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Best toolkit for Shareholder Activism: "Mediation."​

Updated: Jul 17, 2022

Essence of Shareholder activism

It's a challenge to the current management of a corporation. The goal varies but mostly replacing current board members or suggesting agenda that current board members are against.

A side effect of Activism

It costs money and, more importantly, preoccupies internal elite human resources to defend the company. So to protect itself, the board mobilizes the company's best resources, who otherwise generate the company's profits unless they mobilized for the defense. The company holds new investment until the end of the battle.

Autumn Wolf

Activists' works are more demanding as they need to break the wall. Siege warfare mostly makes attackers' warriors exhausted. The activist must convince other shareholders to back them in a proxy fight. This tends to play out in public media battles. Media specialists provide daily reports. Essentially every day under the war. This experience is worthwhile for the spring and summer wolves. However, somewhat lazy autumn wolf tends not to move unless they are confident in high return.

The highest shareholder return after Activism: settlement

McKinsey's report shows that the highest shareholder return comes from "Settlement," not "when Activist wins."

NDR: Negotiated Dispute Resolution

According to McKinsey's report, most campaigns begin collaboratively but turn hostile due to the absence of a mediation procedure.

Alternative Dispute Resolution is evolving into the realm of Negotiated Dispute Resolution, which is more effective, cost-efficient, and satisfactory for everyone other than dispute lawyers (as successful mediation carnivals lucrative litigation or arbitration lawyer's income). The best settlement resolution is the inclusion of the mediation clause in the company's AOI.

"A company's organizational documents should adopt a mediation clause for shareholders to invoke if they wish to take an active role within the company. This would create an opportunity for discussion, and ideally, avoid proxy battles." - Juliana Bleiberg, "Activist Investors and Mediation," 18 Cardozo J. Conflict Resol. 857 (2017).

Forum shopping for Mediation

There are many mediation centers in the world. For example, Korea has Korea International Mediation Center. For the combat between Korean activists and Korean companies, KIMC would be the default forum. However, the more critical issue is which forum has the best mediator as their pannel. The same rule applies when the company chooses a law firm, "select the best lawyer, not the best firm." Choose the mediation center which has the most suitable mediator in their pool.

A mediator, who has industry experience, has handled many shareholder disputes and proxy fights, and can understand the offender and defender's needs, is the best suit. But unfortunately, it's hard to find within Korea to the best extent of my knowledge other than D. K. his profile and recommendations prove this.

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