Earlier this year, the fierce battle proxy contest at Air Products ended with activist investor Mantle Ridge organizing the company's legendary CEO, Seifi Ghasemi. The results were impressive. It wasn't just for the change in leadership, but also for the way it unfolded. The 82-year-old Gasemi himself became CEO 10 years ago after Mantle Ridge founder Paul Hilal supported him in a previous proxy contest. This year, a campaign of thoughtful critique focused on addressing successive concerns resonating with shareholder bases, offering alternative strategic visions, different capital allocation priorities.
The three takeaways for the board and management team are as follows:
1. Choose your battle carefully and know when to fight. Not all activists are the same. Many well-known activist campaigns have failed in recent years, including inflicting a broader pattern of formerly listened activist investors, such as fighting in Disney, Salesforce and Norfolk Southern. However, the board must remember that not all activist campaigns are equally vulnerable to defeat.
In this proxy fight, the board may have helped to remember that widely praised and worthy investors, Hilal, never lost the fight. In line with his regular approach, Hillal tried to get the aviation products to be constructively engaged, but relied solely on the fight of proxy as a last resort when rejected by the board.
The board may also benefit from listening to the philosophy that it is never too late to settle. In contrast to other activists who ran a macho campaign filled with advertising hominem slander, who presented a true strategic case of change that resonates with shareholders, who barely understands the underlying businesses that marginalize shareholders. However, the company chose to stubbornly dig deep despite adequate warning signs.
2. Fit your strategy with your shareholder base and listen to your capital allocation priorities. Ghasemi's decades of success victory record solidified his position as a genuine business legend that his peers respected, allowing his bold bet to invest heavily in clean hydrogen, which he believed was the future of the company.
The strategy may prove to be foresightful, but it clearly outperformed the appetites of the tense and frustrating shareholder bases as peer companies spiked past air products with relative performance. Perhaps the board could have reminded us that unlike other companies whose managers are isolated from shareholder blowbacks on large shareholder bets, thanks to dual-class stocks or founder control, AIR Products' shareholder base consists of passive and retail investors worried about this capital allocation course. Some of these shareholders could have been won if they had more aggressive engagement and communication with them. Instead, Mantle Ridge came in with a thoughtful, savvy alternative strategic roadmap based on Peer Company's Linde roadmap to proven success.
3. Communicate with shareholders and actively address concerns as issues of good governance. With the board, there is no such thing as too much aggressive and preemptive communication with key shareholders. For example, given Ghasemi's age, in a highly contested issue of inheritance, aviation products were perceived as too little, too late by many shareholders, whether right or wrong. The company waited until a few days before the votes were scheduled to lay out a timetable for solid succession. If the same announcement was made for weeks, if not months, then they suspect activists might have fought a proxy fight.
Activists don't have all the same style, impact, or time frame. Investor trust in management's goodwill requires continuous constructive development, as aviation products have learned the difficult methods, even when they have been fixed in collaboration with activists in the past.
