxy solicitation from the original proxy solicitor at the onset of the 2nd adjournment period. Alliance Advisors analyzed the shareholder base and found a heavy concentration of retail shareholders, including non-US based shareholders.

Alliance Advisors designed and Retail Outreach Program that consisted of the following, but not limited to:

Priority mailings to the largest shareholders urging them to contact us to vote their shares.
Targeted calls to unvoted Non Objecting Beneficial (NOBO) shareholders urging them to vote over the phone with our operators.
Email messages to shareholders providing them with instructions on how to vote by email.
Text messages to facilitate vote by cell phone.
“Telegram” styled messages for international shareholders encouraging them to vote electronically.
Pre-recorded messages from the CEO explaining the benefits of voting FOR management’s proposals.

Results

Alliance Advisors delivered a majority of the outstanding vote by the final adjournment period. By Alliance Advisors delivering the vote on time the company did not have to undertake a costly process of a completely new shareholder meeting.